It is possible to pay tax twice as a non-resident Indian. The host country will tax your foreign income if you live and earn abroad. You will have to pay tax on the Indian income in India if you still own investments, assets, or business transactions in India. Making the most of tax deductions and provisions makes sense.
There are many ways for you to save on taxes as a non-resident Indian. We have compiled five tips to help you minimize your taxes while living and earning abroad as a non-resident Indian. As part of these tips, make sure you maximize your pension fund and home loan deductions, as well as the provisions on the sale of foreign assets. Read more to learn about nri taxation in india.
Do NRIs have to pay taxes on their Indian income?
Table of Contents
The first thing you must understand is whether you are liable to pay tax as an NRI in India before looking at saving money on tax.
NRIs are required to pay tax on income earned in India. You may have NRI investments, assets, or business transactions in India even if you do not currently reside there. Taxes on that income must be paid to the Indian government.
Non-resident Indians are taxed on the following items:
- Earned or accrued income in India
- Indirect or direct income you receive from India
- In India, income that is received, accumulated, or accrued when the Indian tax authorities deem it to be such
You are not required to pay income tax in India on any income you earn while outside the country. As a non-resident, your host country taxes the income you earn and accrue abroad.
You may have to pay tax in India as a non-resident Indian. Listed below are five ways to reduce your taxes.
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Deductions: Make the Most of Them
As a non-resident Indian, you are not eligible for many of the basic deductions that resident Indians are entitled to. Tax deductions cannot be earned by investing in social schemes such as Public Provident Funds and National Savings Certificates. Medical benefits and medical expenses cannot be deducted from your taxes.
Tax deductions related to the National Pension System are available to you, however.
Section 80CCD (1) of the Income Tax Act allows you to deduct contributions you or your employer make to the National Pension System. Tax deductions are limited to 1.5 lakh rupees.
To encourage further investment in the National Pension System, an additional deduction of INR 50 000 is allowed over and above the limit of INR 1.5 lakh. The additional deduction can only be claimed if you have exhausted the limit of INR 1.5 lakh through other investments. You can deduct an additional INR 50,000 for additional contributions to the National Pension System.
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PAN card application
Taxpayers in India are identified by their Permanent Account Numbers (PANs). Permanent Account Numbers are used to prevent tax fraud. Income tax refunds require a Permanent Account Number.
Over a certain threshold, Indian income is subject to Tax Deducted at Source. Tax Deducted at Source amounts will likely be higher if you don’t provide your Permanent Account Number when investing in India.
Therefore, getting your PAN Card will ensure you pay less Tax Deducted at Source.
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Stay in good standing as an NRI
When you live abroad, your income is not taxable in India. Your income can, however, be taxed by the Indian tax service if your non-resident status is unclear. Make sure your NRI status is maintained if you don’t want your tax affairs to become messy.
In order to keep your non-resident status, make sure you plan your visits to India carefully. Residential status and income determine your tax liability. You will have a new tax liability in India if your residency status changes.
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Don’t miss out on provisions
Non-resident Indians can also take advantage of the tax provisions for foreign-currency assets purchased for long-term purposes.
Selling or transferring foreign assets will result in a profit or a loss. If you sell or transfer foreign assets, you cannot deduct any capital gains. Income Tax Act Section 115F allows you to get some exemptions.
A profit on the sale of foreign assets can be reinvested into shares of an Indian company, deposited into an Indian bank, or contributed to the National Savings Certificate plan. In this case, you may qualify for tax exemptions if you decide to reinvest your profit.
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Claim and pay interest on your home loan
You can deduct your Indian property taxes as a non-resident Indian. Your home loan interest or property taxes are tax deductible if you pay them. Investing in property in India is therefore a good option for non-residents.
Your capital gains tax will be deducted from the sale’s profit if you sell your Indian property. Maintain a lower tax bracket by limiting your capital gains in a year.
Conclusion
Your tax situation can be complicated if you are a non-resident Indian. In the country where you live and earn money, you will be taxed on your foreign income. However, if you still have investments, assets, or business transactions in India, you will have to pay tax on the Indian income.
The good news is that you can save on taxes as an NRI. To minimize your tax burden, keep these five tips in mind when planning your taxes.
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