During the course of my profession, I come across quite a few Non Resident Indians who are quite clueless about the tax treatment of their Indian investments and income and whether they have to file returns in India too. This article is for them.
Who is a Non Resident Indian?
An individual is considered a Non Resident Indian in a particular financial year if he does not satisfy one the following two conditions which are required to be a resident of India-
Stays in India for 182 days or more in the previous year.
Stays for at least 60 days in the previous year and for 365 days or more in the preceeding four years.
Taxable Income (Indian Income)
Only the income which is earned, received or accrued in India is taxable here. Income which is earned outside the country, even if it is later remitted to India is non-taxable. The following are some examples of taxable income-
- Income earned from any property or transfer of property/capital asset in India.
- Dividend paid by an Indian company outside India is deemed to be accrued in India.
- Salary paid by the Indian Govt. to an Indian citizen for services rendered abroad is deemed to have accrued in India.
- Interest, royalty and dividends, professional fees paid by the Govt. of India, even if it is paid outside India.
Exempt Indian Income
- Interest on Non Resident External (NRE) A/c.
- Taxable Income up to the basic threshold limit specified for NRIs by Income Tax authorities. For the financial year 2012-2013, it is Rs. 2,00,000/-.
- Interest on notified securities or bonds.
Taxable Indian Income
- Short Term capital gains on investments in equity shares and mutual funds at flat 15 %.
- Long term capital gains at 20 %.
- Interest earned on Non Resident Ordinary (NRO) A/c.
- Special tax rates apply on dividends/interest and capital gains earned on units of mutual funds and shares purchased in foreign currency.
Filing Income Tax Returns
Filing of income tax returns becomes mandatory for a Non Resident Indian if his total taxable Indian income in a particular financial year exceeds the basic exemption limit. But if the NRI has earned short term or long term gains, filing returns is mandatory even if the amount is less than the exemption limit. It is advisable and more convenient for NRIs to obtain a digital signature and file their returns online.
Double Taxation Avoidance Agreement (DTAA)
The Double Taxation Avoidance Agreement is an agreement between India and certain foreign countries which states that if an NRI who is a resident of any of these specified foreign countries pays taxes on his income earned in the foreign country, then he or she is eligible for a lower rate of deduction of tax on income earned in India in that financial year. This lower tax help in encourage Non residents to invest in their country of origin.