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Taxation of Non Resident Indians - makemyreturns

by Varun Advani | 15 November 2012

It is very important for Non Resident Indians to understand taxation for NRIs as per the Indian Income Tax Act, 1961.

Non resident Indians have special provisions under the Income Tax act applicable to them. However, these provisions are optional. It should be noted that NRI’s can even opt for regular provisions applicable to residents if it benefits them.

Following are the special provisions applicable to NRI’s under the Income Tax Act:

Section 115D:- This section of the Income Tax Act deals with tax on long term capital gains (LTCG) on sale of foreign assets and taxation of investment income on the same.

While calculating investment income no deduction will be allowed for any actual expenditure incurred to earn such income. Similarly, while calculating LTCG on sale of forex assets no deduction will be allowed for transfer expenses. It is important to note that the basic exemption and deductions under chapter VI A that is applicable to all individuals will also not be allowed to be adjusted against such incomes.

The investment income will be chargeable to tax @ 20% + Surcharge+ Edu cess and LTCG will be chargeable to tax @ 10% + Surcharge + Edu cess.

Section 115E:- LTCG on forex assets can be exempted from tax if the entire net sale proceeds from such transfer are utilized by acquiring any of the following 2 assets within a period of 6 months from the date of the sale of the forex asset:

  1. Any Forex asset or;

  2. Certificates notified u/s 10(4B) of the Income Tax Act

Section 115G:- The return of income need not be filed by an NRI, if both the following conditions are satisfied: -

  1. The NRI has not other taxable income in India other than those incomes, which are referred in Section 115D, i.e. Investment income and LTCG on sale of forex assets.

  2. The Tax deducted at source from these incomes has been correctly deducted at source

Section 115I:- Once the NRI becomes a resident in India based on his days of stay, by default he gets governed by the normal provisions of the Income Tax act. However, if special provisions as mentioned above are more beneficial then these provisions can still be applicable to him. For this purpose, he will need to file an application to his assessing officer at the time of filing his return of income.

NRI Taxation