As an NRI (non-resident Indian), you may be eligible for certain tax deductions and exemptions while filing your taxes in India.
Here are some of the commonly available tax deductions available to NRIs as well to reduce your tax liability:
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Standard Deduction: NRIs are eligible to claim a standard deduction of up to Rs. 50,000 on their salary income. Suppose as an NRI you have a salary income of Rs. 6 lakhs for the financial year 2022-23, which is taxable in India. So here you are eligible to claim a standard deduction of ₹50,000, and the remaining will be taxable income, that is ₹5.5 lakhs.
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Deduction on Health Insurance Premium: As per section 80D of the Income Tax Act, as an NRI you are also eligible to claim a deduction of up to ₹25,000 on the premium paid towards health insurance policies for yourself, your spouse, and your dependent children. Let’s say you’re paying a premium of ₹20,000 for a financial year including you and your family then you can claim a deduction of ₹20,000 while filing an ITR.
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Interest earned on Savings Bank Account: An NRI holding an NRO account can claim a deduction under section 80TTA for interest earned on savings accounts up to a maximum of ₹10,000 in a financial year.
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Standard deduction on rental income: NRIs are allowed to claim a standard deduction of 30% on income earned from rented-out properties in India under section 24 of house property deduction.
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Deduction u/s 80C:
Section 80C allows an overall deduction of up to ₹1.5 lakhs from taxable income.
- Public Provident Fund (PPF): NRIs are not allowed to open a new PPF account, but if they had opened an account while they were resident Indians, they can continue to make contributions and claim a deduction under Section 80C.
- Equity-Linked Savings Scheme (ELSS): NRIs can invest in ELSS funds and claim a deduction of up to ₹1.5 lakhs under section 80C while filing an ITR.
- Tax-Saving Fixed Deposits: As an NRI, you can invest in tax-saving fixed deposits (FDs). To be eligible for tax benefits, the lock-in period is 5 years.
- Life Insurance Premium: NRIs can claim a deduction of up to Rs. 1.5 lakhs u/s 80C on the premium paid towards life insurance policies for themselves, spouse, and dependent children.
- Repayment of Home Loan Principal: NRIs can also claim a deduction on the principal repayment of a home loan for a property in India.
Tax Exemptions available to NRIs
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NRE and FCNR deposits: Interest earned on non-resident external (NRE) and foreign currency non-resident (FCNR) deposits is exempt from tax in India.
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1 Lakh exemption on LTCG: Let’s say you’re holding units of equity-oriented funds and you plan to sell it after 12 months then it is considered as long-term capital gains (LTCG), which is taxable at 10% exceeding Rs.1 lakh exemption, similar as residents.
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Long-term capital gains exemption:
NRI who sell a property in India may be subject to capital gains tax. However, there are certain exemptions available under the Income Tax Act that NRIs can avail of to reduce or eliminate their tax liability.
- Section 54: let’s say an NRI sells residential property in India for ₹1 crore, and the LTCG on the sale is ₹50 lakh. If the NRI reinvests the entire ₹50 lakhs in another residential property in India within the specified time limit, they can also claim an exemption from long-term capital gains tax.
- Section 54F: As an NRI if you sell shares of ₹45 lakhs in an Indian company and have an LTCG of ₹25 lakhs on its sale proceeds. If you reinvest the entire ₹25 lakhs in a residential property in India within the specified time limit, the exemption is available to NRIs as well on these LTCGs.
- Section 54EC: If you sell a commercial property in India as an NRI for ₹2 crores and the LTCG on the sale is ₹1 crore. Now, if you invest ₹50 lakhs in any specified bonds issued by NHAI or REC within six months of the sale, then you can claim an exemption from long-term capital gains tax on ₹50 lakhs. The maximum deduction allowed here is ₹50 lakhs.
It’s important to note that the eligibility for such deductions and exemptions is subject to certain conditions and limits.