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Income Tax Rules for NRI Returning to India

An NRI can enjoy complete exemption from income-tax while remaining an NRI and thus, he need not pay any income-tax under the Income Tax Act in India..

income tax rules returning nris

Non-Resident Indians or NRIs, just like any other individual taxpayer in India, need to follow the income tax guidelines as mentioned under the Income Tax Act of India. This certainly means that any NRI individual needs to submit his/her taxes on time and also submit a valid and duly filled in Tax Return as stipulated under the Income Tax Act of India.

NRI Returning Back to India

There are scenarios when a Non-Resident Indian or any individual residing outside the national boundary of India plans to return back to India permanently. Though an NRI is considered almost similar to any other ordinary taxpayer within India, it is important to understand the tax implication for NRI individuals who are planning to return back to their homeland permanently.

Prior to understanding the tax implications and liabilities of such NRIs, it is important to be clear regarding our definition of NRI. An individual would be considered to be a Non Resident Indian or NRI if he/she is a citizen of India or is a person of Indian origin who stays outside India but such individual visits India in any year and the period of total stay in India is less than 182 days in that particular relevant tax year (Usually financial year starting April 1 to March 31 is considered to be a tax year as well). Another way of defining Non-Resident Indian is if the individual is not physically present in India for 60 days or more in any financial year and 365 days or more in the four consecutive financial years prior to the relevant financial year.

NRI Income Tax Rules

Under the Income Tax Act of India, NRI or an ordinary resident of India is considered one and the same. However, there are certain important points which an NRI individual needs to understand in order to understand the income tax rules of India.

  • Salary Income of an NRI individual is taxable only when the salary is received in India which would include receiving the salary in any account in any bank at any branch situated within India by self or even if someone receives the salary on behalf of the NRI individual.
  • Apart from the salary income received by an NRI within India, some other incomes which are taxable for an NRI (whatever is applicable) would include:
    1. Income from House Property for houses situated in India and owned by the NRI individual which would include both rented and vacant property, though he/she is allowed certain deduction on such income such as property taxes paid
    2. Rents on property situated in India received by the NRI individual
    3. Income from other sources such as interest income earned from any savings account and/or fixed deposits with any Indian Bank and any branch situated within India, though interest on NRE (Non-Resident External) and FCNR (Foreign Currency Non-Repatriable) accounts are tax-free. However, NRO (Non-Resident Ordinary) accounts are fully taxable
    4. Income earned by a NRI individual from any business set up or controlled in India
    5. Income from Capital Gains
  • NRI individuals get deductions from Income Tax under the following sections

Section 80C which includes:

  • Life insurance premium payment
  • Children’s tuition fee payment
  • Principal repayments on loan for the purchase of a house property:
  • Unit-linked insurance plan (ULIPS)
  • Investments in ELSS

Other Allowable Deductions include:

  • Deduction from House Property Income for NRIs
  • Deduction under Section 80D
  • Deduction under Section 80E
  • Deduction under Section 80G
  • Deduction under Section 80TTA

Income Tax Rules for NRI Returning to India

When an NRI individual decides to return to India, the tax implications depends on the residential status of the individual. The NRI individual’s income overseas would include:

  • Rental income from property outside India
  • Capital gains outside India
  • Bank interests earned outside India
  • Dividends earned outside India

Such income can arise from various assets such as:

  • Bank accounts
  • Stock market or securities
  • Life insurance policies
  • Loans
  • Company deposits
  • Debentures
  • Bonds
  • Residential properties
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