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NRIs Taxes and Taxation Rules

Non resident Indians owning assets in India are faced with confusion when it comes to paying taxes, filing returns, filling up clearance certificate forms and making investments. We address a few issues here:

An Income Tax Clearance Certificate:
A resident Indian proceeding overseas for employment has to apply for an Income Tax Clearance Certificate on Form 31, as per Section 230 (I) of the Income Tax Act 1961. The Assessing Officer assessing the applicant’s form would provide Form 32 which authorises the application.

Informing the IT authorities before taking up employment abroad
Other than the Income Tax Clearance Certificate, no other information needs to be given to the IT authorities before taking up employment.

NRI Income in India
All income earned by NRIs in India is taxable and returns are to be filed every year. Under Section 9 (I) (ii) of the IT Act, salary earned in India is chargeable to tax.

Under Section 115G of the IT Act, it is not mandatory for a non-resident Indian to file returns if the tax on his Indian income constituting investment income and long term gains  has been deducted at source

NRI Income Abroad
Non-resident Indians are exempt from paying taxes on their foreign income

NRIs selling ESOPs abroad
While the individual is still a non-resident, he can sell his stock options without paying any tax in India. However, if he has a ‘resident’ status, the sale would be chargeable to tax.

Sale of Investments in GDRs and ADRs of an Indian company
Again, the residential status determines the taxability of the income. As GDRS and ADRs are foreign securities, NRIs do not pay tax on this income in India

NRI Investment in Indian Stock Market
Since the income earned on the stocks arises in India, it is subject to tax in India.

Returning NRIs bringing Savings to India
No taxes are paid on income earned and received abroad

When India does not share a Double Taxation Agreement with another country.
No taxes are paid in India if income is earned outside India. Where no double tax agreements exist, certain deductions are permitted based on proof that tax has been paid in the resident country.

NRI as a consultant to Indian companies
The income received in India by NRIs is taxable.

Income Earned by a Resident Indian on a short-time assignment abroad
As a ‘resident’ Indian, not having met the eligibility status of NRI, tax is payable.
A deduction of 75% can be applied for within 6 months of the end of the financial year under Section 80RRA by technicians. The rest of the allowance is taxed at a marginal rate. Technicians include individuals working on construction/manufacturing/mining/power generation etc; agricultural activities; public administration and business management; accountancy; applied sciences and social sciences

Resident Indian on Overseas Deputation by Indian Company
The income is taxable since the payment arises in India. This applies to salary as well as allowances. Again, technicians are permitted to avail of 75% tax deduction benefits under Section 80 RRA within 6 months of the end of the financial year. 25% of the income is charged at a marginal rate.

A non-resident Indian making any investment in India would have to quote his PAN for every transaction and to file returns on his Indian income.

Returning NRI Income Exempted from Tax
A NRI returning to India does not pay tax for 7 successive assessment years after his return to India on money and assets acquired abroad one year before his return to India. His NRE account is also exempt from tax in India.

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