How much NRI income is now exempted from tax in India? Here’s a breakdown of the math
What tax brackets apply to NRIs, how can it be calculated? What the latest Budget detailed
Dubai: While non-resident Indians (NRIs) are not taxed on their foreign income, which is not received in India or deemed to accrue or arise in India, if you are an NRI and you’ve earned a salary for the services that you rendered in India, it shall be taxable in India.
As per the most recent 2023 Budget, which came into effect from February 1, NRIs and resident Indians alike are not required to file their Income Tax Returns (ITRs) if their total income for the year is below the basic exemption limit of Rs300,000 (Dh13,452).
The existing income tax regime was spruced up by making income of up to Rs300,000 exempt from income tax, as opposed to Rs250,000 (Dh11,210) earlier. Additionally, with a rebate, now people earning up to Rs700,000 need not pay any income tax. This new system was termed as the ‘New Tax Regime’.
“The increase in basic exemption of Rs300,000 will be available to all, including NRIs, if they are opting for New Tax Regime,” clarified Dixit Jain, managing director at The Tax Experts DMCC, a Dubai-based tax advisory, who also went on to explain if the other exemptions apply to NRIs.
Can NRIs claim this tax exemption on this rebate?
“However, one needs to keep in mind that the rebate on full tax for income up to Rs700,000 is only applicable to residents, and NRIs will not be able to claim this rebate,” added Jain. Let’s now delve a bit deeper into how tax brackets or income tax slabs apply to both NRIs and resident Indians.
So if you are an NRI and you have earned a salary for the services that you rendered in India, it shall be taxable in India, and the income tax for NRI shall be as per the income tax slab. The NRI income tax slab rates shall be the same as that of the resident taxpayers.
Does your total gross income exceed INR300,000? In that case, you have to pay taxes in India. This income could be from several sources. It could be in the form of your salary. It could be capital gains on the sale of shares and mutual funds.
“If his or her income in India through aspects like capital gains from investments in shares, mutual funds, property rental and term deposits exceed the basic exemption limit as defined in the Income Tax Act, he or she would have to file a tax return,” said India-based tax consultant Brijesh Meti.
One needs to keep in mind that the rebate on full tax for income up to Rs700,000 is only applicable to residents, and NRIs will not be able to claim this rebate
What are income tax slabs for a NRI?
The Indian government divided income into seven levels – or brackets – and assigned increasing tax rates to each subsequent bracket. The Income Tax Department adjusts the income levels applicable for each bracket each year for inflation.
India Budget 2023 tweaked the income tax slabs under the simplified tax regime to make it more attractive. Here are the new income tax slabs under the new tax regime for the fiscal year 2023-2024.
“If it looks as though your income puts you in a higher bracket than you expected, don’t be alarmed. The brackets are based on your taxable income, which is lower than your gross income because adjustments and deductions are subtracted,” added Meti. Here are instances of three different income categories:
While ‘cess’ is collected from every taxpayer to meet a certain purpose, the ‘surcharge’ is an additional tax collected from the taxpayers who have higher income.
How to calculate your income tax based on tax slab?
Determining your effective rate takes some math. Calculating income tax is a simple process, and while a tax calculator can help you derive at the amount, you can follow these three steps to calculate it based on tax slab.
Step #1: Consider the income from different sources that are applicable for Income Tax:
These include income from different sources is accountable in the calculation of Income Tax, which can include salary, income from house property or buildings in the form of rents, capital gains from sale of assets, business income or from other sources.
Step #2: Consider exemptions and subtract them from the gross income:
The type of income that can be excluded from gross income while calculating Income Tax is called an Exemption. For example, agriculture income, conveyance allowance, transfer allowance, etc., are exempt from income tax calculation.
If it looks as though your income puts you in a higher bracket than you expected, don’t be alarmed
Step #3: Calculate the appropriate deductions that apply to your expenses:
Deductions refer to the expenses that can be reduced from the taxable income to lower the income tax* payable. For example, there is a standard deduction of Rs50,000 (Dh2,242) of the salary earned annually for every individual.
The Income Tax Act provides a list of deductions that can be availed, which broadly includes deductions for investments made in savings scheme, life insurance plans, ULIPs (Unit Linked Insurance Plans, which offers the dual benefit of investment, and a life cover), etc.
Deductions also include interest received on a savings account, paid for house rent, education loan, home loan, premium paid on medical insurance, money spent on medical expenses for physical disability, donations, etc.
Finally, after taking into account and tabulating all of your deductions, you can determine how much of your income falls in each tax bracket and multiply the amount by that bracket’s rate.