NRIs are only taxed for any income they earn in India that includes any salary received in the country, income from fixed deposits or a house property, capital gains on transfer of assets or interest on a savings bank account
Finance Minister Nirmala Sitharaman will present the Union Budget 2022 on 1 February. As the date for the presentation of the Budget nears, Non-Resident Indians (NRIs) are expecting for certain demands, such as reduction of tax burden and easier compliance norms, to be met.
Here is your guide to how NRIs are taxed and what their demands from this year’s budget are:
How is non-resident status decided?
Non-resident Indian is an individual who is a citizen of India or a person of Indian origin and who is not a resident of India. Thus, in order to determine whether an individual is a non-resident Indian or not, his residential status is required to be determined under Section 6. As per section 6 of the Income-tax Act, an individual is said to be non-resident in India if he is not a resident in India and an individual is deemed to be resident in India in any previous year if he satisfies any of the following conditions:
1. If he is in India for a period of 182 days or more during the previous year; or
2. If he is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.
As per the Finance Act of 2020, the period has been substituted to 120 days for persons whose annual income, other than foreign sources, exceeds Rs 15 lakh, with effect from Assessment Year 2021-22.
How are NRIs taxed?
Non-resident individuals are taxed according to the Income Tax Act, 1961.
Non-residents are only taxed for any income they earn in India. This includes any salary received in the country, income from fixed deposits or a house property in India, capital gains of transfer of asset located in the country or interest on a savings bank account.
Interest earned on Foreign Currency Non-Resident (FCNR) Bank or Non-Resident External (NRE) account is not taxable. However, any interest accrued on Non Resident Ordinary (NRO) account is taxable.
What do NRIs want from Budget 2022?
NRIs have to pay 30 percent tax deduction at source (TDS). For non-residents, any property sold in India is also subject to 20 percent TDS in case of long term capital gain, even if the value of the property is less than Rs 50 lakh. Rental incomes are also subjected to 30 percent TDS.
People are expecting a cut in the TDS rate, which could bring more parity among residents and non-residents.
New ITR forms:
Many NRIs are demanding new Income Tax Return (ITR) forms as the current ones – ITR2 or ITR3– are cumbersome and lengthy. Simpler ITR forms can help in promoting voluntary compliance and also ease the process of declaring taxable income.
Increase in remittance:
According to Economic Times, several individuals are demanding that the remittance limit for capital and/or current account transactions be hiked. Currently, all resident individuals are allowed to freely remit $2,50,000 per financial year under the Reserve Bank of India’s Liberalised Remittance Scheme.
Less restrictions on investments:
Under the current rules, NRIs cannot invest in the Senior Citizens’ Saving Scheme, post office savings or open a public provident fund (PPF) account. Many individuals wants the investment restrictions to be liberalised.
Basic exemption limit debate:
Non-residents have to pay total tax on capital gains even if their annual income is below the threshold of Rs 2.5 lakh. Many want their capital gains to be adjusted against the basic exemption threshold.
Several NRIs also want to be eligible for tax deductions under Section 80DDB (treatment of family members suffering from specified diseases) and Section 80DD (treatment of disabled dependents), which is not possible under the present rules.