Dubai: With the latest Indian budget for the upcoming year only a couple of weeks away, expectations are riding high this time around for everyone, particularly NRIs. This time, however, the budget is going to be different than before.
As the world still battles a raging pandemic, like other countries India too has been managing a massive vaccination drive – albeit for a comparatively larger population. Businesses in the country have suffered, numerous jobs were lost and household budgets have taken a hit.
So it can be said that this year's India budget - out on February 1 - is going to be one of the most keenly awaited ones, partly because everyone is looking to get some form of relief from the government.
Budget wishlist: What NRIs are hoping for
* Reduction on rate of Tax deduction at Source (TDS): Currently, all the income paid to NRIs in India are subject to highest rate of tax. So in this budget, it is hoped that the government will consider difficulty of NRIs in claiming refunds due to unnecessarily high deduction of TDS;
(TDS simply means the person responsible for making specified payments is liable to deduct a certain percentage of tax before making payment in full to the receiver.)
* More clarity on the legal definition of NRI: More clarity with regards to the legal definition of NRIs and their resident statuses (the rules that defines a person in becoming an NRI).
* Any COVID-19 tax relief on the income of people suffering job losses or business losses: NRIs are hoping for relaxation in rules in place for NRIs stuck in India due to the pandemic for 4-5 months. This will be the most awaited announcement for most of the NRIs as their tax planning completely depends on this;
* Any increase in the deduction limit linked to investments as there has been a rising need to rethink tax policies on long-term equities as that will encourage more and more NRIs to invest in Indian stock markets.
* Increase in the limit of remittances from India to abroad from $1 million (Dh3.67 million) to a reasonable amount;
1. TDS rate must be reduced from the current 30 per cent to 15 per cent on debt schemes for NRIs.
2. To get benefits of indexation (a technique to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation) on investment in mutual funds.
3. No tax on switching in the same ULIP scheme
4. TDS on sale of property to be reduced to avoid unnecessary hassle of claiming refund at a later stage.
5. Clarity is still needed on linking Aadhar and PAN for NRIs
6. Tax on holidays for returning Indians to regularise their overseas affairs
7. More relaxation on norms for residential status for NRIs, especially with regards to COVID-19 and those people got stuck in India for more number of days
8. The definition of residential status, particularly the part pertaining to income, to be reviewed again and the threshold of which to be increased, as income of Rs1.5 million is a very nominal threshold.
What taxes are NRIs currently paying?
The tax laws in India that apply to NRIs vary significantly when compared to the laws that are applicable for resident Indians. Some of them include:
• Income tax slabs for NRIs are based only on the income – barring any gender, age or other specification
• In case of TDS (Tax Deducted at Source), all incomes of NRIs are charged irrespective of any threshold value.
• No nominal deductions are applied on any investment income except under specific situations
• Tax filing isn’t normally required for NRIs if the income is subject to clauses under the Indian Income Tax Act
• Tax on dividends for NRIs are different from Residents.
Normally, an NRI will be subject to taxation rules in India if his or her income is sourced or received in India. As per Indian tax regulations, income is divided broadly into five categories which are:
1. Income from salary
2. Income from house property
3. Capital gains
4. Income from business or profession
5. Income from other sources
How will a NRI calculate his or her taxable income in each of these categories?
Let’s briefly understand how a NRI can calculate his or her taxable income in each of above-mentioned five categories:
1. Income from salary
The salary income is taxable when it is received in India or someone receives on your behalf. Therefore, if you are an NRI and you receive your salary directly to an Indian account it will be subject to Income Tax in India. This income is taxed at the slab rate you belong to.
Another important point to note is that salary will be considered to arise in India if your services are rendered in India. So even though you may be an NRI, but if your salary is paid towards services provided by you in India, it shall be taxed in India immaterial of where you are receiving the income. In most cases NRIs may not fall in this category as they will not have salary income in India as they are already working abroad.
2. Income from house property
Income from a property which is situated in India is taxable for an NRI. The calculation of such income shall be in the same manner as for a resident. This property may be rented out or lying vacant.
Currently the Income Tax norms allow a person to keep two properties, as vacant or self-occupied Properties, without paying any tax on deemed rental. If there is more than two properties vacant, then on the remaining property one has to pay the tax on the deemed rental based on the rental value of that locality.
Further, a NRI is allowed to claim a standard tax deduction of 30 per cent, deduct property taxes, and take benefit of an interest deduction if there is a home loan. The NRI is also allowed a deduction for principal repayment (repaying the money that you originally agreed to pay back).
Stamp duty (tax that is levied on single property purchases or documents) and registration charges paid on the purchase of a property can also be claimed. Income from house property is taxed at slab rates as applicable.
The direct remittance to Dubai account shall be only after making payment of TDS and is in need of a chartered accountants certificate for foreign remittance. As per Indian Income Tax laws, a tenant who pays rent to a NRI owner must remember to deduct TDS at 30 per cent.
3. Capital gains
Any monetary gains received on the transfer of an asset which is situated in India shall be taxable in India. Capital gains on investments in India, be it either in shares or securities, shall also be taxable in India. For example, if you sell a house property and have a long-term capital gain, the buyer shall deduct TDS at 20 per cent.
4. Income from business or profession
Any income earned by an NRI from a business controlled or set up in India is taxable to the NRI.
5. Income from other sources
All other incomes which are not covered under the above-mentioned four categories above may be taxed in this head. For example, interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on NRE and FCNR account is tax-free. Interest on NRO account, dividend etc. are taxable.
A NRE is a Non-Resident (External) rupee account permits for remittance of money from outside India to India. The funds in an NRE account can be remitted within India or repatriated to outside India.
NRIs also have an option to open a Foreign Currency Non-Resident (FCNR) Account. FCNR account is in the nature of a fixed deposit held in a foreign currency. The account could be held in a choice of nine different foreign currencies: USD, GBP, EUR, JPY, CAD, AUD, SGD, HKD and CHF.
What deductions are currently allowed for NRIs?
Life insurance premium payment: Premium must be less than 10 per cent of sum assured (fixed amount that is paid to the nominee of the plan) and the insured must be the NRI, his or her spouse or children.
Tuition fee payment: Fees paid to any institution in India for the full-time education of any two children.
Principal payment on loan for purchase of house property: Payment of EMI of a loan for a house property as well as stamp duty, registration fees and other expenses incurred in the transfer of a house property to an NRI will be allowed for tax deductions.
Investment in ULIPs: Investment in Unit Linked Insurance Plan (a product offered by insurance companies that gives investors both insurance and investment under a single integrated plan) of LIC Mutual Fund or ULIPs of UTI Asset Management.
Deduction from house property income: Deduction up to a maximum of Rs200,000 (Dh9,910) for interest paid on a home loan for a house which is vacant and no limit on deduction for interest on rented property.
Premiums of health insurance of the immediate family and dependents: A maximum Rs50,000 (Dh2,477) depending on for whom the premium is being paid and age. Over and above that up to a maximum of Rs5,000 (Dh247) for preventive health check-ups.
Deduction of interest paid on an education loan for the higher education: This is for self, spouse, children or a dependent student subject to the earlier of a period of 8 years or until the interest is paid. There is no cap for the interest amount.
Deductions up to a maximum of Rs10,000 (Dh495) on interest earned on savings bank account
There are many other deductions based on the investments or expenditure allowed to NRIs in the law. The Income Tax laws in India are quite stringent and the above mentioned aspects are just a brief summary of the important parts.
