Indians emigrate every year in great numbers. It may be for higher education, plush jobs, better lifestyle – but fact is, that permanent settlement is what many settle for. Goals are achieved, dreams become a reality that push them to reach out to success.
There are huge monetary gains. Indians working abroad earn in foreign currency, but at the same time, they may have some investments, deposits and properties that earn income back in India. Hence, the question of filing taxes in India comes up.
Residential status of a tax player is important
It is essential to determine the residential status of a taxpayer, for the purpose of tax liability in India. In case of a resident taxpayer, all his income would be taxable in India irrespective of the fact that income is earned or has accrued to the taxpayer outside India. However, in case of a non-resident Indian, income which accrues or arises outside India would not be taxable in India.
Every year by 31st July, NRIs too need to file Income Tax returns. Like other Indian citizens, NRIs may be taxed and they can also enjoy the rebates and deductions provided for under Section 80 of the Income Tax Act. Thus, tax deductions can be claimed by NRIs for student loans, charitable donations etc.
Plan for savings
NRIs can plan for savings. Investigating wisely can bring in savings,
- Investing in mediclaims, life insurance policies, tax-saving mutual funds, etc – can save their income from taxation. Most of the tax-saving deductions under section 80 are also available to NRIs. For FY 2016-17, a maximum deduction of upto Rs.1,50,000 is allowed under section 80C from gross total income for an individual.
- There are facilities for Double Tax Avoidance Agreements (DTAAs), in addition to the above, so that the NRI can avoid paying dual taxes – both in the country of residence and also in their homeland – India. Such tax benefits can be availed of under a DTAA, provided the NRI is able to present a Tax Residency Certificate issued by the country in which the individual breaks his residency.
- NRIs could also look for special tax rates under Indian tax laws for their investments in – shares, debentures or deposits with a non-private Indian company, government security, etc. which were acquired with or in convertible foreign exchange. In such case, the long-term capital gain will be taxed at 10% and any other investment income will be taxable at 20%.
- The NRI can continue to avail of these special rates even after becoming a resident of India. This can be done by filing a declaration with the tax returns of the year in which s/he becomes resident in India. This benefit can continue till the asset is transferred or converted in money.
- Further, an NRI may also be exempted from filing tax return, if the total income for the year consists of only investment income or long-term gain from such specified assets.
An awareness of the finer permutations possible under tax laws is essential for NRIs to plan their income and investments carefully. For, only then can they gain maximum benefits. Plus, they need not be under the burden of dual taxation in both countries.