Following are the types of income that are exempt from tax:
Interest earned on NRE/FCNR accounts
The interest earned on government-issued savings certificates and bonds notified to the government
Earnings from domestic Indian companies’ dividends
Capital gains from listed equity shares and equity-oriented mutual funds over the long term
It is possible to exempt capital gains in accordance with the following sections and conditions:
As per Capital Gains Account Scheme of 1988, if you sell a house property and use the proceeds or part thereof to purchase another property or deposit it in a federation or other bank for a period of 3 or more years, Section 54 will apply.
Upon selling any estate other than a house and incurring capital gains, this exemption can be claimed on the construction or purchase of a new house, proportional to how much of the sale proceeds were spent on the new house.
Section 54EC – Long-term capital gains invested in bonds issued by the National Highway Authority of India and the Rural Electrification Corporation. It’s not advisable to sell these before 3 years since they have a redemption value. Depending on the budget of 2014, such investments are limited to a maximum of 50 lakhs
It is important to note that all of the above exemptions are subject to the tax laws that were in effect at the time.
Tax Deductions for NRIs:
In comparison to residents, NRIs are subject to stricter NRI taxation in India. Among the methods that can be accommodated under tax deductions are:
Allowed deductions for NRIs under Section 80C
An insured must be an NRI, spouse, or child of an NRI. Life insurance premiums must not exceed 10% of the sum assured.
A tuition fee is the fee paid to any institution in India to educate two children full time
For the purposes of tax deductions, the principal payment of a loan for the purchase of a house property as well as stamp duty, registration fees, and other expenses incurred in transferring the house property to an NRI are allowed to be deducted.
Investing in Unit Linked Insurance Plans of LIC Mutual Fund (Dhanraksha 1989) or UTI ULIPs
Deduction from house property income – Maximum deduction of INR 2,00,000 for interest paid on a home loan for a vacant house
Allowed deductions for NRIs under Section 80D
In addition to the premiums for the immediate family, there will be premiums for dependents as well
Up to a maximum of INR 5000 for preventive health check-ups
For NRIs, Section 80E allows for deductions of interest paid on education loans taken for themselves, their spouses, children, or dependent students up to the earlier of eight years or repayment of the loan. A cap is not imposed on the interest rate
NRIs may claim deductions under Section 80G through donations only if they have made the appropriate donations according to Section 80G.
Deductions for NRIs under Section 80TTA – Interest on savings bank accounts is deductible up to a maximum of 10,000 rupees
An exemption can be obtained by investing the proceeds of the sale into another house or specific bonds if the property has been held for more than 36 months. A tax exemption will instead be available if a new bond or property is less valuable than the proceeds
Tax Returns for NRIs:
As discussed above, NRIs do not have to include income from investments and long-term capital gains in their taxable income. These aspects of income are subject to tax deductions at source. As well as the prior sources of income, there may be other sources that need to be declared and are taxable according to the prevailing tax laws.
TDS can, however, exceed the individual’s tax liability in certain instances, such as with investments and long-term capital gains. A tax return must be filed in order to receive a tax refund or claim an exemption.
To file their tax returns, NRIs can visit the Income Tax Department of India’s online portal, which is the preferred method.
The Complete Picture of NRI Taxation:
Taking into account FEMA’s guidelines, it is vital to understand if one is an actual NRI. Afterwards, one should take into consideration the above exemptions and deductions in order to avoid paying excess taxes. If the TDS exceeds their tax liability, NRIs would need to file a tax return with proof of investment and income to receive a refund if they don’t use forms 15G and 15H to avoid TDS.
One should note the fact that NRIs can face double taxation too, so they need to understand and gather proper proof of tax paid in India so that they can avail the benefit of Double Taxation Avoidance Agreement treaty that is signed between India and many other nations.