The article highlights essential points that NRIs must consider while planning their taxes in India, including investments, deductions, and DTAA.
As a Non-Resident Indian (NRI), it’s important to plan for tax in India to ensure that you comply with the country’s tax laws. Failing to do so could result in penalties and legal issues, which can be both time-consuming and costly. This article outlines some essential points to consider when planning your tax as an NRI in India.
Understand Your Tax Residency Status
The first and foremost thing that an NRI should be aware of is their tax residency status. An NRI is considered a tax resident in India if they stay in the country for more than 182 days in a financial year. In this case, they are required to pay taxes on their global income.
On the other hand, if they do not stay in India for more than 182 days in a financial year, they are classified as non-resident Indians for tax purposes. In this case, they are required to pay taxes only on income earned or received in India.
File Your Income Tax Returns
It’s mandatory for every individual, including NRIs, to file income tax returns in India if their income exceeds the basic exemption limit. Even if you have no taxable income, filing your income tax returns is still important to avoid legal complications.
Moreover, filing your income tax returns on time can help you claim refunds on any excess tax paid. Failure to file income tax returns can result in penalties, interest, and legal issues.
Plan Your Investments Carefully
NRIs can invest in various financial instruments in India, such as fixed deposits, mutual funds, stocks, and bonds. However, different investment options come with varying tax implications.
For example, interest earned on fixed deposits is subject to TDS (tax deducted at source) of 30% if the NRI does not have a PAN (Permanent Account Number). On the other hand, equity investments held for more than one year are exempt from long-term capital gains tax.
It’s important to plan your investments carefully to minimize your tax liability. Consulting with a financial advisor or an NRI legal services provider can help you make informed investment decisions that align with your financial goals.
Take Advantage of Double Taxation Avoidance Agreements (DTAA)
India has signed Double Taxation Avoidance Agreements (DTAA) with over 90 countries to avoid double taxation of income. NRI residents of these countries can benefit from the DTAA by claiming tax credits in their home country for taxes paid in India.
For example, if an NRI residing in the US earns income from India and pays taxes on it in India, they can claim tax credits for the same income in the US to avoid double taxation.
Claim Deductions and Exemptions
NRIs are also eligible for various deductions and exemptions on their income tax. For example, NRIs can claim deductions for donations made to charitable institutions in India under Section 80G of the Income Tax Act.
Moreover, NRIs can also claim exemptions on their income tax if they invest in specified instruments such as National Pension System (NPS), Public Provident Fund (PPF), and Equity-Linked Saving Scheme (ELSS). Consulting with an NRI legal services provider can help you understand the deductions and exemptions available to you.
Understand the Tax Implications of Selling Property in India
NRIs who own property in India should also be aware of the tax implications of selling it. When an NRI sells their property in India, they are subject to capital gains tax.
If the property is held for more than two years, it’s classified as a long-term capital asset, and the capital gains tax is calculated at a lower rate of 20%. On the other hand, if the property is held for less than two years, it’s classified as a short-term capital asset, and the capital gains tax is calculated at the applicable income tax slab rate.
Moreover, NRIs are also required to obtain a Tax Deduction and Collection Account Number (TAN) before selling their property in India. This is to ensure that the TDS on the property sale is deposited with the government.
NRIS need to plan their property sale in India well in advance to avoid any legal complications and optimize their tax liability.
Get Professional Help
Navigating the complex tax laws in India can be challenging for NRIs. It’s essential to get professional help from an NRI legal services provider to ensure that you comply with all the tax laws in India.
An NRI legal service provider can help you understand your tax residency status, file your income tax returns, plan your investments, take advantage of DTAA, claim deductions and exemptions, understand the tax implications of selling property in India, and more.
They can also help you with legal issues related to property disputes, inheritance, and other matters.
Conclusion
Planning your tax as an NRI in India requires careful consideration and professional guidance. It’s important to understand your tax residency status, file your income tax returns, plan your investments, take advantage of DTAA, claim deductions and exemptions, understand the tax implications of selling property in India, and get professional help.
An NRI legal service provider can help you navigate the complex tax laws in India and ensure that you comply with all the legal requirements. Proper planning and professional guidance can minimise your tax liability and avoid legal complications.
Planning for tax in India can be a complex process for NRIs, but with the help of Vakilsearch, it can be simplified. They will provide you with expert assistance, help you with tax filing, and ensure that you comply with all of India’s tax laws and regulations. Contact Vakilsearch today to start planning for your tax in India.
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