Understanding NRI income tax rules
Non-resident Indians (NRIs) are taxed on income earned or collected in India. This could be from sources like property rent, share dividends, and investment and savings capital gains, if over a specified limit. Income earned outside India is not taxable in India.
You must be aware of the income tax rules and provisions for NRIs to avoid unnecessary penalties.
Determine your residential status
Figure out what your taxable income will be
Claim double taxation relief, if you qualify
Determine your residential status
Your residential status is crucial and will dictate your tax liability.
Who is a resident?
You are a 'resident' of India (for tax purposes) if:
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You stayed in India for 182 days or more during the financial year; or
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You stayed in India for at least 60 days during the financial year, and at least 365 days in the preceding four financial years
Where an Indian citizen leaves India in any year for the purpose of employment, or as a member of a crew of an Indian merchant ship, the period of 60 days is to be replaced by 182 days.
Similarly, when an Indian citizen or a person of Indian origin (PIO) who is abroad comes to visit India, the period of 60 days is to be replaced by 182 days. Further, if an Indian citizen or PIO has a total income of more than INR15 lakh (other than income from foreign sources) in the financial year, the period of 60 days will be replaced by 120 days.
Learn more: How to send money abroad from India
An Indian citizen or PIO, having total income of more than INR15 lakh (other than income from foreign sources) in a financial year and not liable to pay tax in any other country, would be deemed a resident in India, irrespective of the number of days spent in India.
You are a 'resident but not ordinarily resident' if:
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You stayed in India for 729 days or less during the preceding 7 financial years; or
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You're a non-resident in 9 out of 10 preceding financial years; or
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You're an Indian citizen or PIO having total income exceeding INR15 lakh in a financial year and stayed in India for 120 days or more but less than 182 days
You are a 'non-resident' in India if:
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Any of the above stated conditions are not met
Apply for an NRI account
HSBC India offers digital accounts to non-resident Indians. Let us help you open an account quickly and easily.
Figure out what your taxable income will be
As a non-resident, only your earnings made in India (and not your income sourced from outside India) would be taxable. The following types of incomes, among others, may fall under this category:
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Salary received for services provided in India
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Salary received in India
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Rental income from property owned in India
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Capital gains earned on the transfer of assets located in India
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Revenue from Fixed Deposits
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Interest on bank savings accounts
The income tax slabs for NRIs are based on their income and are the same for both men and women across age groups.
Salary income - Salary income is taxable in India at slab rates.
Rental income - Rental income is taxable at slab rates. An NRI can claim 30% standard deduction on rental income and deduction of municipal taxes paid.
Capital gains tax - NRI capital gains are taxable at 12.5% or 20% slab rates (plus applicable surcharge and cess), depending upon the nature of the capital asset and period of holding.
How to pay your taxes through HSBC
See our step-by-step guide to make your online income tax payment directly from your HSBC account, safely and securely.
Understand special tax rates
The Income Tax Act, 1961 (IT Act) prescribes tax rates for various types of investment income of non-residents. Here are some examples:
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Royalties and fees for technical services (provided income is not attributable to a permanent establishment in India) from an Indian concern or the government are taxed at 20% (plus applicable surcharge and cess).
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Dividends are taxed at 20% (plus applicable surcharge and cess).
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Interest received from the government or an Indian concern on monies borrowed or debt incurred in foreign currency is taxed at 20% (plus applicable surcharge and cess).
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Interest received from a notified Infrastructure Debt Fund is taxed at 5% (plus applicable surcharge and cess).
Claim double taxation relief, if you qualify
The Double Taxation Avoidance Agreement (DTAA) between countries can help NRIs can avoid double taxation on their income. They can do this when they claim tax relief by 2 methods:
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Exemption method: Under this method exemption can be claimed from paying taxes in any one country, i.e. either the residence or source country, subject to certain conditions.
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Tax credit: Credit of tax paid is claimed in the country where the NRI resides.
To claim treaty benefits, the non-resident taxpayer must provide the Tax Residency Certificate, which proves their residence outside India, and other prescribed documents.
Enjoy income tax exemptions
According to income tax rules for NRIs, you can enjoy tax exemptions on the following income types:
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Interest from a foreign currency non-resident rupee (FCNR) account or non-resident external (NRE) account
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Interest on 'NRI Bonds 1988' and 'NRI Bonds' (Second Series), issued by SBI purchased in foreign exchange
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Interest on FCY deposits placed with an offshore banking unit in an International Financial Service Centre
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Long-term capital gains to the extent of INR1.25 lakh from listed equity shares and equity-oriented mutual funds
Further, certain capital gain transactions are entitled to tax exemption subject to the following conditions being met:
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If capital gains arise out of the sale of any property other than a house, the exemption can be claimed on the construction or purchase of a new house, proportional to the sale proceeds spent on the new asset.
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Where the house property is held for more than 3 years and is subsequently sold, the proceeds received should be used to purchase or construct another house property within the given time frame. Exemption would be decided on the basis of investment of receipts.
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When long-term capital gains are invested in bonds issued by government authorities, like the National Highway Authority of India and Rural Electrification Corporation, within a period of 6 months, exemption could be claimed up to the total amount out of gains or a maximum of INR50 lakhs, whichever is lower in a financial year. Investment cannot be transferred before the end of 3 years.
Make tax deductions under Section 80
Investment deductions under Section 80C up to INR1.5 lakh
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Life Insurance premiumTax deduction shall be the actual amount of premium paid for their spouse or children in a financial year. The premium paid should also not be more than 10% of the sum assured.
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Tuition feesTuition fees paid to any school, college, university or other educational institution within India for the full-time education of any two children, are eligible for deduction.
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Investment in ELSS and ULIPSInvestment in Equity Linked Savings Scheme (ELSS) from mutual funds and Unit Linked Insurance Plans (ULIPs) are eligible for deduction.
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Repayment of loansRepayment of the loan taken for buying or constructing residential house property is eligible for deduction. You can also receive a deduction on the stamp duty and registration fees.
Deductions under Section 80D
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Health insurance for self, spouse or dependent childrenThe premium paid for this health insurance is deductible up to INR25,000, or up to INR50,000 for senior citizens.
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Health insurance of parentsThe premium is deductible up to INR25,000, or up to INR50,000 for senior citizens.
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Preventive health check-upAn additional deduction of up to INR5,000 are available on the charges paid for preventive health check-ups.
Deduction on interest paid on education loan under Section 80E
Interest paid on a higher education loan for the NRI, spouse, children, or a student for whom the NRI is a legal guardian is deductible, without any limit, for a maximum of 8 years.
Deductions under Section 80G
Deductions for donations made to eligible NGOs are allowed.
Deduction under Section 80TTA
Up to INR10,000 of interest earned on savings bank account is allowed as a deduction.
Calculate your tax rate
NRIs have the same tax slab rates as residents. Both NRIs and residents have the flexibility to choose between the old tax regime and the new tax regime slabs. Each option offers distinct advantages and understanding them can help you make an informed decision that aligns with your financial goals.
| Slab (INR) | Rate |
|---|---|
| Income up to INR2,50,000[@article-NRI-tax-60-to-80-years] | Nil |
| 2,50,001 to 5,00,000[@article-NRI-tax-over-80-years] | 5% |
| 5,00,001 to 10,00,000 | 20% |
| 10,00,001 and above | 30% |
| Slab (INR) | Income up to INR2,50,000[@article-NRI-tax-60-to-80-years] | Income up to INR2,50,000[@article-NRI-tax-60-to-80-years] |
|---|---|---|
| Rate | Nil | Nil |
| Slab (INR) | 2,50,001 to 5,00,000[@article-NRI-tax-over-80-years] | 2,50,001 to 5,00,000[@article-NRI-tax-over-80-years] |
| Rate | 5% | 5% |
| Slab (INR) | 5,00,001 to 10,00,000 | 5,00,001 to 10,00,000 |
| Rate | 20% | 20% |
| Slab (INR) | 10,00,001 and above | 10,00,001 and above |
| Rate | 30% | 30% |
Table 1 rates shall be further increased by applicable surcharge and health and education cess.
| Slab (INR) | Rate |
|---|---|
| Income up to INR4,00,000 | Nil |
| 4,00,001 to 8,00,000 | 5% |
| 8,00,001 to 12,00,000 | 10% |
| 12,00,001 to 16,00,000 | 15% |
| 16,00,001 to 20,00,000 | 20% |
| 20,00,001 to 24,00,000 | 25% |
| 24,00,001 and above | 30% |
| Slab (INR) | Income up to INR4,00,000 | Income up to INR4,00,000 |
|---|---|---|
| Rate | Nil | Nil |
| Slab (INR) | 4,00,001 to 8,00,000 | 4,00,001 to 8,00,000 |
| Rate | 5% | 5% |
| Slab (INR) | 8,00,001 to 12,00,000 | 8,00,001 to 12,00,000 |
| Rate | 10% | 10% |
| Slab (INR) | 12,00,001 to 16,00,000 | 12,00,001 to 16,00,000 |
| Rate | 15% | 15% |
| Slab (INR) | 16,00,001 to 20,00,000 | 16,00,001 to 20,00,000 |
| Rate | 20% | 20% |
| Slab (INR) | 20,00,001 to 24,00,000 | 20,00,001 to 24,00,000 |
| Rate | 25% | 25% |
| Slab (INR) | 24,00,001 and above | 24,00,001 and above |
| Rate | 30% | 30% |
Surcharge - Surcharge is an additional charge levied for persons earning income above the specified limits. It's charged on the amount of income tax calculated as per applicable slab rates. For rates of surcharge, refer to tax rate regimes tables 1 and 2.
| Total income | Old tax regime | New tax regime |
|---|---|---|
| Up to INR50 lakh | Nil | Nil |
| Above INR50 lakh and up to INR1 crore | 10% | 10% |
| Above INR1 crore and up to INR2 crore | 15% | 15% |
| Above INR2 crore and up to INR5 crore | 25% | 25% |
| Above INR5 crore | 37% | 25% |
| Total income | Up to INR50 lakh | Up to INR50 lakh |
|---|---|---|
| Old tax regime | Nil | Nil |
| New tax regime | Nil | Nil |
| Total income | Above INR50 lakh and up to INR1 crore | Above INR50 lakh and up to INR1 crore |
| Old tax regime | 10% | 10% |
| New tax regime | 10% | 10% |
| Total income | Above INR1 crore and up to INR2 crore | Above INR1 crore and up to INR2 crore |
| Old tax regime | 15% | 15% |
| New tax regime | 15% | 15% |
| Total income | Above INR2 crore and up to INR5 crore | Above INR2 crore and up to INR5 crore |
| Old tax regime | 25% | 25% |
| New tax regime | 25% | 25% |
| Total income | Above INR5 crore | Above INR5 crore |
| Old tax regime | 37% | 37% |
| New tax regime | 25% | 25% |
Note: In case total income includes income by way of dividend or income under the provisions of section 111A, section 112 and section 112A of the IT Act, surcharge will be capped at 15%.
Health and education cess - Cess at the rate of 4% shall also be paid on the amount of income tax plus surcharge (if any).
File a tax return
If an NRI earns taxable income in India, they are required to file an income tax return in this country. Filing is necessary if:
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The gross total income before any deductions exceeds the maximum amount not chargeable to tax
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A refund from the government is desired
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The NRI requires to carry forward losses
NRIs can e-file their tax returns by visiting the portal of the Income Tax Department of India.
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Notes
Disclaimers:
The information provided in this article is generic in nature and for information purpose only. You are recommended to consult your tax advisors to understand the taxes applicable to your specific case. Tax benefits are subject to changes in tax law.
This publication has been issued by The Hongkong and Shanghai Banking Corporation Limited (HSBC), India, Incorporated in Hong Kong SAR with limited liability, for the information of its customers only. This publication does not constitute tax or investment advice or an offer to sell, or a solicitation of an offer to purchase or subscribe to any product / investment. The information herein is derived from sources believed to be reliable and the concerned Information Provider(s) have duly authorised HSBC to use such information provided by them.
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