Non-Resident Indians (commonly referred to as NRIs) are citizens of India or Persons of Indian origin who qualify as Non-Residents in India for the relevant year. As per Indian tax laws, a ‘Non-Resident’ is defined as an individual who was present in India for less than 60 days during the relevant year, and in case of Indian citizens who leave India (during the year) for the purpose of employment outside India, such limit to break Indian residency is replaced by 182 days. A citizen of India or a person of Indian origin who is outside India visits India in any year, he would be regarded as Non-Resident if his total stay is less than 182 days in the relevant tax year.
Tax benefits available to Non Residents under the Indian domestic tax laws and under the Double Tax Avoidance Agreements (DTAA),
For Non Resident employees coming to work in India:
As for any income arises for employment in India , there are certain reliefs available under the domestic tax laws and the DTAA. Personal income received outside India for such individuals (rent, interest etc) is not taxable in India.
For Non Resident employees leaving India to work outside India:
The compensation income received by non-resident Indians in a bank account overseas is not subject to tax in India. However, salary received in India is taxable under the Indian tax laws i.e. on a ‘receipt basis’. An exemption may again be claimed under the Dependent Personal Services (DPS) clause of the DTAA entered between India and the relevant host country, if the individual qualifies as a resident in the host country.
Apart from the above, foreign tax credits may also be claimed by NRIs overseas in respect of incomes taxed both in the home as well as host jurisdictions, in accordance with the rules prescribed under the domestic tax laws and DTAA. It is pertinent to note that in case an Non Resident intends to avail any of the tax benefits provided under a DTAA, a Tax Residency Certificate needs to be applied for and obtained in respect of each of the tax year(s) for which such benefit is claimed. Such certificate is required to be issued by the country where the individual breaks residency.
An important point to note is that, Indian sourced income in the form of interest on deposits, rental income on property in India etc. shall however continue to be taxed in India (as per domestic tax laws) and the exemptions available under the domestic tax laws (except any specifically not applicable to NRIs) such as Section 80C with respect to certain investments, payment of principal on housing loan etc., may continued to be availed by them. Further, a non-resident individual, whose income during the tax year comprises only of investment income or income by way of long-term capital gains or both, does not necessarily need to file an income tax return in India. Also, a return is not required if the necessary tax has already been deducted at source from such income.
Under provisions of Indian tax laws wherein NRIs can opt for special tax rates for specific investment incomes or capital gains from foreign exchange assets. Further, the interest earned by an NRI on his NRE bank account etc is tax free subject to certain conditions.
DTAA Double Tax Avoidance Agreements
NRI Non Resident of Indian
NRE Non Resident External Account
DPS Dependent Personal Services