Just like an Indian citizen, NRIs with taxable income that exceeds the threshold of Rs 2,50,000 have an obligation to file income tax returns. However, the rules and guidelines for NRI taxation differ widely from that of an Indian citizen, and thus the income tax returns guidelines differ too. For instance, unlike Indian citizens, NRIs do not have the obligation of filing tax returns that arise only from “investment income” or long term capital gains from foreign exchange assets in India. Instead, all income that arises, accrues, is deemed to arise and accrue, is received or deemed to be received in India is considered taxable.
Consequently, the following would qualify as taxable sources for NRIs:
- Any salary received for services provided in India
- Income that is generated from a house or a property that is located in India
- Income that is generated from interest on savings bank account and fixed deposits
- Capital gains on transfer of assets situated in India
Tax deducted at Source or TDS is applicable to all income earned by an NRI. TDS rates on NRI income is quite high. Let us look at the TDS applicable on various sources on income earned by NRIs:
|Any income that does not fall into the above categories||30%|
Now, let us take a closer look how TDS is applicable on particular sources.
TDS on interest on bank account and fixed deposits and other investments
Interest earned on NRE or Non Resident External (NRE) account and Foreign Currency Non Resident (FCNR) is not taxable in India. Therefore there is no TDS applicable. However interest on an NRO account is taxable at the rate of 30%. Interest on NRO deposits is taxable as per the tax slab of the NRI investor. Interest income on any other investments is tax as per the income tax bracket. TDS of 30% is applicable on these investments.
TDS on capital gains on sale of equity mutual funds and shares
If any equity share or unit of an equity mutual fund within a year of purchase, the capital gains or loss is termed as short term capital gains or loss. For NRIs short term capital gains are taxed at 15%. Long term capital gains emanating from the sale of any equity shares or equity mutual funds is taxable at 10% if the gains are in excess of Rs 1 lakh annually.
TDS on capital gains on debt mutual funds
TDS for short term capital gains with a holding period of less than 3 years is 30%. In case, you fall in a lower tax bracket, you can claim the extra amount deducted through IT returns. TDS for long term capital gains, where the holding period is more than 3 years, TDS is 20% less of indexation.
TDS on capital gains on sale of property and gold
TDS on short term capital gains on gold and property is 20%, while TDS of 30% is applicable on long term capital gains. If the holding period is less two years, in the case of property it qualifies as short term capital gains. In the case of gold it is three years. Similarly, property held for more than two years qualifies as long term capital gains and gold held for more than three years qualifies for long term capital gains.
Some recent amendments and guidelines for TDS
- TDS is applicable on NRI payments on annuity products, health and pension products. Life insurance policies exempt under section 10 D of the Income Tax is exempt from TDS.
- The Indian Government holds a Double Taxation Avoidance Agreement (DTAA) with many foreign countries. Provisions under DTAA can benefit taxpayers in either country or under the domestic law of the current land of residence.
- The rate of TDS is determined as per rules of Income Tax Act 1961 and DTAA of residence country. To avail the benefit of DTAA a TRC or Tax Residency Certificate is an imperative for all NRIs.
- If the NRI is a person of Indian origin or an Indian citizen, he will be required to provide additional details as the number of days stayed in India in 2018-19 and also in the past four years.
- If he is the director on a board of any company (Indian or foreign) details of such companies will have to be provided.
- Details of holdings of unlisted shares such as opening balance, shares bought or sold in the year of assessment and the closing balance of these shares will also have to be provided.
The deadline for filing India tax returns for the year 2018-19 has been extended to August 31,2019. All NRIs can file their returns up to this date without any penal fees.