NRI EDGE
Read time: 8 mins
-
Understand how your residential status impacts your taxability.
-
Know about the tax slabs and when you are liable to pay taxes.
The below content is purely for informational purposes and is not intended to constitute advisory of any kind. Please note, these are in-depth articles which are best viewed on large screen devices like laptops, desktops and tablets. The position reflected in this article has been updated as of January 15, 2024.
Whether or not an individual qualifies as a resident in India in a particular Financial Year (April – March), basis the Income Tax Act, 1961 (IT Act), and accordingly has to file an IT return is determined by two factors –
- The residential status (based on period of stay in India) in India under the Income Tax Act, 1961, (IT Act)
- Income earned/accrued in India
There are two tax regimes operational in India. The primary income threshold for taxation is reached when your income exceeds ₹2.5 lakh in the existing tax regime or ₹3 lakh in the new tax regime.
You will be a Resident if you satisfy EITHER of the two conditions with respect to your period of stay:
1) You stay in India for 182 days or more in a Financial Year (April to March)
2) You stay in India for 60* days or more in a Financial Year and 365 days or more in four years immediately before that Financial Year.
If you are not a Resident as per any of the two conditions above, you can check if you are eligible for deemed residency for the purpose of taxation. You will be a deemed resident of India if you satisfy both the conditions:
1) If you are not liable to pay taxes in any other country due to specified reasons.
2)If you have an income sourced in India of more than ₹15 lakh in that Financial Year
You will be a Non-Resident (NR) as per the IT Act, 1961 if you are neither a Resident nor a Deemed Resident.
Note: If you qualify as a resident, your residency status can be further classified as Ordinarily Resident (OR) and Not Ordinarily Resident (NOR) based on the following conditions:
Please note, tables are best viewed on desktops and in landscape mode on mobile phones.
| Not Ordinarily Resident (NOR) | Ordinarily Resident (OR) |
|---|---|
You will be NOR if you satisfy any of the below scenarios: 1) You are a deemed resident. 2) You are a non-resident as defined above in at least nine out of the immediately preceding 10 Financial Years before the current one. 3) If you stayed in India for less than 730 days in the seven Financial Years immediately preceding the current one. 4) If you are an Indian citizen/Person of Indian Origin (PIO) coming to India for more than 120 days but less than 182 days and have an income sourced in India of more than ₹15 lakh in a Financial Year. | If you do not meet any of the four criteria outlined in this table for qualifying as an NOR, you will be categorised as an OR. |
Know your taxable income and deductions
Did you know?
Residency is defined differently in the IT Act, 1961 and the Foreign Exchange Management Act, 1999 (FEMA).
An individual will be considered a ‘Resident in India’ under FEMA based on their intent to stay in India. FEMA residency is essential for individuals interested in foreign exchange transactions such as investments in foreign currency or foreign securities, acquisition or transfer of immovable property, etc.
Residency under the IT Act is determined only based on the physical stay of the individual in India, irrespective of the purpose of stay. Residency under the IT Act will help you determine your taxable income and the applicable tax rates.
Once you determine your residential status in any Financial Year as an NRI and your income in India (before considering deductions and exemptions) exceeds the basic threshold limits, you are liable to pay taxes.
NRIs are only taxed on income earned and accrued or received in India. Let us ascertain which of your incomes are subject to taxation.
Please note, tables are best viewed on desktops and in landscape mode on mobile phones.
| Taxable in India | Non-taxable in India | ||||
|---|---|---|---|---|---|
1. Income earned and accrued in India, irrespective of it being received in or outside India. For example: Any dividend declared by an Indian company or rental income from residential property situated in India or gain arising on the sale of Indian investment is considered earned in India. 2. Income earned and accrued outside India but received in India. For example: Any dividend declared by a foreign company or rental income from residential property situated outside India or gain arising on the sale of foreign investment is considered earned outside India. However, such dividends, rental income, or sale proceeds of investment deposited in an Indian bank account will be regarded as income received in India, and therefore, it would be taxable in India. | 3.Income earned, accrued, and received outside India. For example: Any dividend declared by a foreign company or rental income from residential property situated outside India or gain arising on the sale of foreign investment is considered earned outside India. Such dividends, rental income, or sale proceeds of investment deposited in any foreign bank account will be regarded as income earned, accrued, and received outside India. Therefore, it would not be taxable in India. | ||||
Did you know?
For an Indian citizen crew member on international waters, the stay in India during the Financial Year will be calculated as per their Continuous Discharge Certificate (CDC) or passport. Accordingly, if they qualify to be a non-resident, then their overseas salary may not be taxable in India. You should consult a tax expert for more details.
NRI income tax slab rates 2023-24: Choose your tax regime wisely
Residents, as well as non-residents, have the same tax slab rates. Both have the flexibility to choose between the existing 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.
The new tax regime is the default tax regime in which you are not entitled* to exemptions like house rent allowance, leave travel assistance, etc., or deductions like medical insurance, life insurance premiums, Provident Fund (PF), etc. However, in case you wish to be governed by the existing tax regime, you need to opt for the same while filing your income tax return.
*Section 115BAC
Did you know?
India has signed a comprehensive Double Taxation Avoidance Agreement (DTAA) with over 90 countries to help NRIs avoid being doubly taxed. You must check if your country of residence has a DTAA with India to enjoy benefits such as exemptions, low tax rates, etc.
Please note, tables are best viewed on desktops and in landscape mode on mobile phones.
| Existing tax regime | New tax regime | ||
|---|---|---|---|
Level of income (₹) | Rate of tax | Level of income (₹) | Rate of tax |
0 – 2,50,000 | Nil | 0 – 3,00,000 | Nil |
2,50,001 – 5,00,000 | 5% | 3,00,001 – 6,00,000 | 5% |
5,00,001 – 10,00,000 | ₹12,500 + 20% of the amount exceeding ₹5,00,000 | 6,00,001 – 9,00,000 | ₹15,000 + 10% of the amount exceeding ₹6,00,000 |
10,00,001 and above | ₹1,12,500 + 30% of the amount exceeding ₹10,00,000 | 9,00,001 – 12,00,000 | ₹45,000 + 15% of the amount exceeding ₹9,00,000 |
12,00,001 – 15,00,000 | ₹90,000 + 20% of the amount exceeding ₹12,00,000 | ||
15,00,001 and above | ₹1,50,000 + 30% of the amount exceeding ₹15,00,000 | ||
Understanding surcharge and cess (health and education) on NRI taxable income
The surcharge is an additional tax levied on your base income tax when your taxable income crosses ₹50 lakh. Additionally, you are liable to pay a health and education cess of 4% on income tax as well as the surcharge . These rates are the same for resident Indians and NRIs.
The rate of surcharge based on income level is provided below:
Please note, tables are best viewed on desktops and in landscape mode on mobile phones.
| Level of income | Existing tax regime | New tax regime | ||
|---|---|---|---|---|
A | B | C | D | E |
(₹) | Rate of surcharge for dividend income from companies and capital gains from specified assets | Rate of surcharge for income other than specified in column B | Dividend income from companies and capital gains from specified assets | Rate of surcharge for income other than specified column D |
Less than 50 lakh | Nil | Nil | Nil | Nil |
50 lakh – 1 crore | 10% | 10% | 10% | 10% |
1 crore – 2 crore | 15% | 15% | 15% | 15% |
2 crore – 5 crore | 15% | 25% | 15% | 25% |
Above 5 crore | 15% | 37% | 15% | 25% |
Additionally, you are liable to pay health and education cess at 4% under both regimes. | ||||
Special tax provisions for NRIs
NRIs are also allowed to benefit from special rate tax provisions for certain income. These are not subject to taxes as per the regular NRI income tax slab rates. These include:
Please note, tables are best viewed on desktops and in landscape mode on mobile phones.
| Type of income | Nature of income | Rate of tax | Remark |
|---|---|---|---|
Long-term capital gain | - Earned from equity shares listed on an Indian-recognised stock exchange - Equity-oriented mutual funds - Unit of business trusts or zero-coupon bonds | 10% | Inflation indexation benefits not available |
- Earned from unlisted shares (not listed on an Indian-recognised stock exchange) and securities such as bonds, debentures, etc. - On the transfer of foreign exchange assets | 10% | Inflation indexation benefits not available | |
- From the property - Any other capital gain | 20% | Inflation indexation benefits available | |
Short-term capital gain | - Earned from equity shares listed on an Indian-recognised stock exchange - Equity-oriented mutual funds or units of business trusts | 15% | Subject to specific conditions |
Normal income | Any income from investment such as interest, dividend, etc. | 20% | Nil |
Points to remember regarding special provisions
1) If you face taxation for the same income in your resident country and India, check whether your country has signed a DTAA with India. If so, you can avail yourself of a treaty benefit/Foreign Tax Credit (FTC) in your resident country under the relevant DTAA. You should consult a tax expert to understand the implications of DTAA.
2) You are exempted from taxes on any long-term capital gains from the sale or transfer of specified foreign exchange assets which are acquired in India through inward remittance in foreign currency. However, this is possible only if the net consideration (proceeds) is re-invested into other specified assets, such as:
- Shares and debentures of an Indian company,
- Deposits with banks and Indian public companies,
- National Savings Certificate, etc.
Let us understand the tax calculations, including surcharge and cess as well as special income cases.
Samuel is an NRI living in Canada. In the past three years, he has earned an annual income from various sources in India, including rental income, dividends from shares held with Indian companies, short-term capital gains on the sale of unlisted shares and interest from Non-Resident Ordinary (NRO) bank accounts. He has no deductions and exemptions to be claimed. For this fiscal year, Samuel’s taxable income is ₹55 lakh, and he wants to know his tax liability under the existing and new tax regimes as per the income tax slab rates.
Let’s understand how the taxes will be calculated under the existing and new tax regimes for him:
Please note, tables are best viewed on desktops and in landscape mode on mobile phones.
| Existing tax regime | regime | ||
|---|---|---|---|
Particulars | in ₹ | Particulars | in ₹ |
Total income | 55,00,000 | Total income | 55,00,000 |
On income up to ₹2.5 lakh | On income up to ₹3 lakh | ||
On income between ₹2.5 lakh and ₹5 lakh (5% of ₹2.5 lakh) | 12,500 | On income between ₹3 lakh and ₹6 lakh (5% of ₹3 lakh) | 15,000 |
On income between ₹5 lakh and ₹10 lakh (20% of ₹5 lakh) | 1,00,000 | On income between ₹6 lakh and ₹9 lakh (10% of ₹3 lakh) | 30,000 |
On income above ₹10 lakh (30% of ₹45 lakh, (₹55 lakh minus 10 lakh)) | 13,50,000 | On income between ₹9 lakh and ₹12 lakh (15% of ₹3 lakh) | 45,000 |
On income between ₹12 lakh and ₹15 lakh (20% of ₹3 lakh) | 60,000 | ||
On income above ₹15 lakh (30% of ₹40 lakh (₹55 lakh minus ₹15 lakh)) | 12,00,000 | ||
Tax liability | 14,62,500 | Tax liability | 13,50,000 |
Surcharge (at 10%; as income exceeds ₹50 lakh but is below ₹1 crore) | 1,46,250 | Surcharge (at 10%; as income exceeds ₹50 lakh but is below ₹1 crore) | 1,35,000 |
Educational cess (at 4%) | 64,350 | Educational cess (at 4%) | 59,400 |
Total tax liability | 16,73,100 | Total tax liability | 15,44,400 |
Savings | - | Savings (over existing tax regime) | 1,28,700 |
Note: Calculations are as per the income tax calculator on the income tax website.
Samuel has a lower tax liability under the new tax regime, so it is preferable for him to opt for it.
You should consult a tax expert to understand which regime may best suit your situation.
Surcharge calculations for different types of income
Suppose Samuel decides to move back to India. He still qualifies as an NRI; however, he now has a taxable income of ₹2.45 crore for FY23 in India. The taxable income includes:
- Rental income ₹1.20 crore
- Dividend from shares held with Indian companies ₹15 lakh
- Short-term capital gains on the sale of unlisted shares ₹45 lakh
- Long-term capital gains on the sale of unlisted shares of ₹15 lakh
- Interest from bank accounts of ₹50 lakh
He has opted for taxation under the existing tax regime. His taxability is computed as below:
Please note, tables are best viewed on desktops and in landscape mode on mobile phones.
Tax liability (Calculated as per tax slabs under the existing tax regime) without considering dividend income and long-term capital gains | ₹62,62,500 | |
Tax liability on dividend income (₹15 lakh*30%, i.e., the highest slab rate)- | ₹4,50,000 | |
Tax liability on long-term capital gains at special rates (₹15 lakh*20%) | ₹3,00,000 | ₹70,12,500 |
Add: Surcharge (at the rate of 15% on dividend income and long-term capital gains) | ₹1,12,500 | |
Add: Surcharge (at the rate of 25% other income) | ₹15,65,625 | ₹16,78,125 |
Health and education cess of 4% on tax plus surcharge | ₹3,47,625 | |
Total tax liability | ₹90,38,250 |
Samuel has to pay taxes of ₹70,12,500, along with a surcharge of ₹16,78,125 and cess of ₹3,47,625. This takes his overall tax liability to ₹90,38,250.
It is, therefore, important to make a note of the applicable surcharge while computing your tax liability as an NRI.
Advance tax payments
Resident individuals below 60 years of age and NRIs are required to pay taxes in advance if their estimated income in a Financial Year after Tax Deducted at Source (TDS) is more than ₹10,000*. To know the due dates for advance tax and the amount of advance tax payable on each instalment, please click here.
Any default or shortfall in the payment of advance tax will attract interest at 1% per month. For the first three instalments, interest needs to be paid for three months and for the fourth instalment, interest needs to be paid for one month**. Any default or shortfall in the payment of interest which continues after March 31, an additional interest of 1% per month needs to be paid till the month the interest is paid off. Thereafter, taxes need to be paid as self-assessment taxes before filing the income tax return.
ICICI Bank is one of the designated banks through which you can make this tax payment. Please click here to know more.
* Section 208 of Income Tax Act, 1961.
**Section 234C of the Income Tax Act, 1961.
Conclusion
Understanding NRI tax slabs and choosing the right tax regime can help you stay compliant with the laws and optimise your tax liabilities. You must keep abreast of the latest tax rates and exemptions that apply to your income sources in India. For guidance, you should reach out to tax experts who specialise in international taxation.
This is sample bottom text
Recommended For You
Disclaimer:
The contents of this article/infographic are meant solely for informational purposes. The contents are generic in nature and are not intended to serve as a substitute for specific advice on any matter whatsoever. The information is subject to updation, completion and verification and the applicable norms may keep changing materially from time to time. This information is also not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to applicable laws or would subject ICICI Bank Limited/its affiliates to any licensing or registration requirements. ICICI Bank Limited/its affiliates and their representatives shall not be liable for any direct or indirect losses or liability incurred arising in connection with any decision taken by any person on the basis of this content. Please conduct your own due diligence and consult your financial advisor before making any decision. Terms and conditions of ICICI Bank and third parties apply. ICICI Bank is not responsible for third party services. Nothing contained herein shall constitute or be deemed to constitute an advice, invitation or solicitation to avail any products/ services of third parties.
