A Tax Saving Guide to NRIs

As NRI (Non-Resident Indians), adhering to tax rules of two different countries is a severe challenge. When it comes to tax filing, NRIs finds themselves in an unmanageable position when they have to handle their remittances, foreign incomes & investments and by side have to report it to Indian tax authorities.

In India, the Income-tax rules that apply to NRIs are quite different from those being applied to individuals having a status of recognized residents. NRIs have to sort out all the available deductions and exemptions before paying taxes according to Indian Tax Rules. Also, as reported by known Indian tax experts there are certain incomes, remittances, and investments that are still unknown which can be a tax saving scheme for NRIs.

Here is a Short Tax Saving Guide for NRIs to Ease Them with Indian Tax Obligations.

1. Utilising maximum available deductions:Like any other Indian taxpayer, NRIs are also eligible for availing deductions of Rs 1.5 lakh and Rs 50.000 under Section 80C and Section 80CCD (1b) (For NPS investments) respectively for tax saving but they cannot avail the basic deductions available by investing in social schemes like Opening a PPF account, Senior Citizen Saving Scheme or NSC (National Saving Certificates). Also, they cannot opt for medical benefits and deductions available in Sec 80DD (self-medical expenses), Sec 80DDB (treatment of a family member), Sec 80U (self-disability), Sec 80QQB (Income from royalty) for tax saving.

2. Obtaining PAN: Income beyond a certain threshold is subjected to TDS. If an NRI investor fails to furnish his PAN while making an investment in India, he will end with chances of getting charged by a higher TDS amount (Section 206AA). So to avoid such Higher TDS, apply for PAN even if your income is below the exemption limit.

3. Maintaining NRI status as per tax norms: Tax liability on an individual is generally computed by his residential status and income. As the foreign income of NRIs is not taxable in India, they should rather plan their visits in India in such a way that their status of being an NRI does not change. In case of Indians who went abroad for work, the limit to define the residential status has been stated to 182 days in a financial year.

4. Taking advantage of provisions issued for long-term assets purchased in foreign currency:For capital gains received against sale or transfer of foreign assets, no deduction is allowed in Section 80 but certain exemptions can be worked on above profit (under Section 115F) when it is reinvested back to Shares or Debentures of an Indian company, Bank Deposits and NSC VI and VII investments.

5. Paying interest on the home loan:NRIs can claim a deduction under Section 24 of paying up to Rs 2 Lakh of interest on the loan for buying a house in India. Also, the property tax paid on such house or property is also eligible to get exempted out of tax bracket. This is a good tax saving scheme for NRIs .

6. Buying medical insurance for the family: NRIs can also claim a deduction for securing well-being of their family under Section 80 for tax saving. Deductions can be claimed as:

  • Up to Rs 25000 – Buying Health Insurance for Self
  • Up to Rs 30000 – Health Insurance for Parents
  • Up to Rs 5,000 – For Preventive Health Checkups.

7 . Providing power of attorney to relatives or family members for investments and tax compliances: Another tax saving scheme for NRIs in India is that they should register for a power of attorney which would help their family members to transact on their behalf in tax matters, operating bank accounts and managing properties.

8. Paying advance tax and saving interest penalty:Paying estimated tax before actual liability can save NRIs from paying 1% of penal interest on delayed payment of tax under Section 234 B & C. To most cases, rental income is being assumed free of TDS but it is important to know that these are taxable at normal rates.

9. Gifting FDs (Fixed Deposits) to parents or major children before leaving: NRIs cannot hold a fixed deposit in India like a normal resident, but can open an NRO deposit as a joint account with residing family members as a second holder. Similarly, certain mutual funds can also be bought keeping the resident as primary holder and NRI as a joint holder which further saves some TDS and becomes a tax saving scheme for NRIs .

10. Avoid receiving foreign incomes in Indian banks:Though income received from foreign sources is not taxable in India, it does become taxable if received directly in an Indian bank. So to ensure tax saving redirect all your foreign incomes to any bank account outside India.

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