Tax Implications for NRIs

How does taxation work for NRIs

Investing in India has become increasingly popular for Non-Resident Indians (NRIs) in recent years. However, there are still some concerns and lack of awareness regarding taxation. In this article, we will discuss how taxation works for NRIs investing in India.

When it comes to taxes, there are 5 key things you need to remember:

1. You don’t have to pay tax twice
2. You do have to file taxes in India (can be done completely online) and declare it in your home country
3. As a NRI, only income earned in India is taxed, not your foreign income
4. Different asset classes have different tax guidelines
5. With Inri, get your taxes done within a day

Now, let’s go into the details.

Double Taxation

If you are based in any of the 80+ countries which has Double Tax Avoidance Agreement (DTAA) with India, you don’t have to pay tax twice. List of countries with which India has DTAA are mentioned in this article.

Once you pay these taxes in India, you have to declare those in your home country so that you dont get taxed twice. For the same, you need to fill Forms 15CA and 15CB in India, which you can attach with your home country tax filing. This process is supported and end-to-end with our taxation experts.

Eligibility

NRI Status for Taxation

To begin with, NRIs are taxed based on their residential status for taxation purposes. According to the Indian Income Tax Act, an individual is considered an NRI if he or she has spent less than 182 days in India in a financial year. Additionally, if the individual has spent less than 60 days in India in the relevant financial year and has been an NRI in the previous four financial years, he or she is also considered an NRI.

Taxation of Income Earned in India

NRIs are taxed only on the income earned in India. Income earned abroad is not taxed in India. The types of income that are taxable in India for NRIs are as follows:

• Interest earned on bank accounts and fixed deposits
• Capital gains earned from the sale of assets such as property, stocks, and mutual funds
• Rental income earned from property in India
• Income earned from any business or profession in India
• Income earned from any other source in India

Taxation on different assets

Income Earned in India

When an NRI earns income in India, the Indian government deducts tax at the source through TDS (Tax Deducted at Source). For instance, if an NRI earns interest on a fixed deposit in India or has salary income, the bank will deduct TDS on the interest earned. Note that only the interest earned from an NRO account is taxable, the income earned from NRE / FCNR accounts is not taxable.

For more information on the tax implications of mutual fund investments, refer to our article on Tax Liabilities for NRIs/OCIs in Indian Mutual Funds and Listed Shares.

Learn about the Old vs. New tax regimes for NRIs and how they impact your tax liabilities on our blog here.

For accurate tax planning, it’s essential to understand the classifications of NRI, PIO, and OCI status, as explained in the NRI vs PIO vs OCI blog.

Mutual Funds

The taxation of mutual funds for NRIs is similar to the taxation of Indian residents. NRIs are required to pay taxes on capital gains earned from mutual funds, both equity, and debt-oriented.

For NRIs comparing safe investment options, the guide on NRE FDs vs Debt Mutual Funds highlights the key differences, helping investors choose the best fit for their portfolio.

For a deeper understanding of how residential status impacts taxation for NRIs, check out our detailed blog on Understanding Residential Status & Its Tax Implications For NRIs & RNORs.