• Notification Date: 10-05-2023
• Notification No: N/A

Decoding Taxation for NRIs: Latest Rules and Claim Process

Taxation is a crucial element for the economy of any nation. While various taxes are levied on different services available in India, it's important to note that taxation also affects people who do not stay in India but are of Indian origin. Although income earned abroad is not taxable in India, these non-resident Indians (NRIs) must pay tax in India on capital gains from shares, mutual funds, and term deposits, if it exceeds the basic exemption limit. 

Understanding NRIs' Taxation 

Non-resident Indians need to pay appropriate taxes as and when they fall under the jurisdiction of the Income Tax Act of 1961. NRI taxation covers aspects of income tax, wealth tax and property tax, among others. 

"Whenever they make any financial transaction in India, the income department reviews the transaction. It could be as simple as maintaining an NRO bank account in India or it could be as complicated as investing in unlisted shares or commercial real estate. There are a lot of investment avenues that are available in India and there is a lot of interest from the NRI community to invest in India, given the higher returns. Once they start investing in India, all incomes become subjected to tax deducted at source (TDS)," said Mohit Gopwani, Head of Tax at SBNRI. 

Notably, TDS rate is significantly high for NRIs too. For residents, it's not that much and only it is applicable on specific types of incomes but for NRIs, every income is subject to TDS. This means that any financial transaction will have tax implications for them. 

The Challenges 

The major challenge that NRIs face is awareness. "India, with respect to an income tax point of view, has been moving to digital compliance in the last few years. A lot of NRIs are not yet aware that all their compliances or at least 90 percent of their compliances with respect to income tax can be taken care of online. For the same, they do not need to be present in India and everything can be taken care of from a remote location". It is because of unawareness that NRIs are not able to claim TDS back. 

"There is a major impact because almost 20 to 30 percent of NRIs' earnings are held back in India. So, that gives them only 70 percent return in their hands. Given that, they are investing in India, because of the higher returns they would want to make sure that even this 20-30 percent goes to them," he added. 

The next challenge, which Gopwani thinks, is finding a professional whom NRIs can trust, "If NRIs are sharing financial details with someone, they need a person who can be accountable, this is a major problem, but many companies are trying to solve the issue through tech assistance and bot," reported Mudit Vijayvergiya, Founder at SBNRI. 

Taxation in India in Comparison to Other Countries 

Taxation for NRIs is mostly similar across the world. There is a general rule that applies across all the countries. India has entered into Double Taxation Avoidance Agreements (DTAAs) with a lot of countries. 

"If an individual from US or UK or any other country is investing in India and generating returns in India, the income will be taxed in India because it is sourced in India. However, this might again be taxed in other countries, because they are residents of some other country. Because of DTAAs, NRIs can further claim the benefit of the tax they paid in India in their country of residence, making sure that they don't end up paying tax on one income in multiple countries," Gopwani said. 

Coming to the procedures, he calls it a bit difficult and complicated as compared to other countries. 

"In US, most of the individuals are able to file their returns themselves. In India, that is not the case," he added. 

Tax claim process for NRIs in India 

An NRI, like any other individual taxpayer, must file his/her return of income in India. Further, the due date for filing a return for an NRI is also July 31 of the assessment year or extended by the government. 

For putting a tax claim, a PAN card is required. However, a lot of NRIs open their bank accounts without a PAN card. In India, NRIs are allowed open NRO, and NRE bank accounts without a PAN card and they can start making investments from these bank accounts. 

"The problem is when NRIs can't claim a refund of TDS without having a PAN card. Having a PAN card is the most basic requirement. Further, the PAN card should be linked with the bank account or demat account," Gopwani stated. Notably, TDS deducted get auto-populated on the income tax portal in form 26AS if PAN is linked with the bank account.