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Tax saving options for Non-residents Indians

The Income Tax Act, 1961 defines a non-resident Indian as an individual, being a citizen of India or a person of Indian origin, who is not a resident. A person is of Indian origin if he or either of his Indian parents or any of his grandparents was born in undivided India.

Over the years, the number of Indians moving abroad has been increasing steadily. People leave the country for better prospects of work or study, or even on business and holiday. Many of the people who go abroad maintain bank accounts in India to either invest here or save money here or just for ease of transactions to and fro. But if you are a Non Resident Indian (NRI) with a bank account in the country, it is advisable that you are aware of all the existing tax rules as far as NRIs are concerned.

Even if you are a Non-Resident Indian, you are liable to pay tax for any income that is earned or accrued in India. This is irrespective of whether the income is directly or indirectly received by the Non-Resident Indian in India or is accrued or deemed to have been accrued in India as far as the laws are concerned. A Non-Resident Indian will have to pay tax for any income from business transactions and also income generated from assets and investments in India.

The major difference between tax paid by a resident Indian and a Non-Resident Indian is that the latter only has to pay tax for his 'Indian Income' and his foreign income, that is income earned and accrued abroad, is completely exempted from tax in Income India.

It is important to note that Indian Income is income that accrues /arises (or is deemed to accrue/ arise in India) or which is received (or deemed to have been received) in India, though it might have accrued/risen elsewhere. Foreign Income is that which accrues or arises (or deemed to accrue or arise) outside India AND received (or deemed to be received) outside India.

Tax Free Income for Non-residents Indians

Non-residents Indians are granted certain tax exemptions if they are defined as or fulfill the criteria of Non-Resident Indian under the Income Tax Act, 1961. These tax free incomes available to Non-Resident Indians are: Interest earned on Savings Certificate, Interest earned on Non Resident (Non Repatriable) [NRNR] Deposit, Interest earned on Foreign Currency Non Resident (Bank) [FCNR(B)] Deposit, Overseas income of NRIs, Dividend income from Indian Public/Private Company, Indian Mutual Fund and from Unit Trust of India, Long-term capital gains arising on transfer of equity shares traded on recognized Stock Exchange and units of equity schemes of Mutual Fund is exempt from tax at par with residents, Remuneration or fee received by non-resident / non-citizen / citizen but not ordinarily resident 'consultants', for rending technical consultancy in India under approved programme including remuneration of their employees, and income of their family members which accrue or arise outside India, Interest on notified bonds.

Various Deductions for Non-residents Indians

There are several tax saving options available for Non-Resident Indians.  Non-Resident Indians are allowed the following deductions under Income Tax Act, 1961:

a. Home Loan Interest Deduction: Non-residents Indians are eligible to avail deductions on home loan interest for the interest portion of the EMI paid towards the repayment of home loans.

b. Savings Deduction: From the various tax saving avenues available to the general public - Equity instruments like ELSS, Debt instruments like PPF, National Savings Certificate, Bank FDs etc and Life Insurance and Pension Plans, Non-residents Indians are not allowed the following investments:

i.) Non-residents Indians not allowed to open a PPF account. An existing PPF account can be continued till maturity.

ii.) Non-residents Indians are also barred from investing in National Saving Certificates (NSC), Senior Citizens Savings Scheme (SCSS) and Post Office Time Deposits (POTD). Existing investments (i.e., those that were purchased before becoming an NRI) can be continued till maturity.

c. Health Insurance Premium Deduction

Non-residents Indians can also claim deduction for premium paid on mediclaim / health insurance policy of self and family (Rs 15,000 / Rs 20,000 as the case may be) and another Rs 15,000 (Rs 20,000 if either of parents is a senior citizen) premium paid to insure the health of parents.

d. Other Deductions

There are many other deductions available to resident Indians - Health Insurance Premium, Medical treatment of disabled dependent, Medical treatment of certain specified ailments,  Deduction for Handicapped person, Educational loan, Deduction for Donations and Rent paid. NRIs qualify for these deductions:

i) Deduction for interest paid on educational loan

ii) Deduction for certain specified donations

Deduction for Medical treatment of disabled dependent, Deduction for Medical treatment of certain specified ailments, and Deduction for Handicapped person are not available for Non-residents Indians.

 

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