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, Expatriates 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 2020-21: Rs 2.50 Lakh
- FY 2021-22: Rs 2.50 Lakh
- FY 2022-23: 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.
New Taxation Slab FY 2020-21 (Optional)
Further to basic slabs exemption availability, under the prevailing law, wef FY 2020-21 (also applicable for thereafter years i.e. FY 2021-22, FY 2022-23 onwards), a new Tax Slab (Sec 115BAC) has also been introduced. Under this scheme, by forgoing certain exemptions and deductions, NRIs/Foreign Citizens can claim lower tax rates slabs. This new tax rate system is very much beneficial for NRIs/OCIs/Expatriates. For detail on new tax rates, please refer FY 2020-21 Onwards New Tax Rate System.
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.
Under Section 10(16) of the Income Tax Act in India, scholarships granted to meet the cost of education is exempt from tax. Hence, students, who go abroad for education or higher education, can claim this exemption.
Short Stay Exemption – Salary Income In India
Under Section 10(6)(vi), salary received by a foreign enterprise employee, in relation to services rendered in India, is exempt from Income Tax if stay in India is within 90 days during a financial year. Hence, all NRIs, Expatriates can be benefitted by this provision of law in relation to their salary income for their short stay in India.
Gifts From Relatives
On many occasions, 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 persons:
- 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 deduction on investment/payment in
- ELSS Mutual Funds
- Insurance Policy
- Unit Linked Insurance Plan (ULIP)
- Children School Tuition Fee
- Principal payment of House Loan
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
|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 recognized by Govt of India.|
|Donation – By NRIs, Expatriates, PIOs to Charitable Organizations, 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
|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|
Q: Can an NRI/PIO, who has returned back to India, can claim exemption of NRE Bank Account Interest?
Ans: 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. However, if NRI, PIO returns back to India with no intention to go back then he/she need to convert their NRO and NRE Bank accounts into Resident Account (RBI Regulations). Once account is so converted into Resident Account exemption will not be available for interest income.
Q: What are the exemptions and deductions, which NRI or a Foreign Citizen can claim in his ITR in India?
Ans: There are various exemptions, deductions, which NRI or Foreign Citizen (including PIO, OCI) can claim while filing of their Income Tax Return in India e.g. Education Loan Interest (80E), Basic Tax Exemption Slab, Investments in Tax Saving Schemes (80C), Gift From Relatives, Scholarship Income (10(16)), NRE Interest Income (Sec 10) etc. A detailed information about this is given above.
Q: Under Income Tax Act, Whether there are some restrictions for NRIs, PIOs, Other Foreign Citizens wrt claiming of Exemptions, Deductions, Reliefs as compared to Resident Indians?
Ans: Yes, under Income Tax Act, there are various deductions, exemptions, reliefs, which is available to Residents in India, however, the same is not available for Non-Residents. Some of those are Investment in PPF (80C), Interest on Deposits (80TTB), Disability Deduction (80U), Medical Expenses (80DD) etc.
Q: Can NRIs, PIOs, Foreign Citizens claim Basic Income Tax Slab Exemption in India under Income Tax Act.
Ans: Yes, under Income Tax Act, the basic income tax slab exemption (i.e. Rs 2.50 Lakh) is available to NRIs, PIOs, Foreign Citizens. However, they are not eligible for extended Income Tax Slab Exemption, which is available for Resident Senior Citizen or Super Senior Citizens.