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Tax Deductions Available and Unavailable to NRIs

The income tax rules that is in place for Non-Resident Indians is different from the law and rules that are in place for resident Indians. Non Resident Indians are expected to pay taxes for all the income or capital gains they earn in India.

The income tax rules applicable for NRIs (Non Resident Indians) differ from that of the resident Indians. It is important to note that NRIs should pay taxes for capital gains or income they earn in India.

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According to the Income Tax department, an individual is categorised as a non-resident Indian under specific conditions as listed below:

  1. He or she lives outside India for 182 days in the previous year.
  2. He or she does not stay in India for 60 days during the previous year and 365 days or more for four years prior to the previous year.
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Taxable Income of NRIs

According to Foreign Exchange Management Act and Income Tax Act, 1961, a NRI can should taxes under specific conditions as listed below:

  1. Taxable income in a financial year in India is above Rs.2 lakh (exemption limit)
  2. Long-term or short-term capital gains earned from the sale of any property

The following table consists of details of taxable income of NRIs

Particulars

Description

Income from House Property and Home Loan

  1. Income from House Property is taxable as per prevailing rates.
  2. Capital gains generated from the rent, sale or lease of an asset in India is taxable as per income tax regulations.
  3. A deduction of 30% can be claimed by a NRI on his or her home loan in India. Under Section 80C, a NRI can also claim deduction for principal repayment, registration charges and stamp duty.
  4. If a tenant pays rent to his owner who is a NRI, the former can make TDS at 30% and submit Form 15CA

Salary

Any income earned in India or even received on the behalf of a NRI can be taxed. In other words, if a NRI receives his or her salary for services in India, it is liable to be taxed

Investment

  1. Capital gains or income from short term/long-term securities are taxable
  2. Capital Gains on shares held in India are taxable
  3. Capital gains upon transfer of an asset in India is taxable

Income from other sources

The interest income accrued from savings bank accounts and fixed deposits held by a NRI in India are liable to be taxed

Investment Income

  1. NRIs can avail of a special provision related to investment income.
  2. A NRI is taxed at 20% if he invests in assets in India. All the same, he or she need not file returns if TDS has been deducted on the invested income.
  3. The investment which are eligible for the special treatment are listed below:
  4. Central government securities
  5. Shares in Indian companies
  6. Deposits
  7. Debentures (for publicly listed companies)

Deductions Available to NRIs

The following table shows the deductions and exemptions available for NRIs

Particulars

Deductions

Section 80C

NRIs can avail of the following deductions under section 80C

  1. Payment of tuition fees for children
  2. Ulips
  3. Payment of premium for a life insurance policy
  4. ELSS
  5. Principal repayments on home loan

Section 80D

Premium paid a health insurance policy

Section 80G

Donations on social service activities

House property income for NRIs

NRIs can avail of deductions for Income from House Property in India, property tax and interest income on home loans

Section 80E

Interest earned on an education loan

Section 80TTA

Up to Rs.10,000 can be claimed as deduction on interest income on savings bank accounts

Related Articles on Tax
  1. Income Tax
  2. Income Tax Act
  3. Income Tax Slabs
  4. Efiling Income Tax
  5. Income Tax Return
  6. TDS Online Payment
  7. Income Tax Refund
  8. Steps to efiling ITR online
  9. Gratuity
  10. How to Calculate HRA
  11. GST
  12. GST Returns
  13. Online Tax Payment
  14. TDS
  15. Form 16

Deductions Unavailable to NRIs

NRIs cannot avail of the following deductions available under the IT Act, 1961

  1. Investment under RGESS under section 80CCG
  2. Differently-abled under Section 80U, Section 80DD and Section 80DDB
  3. Investments which are unavailable to NRIs are listed below:
  4. Senior Citizen Savings Scheme
  5. National Savings Certificates
  6. Post Office 5 Year Deposit Scheme
  7. Public Provident Fund
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FAQs on Income Tax for NRI

  • What is considered taxable income for NRIs in India?

    Income earned or received in India like rent, capital gains, and interest on NRO accounts is taxable for NRIs.

  • Can NRIs claim deductions under Section 80C or 80D?

    Yes, NRIs can claim deductions under 80C (e.g., ELSS, life insurance) and 80D for health insurance premiums.

  • Do NRIs need to file ITR in India?

    NRIs must file ITR in India if their taxable income exceeds ₹2.5 lakh in a financial year.

  • How is income from foreign sources taxed for NRIs?

    Foreign income is not taxed in India unless it is received directly into an Indian account.

  • What happens if an NRI fails to file income tax in India?

    Failure to file may lead to penalties, interest, or notices from the Income Tax Department.

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