Income Tax Deductions, Exemptions, Reliefs In Income Tax Act – NRIs, PIOs, OCIs, Expatriates

Non-Resident Indians (NRIs), Person of Indian Origin Residing Abroad (PIOs) earn various types of income in India. In relation to this income, NRIs, PIOs file ITR in India. Under Income Tax Act, there are various deductions and exemptions available. NRIs, PIOs, OCIs, Exptriates can claim these deductions and exemptions. In this way, they can lower their tax liability in India. Hereunder are details of major deductions and exemptions.

Basic Income Tax Slab

There is a basic exemption slab available to all individuals including NRIs, OCIs, Expatriates. Limits of this exemption are as under for the present relevant year:

  • FY 2018-19: Rs 2.50 Lakh
  • FY 2019-20: Rs 2.50 Lakh

It means that if total income of an NRI or Expatriate is within this limit, then he/she need not to pay any tax in India.

NRE Interest Income

U/s 10(4)(ii) of the Income Tax Act, Interest Income From NRE Account is exempt. Hence, NRIs, OCIs, PIOs are eligible to seek benefit of this section on their deposits under NRE Accounts (Saving and Fixed Deposit both).

Interest on House Loan

NRIs, PIOs, OCIs, Expatriates are allowed to claim Interest on House Loan as deduction in following manner:

  • If there is Rental Income From Property: As a deduction from House Property Income
  • If there is no Rental Income From Property: Deduction from Other Heads of Income

Above deduction is subject matter of actual interest amount of maximum limit of Rs 2 Lakh, whichever is lower.

Capital Gain Exemption

NRIs, PIOs, Expatriates are eligible to claim exemption again any capital gain income arising to them by investing money in Capital Gain Tax Saving Investments.

Income Earned Outside India

NRIs, Expatriates, PIOs, OCIs cannot be taxed on their foreign country income if their residential status in India is Non-Resident or Not Ordinary Resident.

Scholarships Income

Under Section 10(16) of the Income Tax Act in India, scholarships granted to meet the cost of eductation is exempt from tax. Hence, students, who go abroad for education or higher eductation, can claim this exemption.

Gifts From Relatives

On many occassions, NRIs, PIOs, OCIs receive gifts from their family or relatives. If this gift is received from a person who is covered under the definition of Relative (U/s 56(2)) then the same is not taxable in the recipient. Even if NRIs, OCIs, PIOs give Gift to their Family or Relative in India, the Gift is not taxable if the person comes within the definition of Relative (U/s 56(2)). Under the definition of Relative, includes following personss:

  • Parents
  • Children
  • Brother/Sister
  • Brother/Sister of spouse
  • Brother or Sister of Parents

Long Term Capital Gain On Shares/Mutual Funds

NRIs, PIOs, Expatriates are exempt from long term capital gain arising on sale transactions of equity shares and equity oriented mutual funds. Long term capital gains arise on sale of these assets after one year from the date of purchase. This exemption is subject to long term capital gain arising upto Rs 1 Lakh in a financial year. If long term capital gain on shares or mutual funds exceed Rs 1 Lakh then it is taxable @10%.

Foreign Tax Credit

NRIs, PIOs, OCIs, Expatriates can claim tax credit of double taxed income. Eg NRIs pay taxes in India on any income they can claim a tax credit of these taxes in their home country. Similarly, if any NRI, PIO, Expatriate who has become Resident in India and pay taxes outside India on any income, then he can claim credit of those taxes under Foreign Tax Credit category in the Indian ITR. For this, he need to submit a declaration form also with the Indian Tax Authorities in Form 67.

Deduction U/s 80C – Investment In Various Schemes

NRIs, PIOs, OCIs, Expatriates can easily bring down their taxable income by investing in various tax saving schemes. Sec 80C of the Income Tax Act provides dedction on investment/payment in

  • ELSS Mutual Funds
  • Insurance Policy
  • Unit Linked Insurance Plan (ULIP)
  • Children School Tuition Fee
  • Principal payment of House Loan
  • etc

This deduction is for an amount upto Rs 1.50 Lakhs in a financial year.

Interest Income On Deposits in Saving Account, Deposits – Sec 80TTA

NRIs, Expatriates, PIOs are eligible to claim a deduction in relation to their interest income as under:

  • 80TTA, Interest On Saving Bank Account: Upto Rs 10,000 in a financial year.

Other Deductions Under Chapter VIA – From Total Income

There are various other deductions available from Gross Total Income, which NRIs, PIOs, Expatriates can claim. Briefly some of those deductions are:

Nature of Deduction Source

Section

Amount (Rs) Remarks
Mediclaim Insurance Policy – Policy for Self, Spouse, Children 80D 25000 Policy From Govt Approved Insurer
Mediclaim Insurance Policy – Policy for Parents 80D 25000 Policy From Govt Approved Insurer
Medical Expense On Parents 80D 50000 Expense incurred where policy is not taken
Preventive Health Check Up 80D  5000 For Health Check ups
Interest payment on Education Loan – By NRIs, Expatriates, PIOs etc in relation to loan taken for  Education of Self, Spouse, Children. 80E No Limit Education from Board,  University recognised by Govt of India.
Donation – By NRIs, Expatriates, PIOs to Charitable Organisations, Various Relief Funds etc. 80G Any amount Max limit of deduction is subject to certain % of Gross Total Income.
       

Various Deductions Under Chapter VIA – Not Available To Non-Resident NRIs, PIOs – Available to Residents Only

There are various other deductions, which can be claimed by NRIs, PIOs, OCIs, Expatriates if they are Resident in India in any year. Hence, in general, we can say that NOR, Expatriates can be eligible to claim these deductions. NRIs, PIOs, OCIs, who are living & staying abroad, they may not be able to claim these deductions. These. Briefly these deductions are:

Nature of Deduction Source

Section

Amount (Rs) Remarks
Mediclaim Expense or Insurance Policy – For Disabled Dependent 80DD 75,000 Dependent means spouse, children, sibling, parents.
Mediclaim Expense or Insurance Policy – For Severely Disabled Dependent 80DD 125,000 Severely Dependent means if disability is 80% or more.
Medical Treatment of Specified Disease 80DDB  40,000

 

Rs 1 Lakh for senior citizen
Investment In PPF 80C 150,000 Investment in PPF Not Allowed to NRIs, PIOs
Interest on Deposits 80TTB  50,000 Deduction is allowed to Resident Senior Citizen ie person with more than 60 years.
Person With Disability 80U  75,000 Standard Deduction
Person With Severe Disability 80U 125,000 Allowed without any expense incurrence
Senior Citizen Tax Slab

 

300,000 Person 60 years or more
Super Senior Citizen Tax Slab 500,000 Person 80 years or more

FAQ

Can an NRI/PIO, who has returned back to India, can claim exemption of NRE Bank Account Interest?

If an NRI, PIO, who has returned back to India, can claim NRE Interest Income exemption if he is permitted to hold NRE Account as per the RBI regulations.

Contacts

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