Tax on salary income of an NRI

Income Tax Income from Salary
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Are you an NRI living outside India for a job? Then your income might be taxable in India under certain cases.

The taxability in India depends upon the residential status of an individual for the financial year. For some clarity, read about the residential status as per the IT Act.

An individual is an NRI (Non-Resident Indian) who is a citizen of India but resides outside India.

Moreover, if a specific number of days have been spent outside India and, consequently, a relative period of absence has been maintained in India, then you’re considered an NRI.

Your salary income is taxable in India in two cases,

Income received in India: If you are an NRI and you receive any salary in India directly into an Indian account, such salary income is taxable in India.

Income accrued in India: If the salary accrued for the services rendered in India, even though you may be an NRI if the salary is paid for services you provide in India, it shall be taxed here.

Example 1: Anyone working in the UK on a project for an Indian company for the last 2 years as a salaried employee. Is income taxable in India as well?

In such a case, salary is taxable in India since the income is accrued in India.

Example 2: You are an NRI, working from the US in a software company and you need to send some money to your family in India for a housing loan and other expenses. Is that salary income taxable in India?

No, the income is not taxable in India, in such cases, the taxes are already paid to the US as income earned and received in the US.

Example 3: You’re an individual, working as an employee in an Australian real estate company, living in India. Will it be taxable in India?

In this case, as you’re a resident individual, earning income sitting in India. Your salary received would be taxable in India itself.

The tax rates applicable to NRIs are the same as those applicable to resident Indians for the relevant financial year.

Tax Rates: Old Regime & New Regime

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Which ITR Form should NRI fill out?

NRI receiving income from salary, capital gains, or other sources, other than business or profession is required to file Form ITR-2. The due date for filing such a return is 31st July of the relevant financial year.

Is TDS applicable to NRI on salary income?

It is mandatory for the employer to deduct the TDS before making any payment to an NRI if the gross total income received exceeds Rs 2.5 lakh for any given financial year. Then an NRI can claim a credit for it while filing ITR.

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Hello,

I am a Student, studying in Germany. I left India on August 30th in 2022. And currently I am in Germany. I didnt go back to India uptill now.
Before Aug. 2023 I was working and earning in India. My employer deducted TDS in June 2022. I want to claim the tax.

How does it works, am I now NRI?
Do I have to change my Indian saving bank account status also?
What I have to take care while filing for tax this year for last year (2022-23)

Regards,
Manan

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Hi @Manan_Joshi

Based on this timeline, for FY 2022-23, you will be considered a Non-Resident Indian (NRI) for tax purposes in India.

Since your employer deducted TDS (Tax Deducted at Source) in June 2022, you need to file an income tax return in India to claim a refund for any excess tax deducted.

You need to convert your saving bank account into either NRO or NRE account to align with your NRI status.

While filing your ITR for the previous FY 2022-23, make sure to include all your income earned in India until August 2022 and provide the necessary details of your income, TDS deductions, and any applicable deductions or exemptions.

Read more about Income Tax for NRI and Foreign Income - Learn by Quicko.

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Thanks for your response Muskan,
FYI- (This is the first time I have left the country, before that, I was living, earning and paying taxes in India only)

Moreover, can you further help to understand the following,
So I have to change my all bank account status to NRO or NRE account then at income tax and other places automatically my status will be changed to NRI, right?
Do I have to mention anywhere while filing taxes that I am NRI, if yes then where in Quicko?
Can I fill my ITR now and later change my Bank Account status, once I am back in India or do I have to first change my Bank account status and then file the ITR?

Thankyou.

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Hi @Manan_Joshi

For FY 2022, your stay in India happens to be for a period of less than 182 days (152 days). Hence for that FY, you will be considered an NRI.

When you file your return for FY 2022-23, you will be reporting your salary income and hence can claim the TDS deducted from your salary to reduce the taxable income.

As per the FEMA guidelines, an NRI cannot have a savings account in his or her name in India.
So the NRI must convert all his savings account to NRE/NRO account.

It can help NRIs in two ways.

  1. They can send their foreign earnings to India at any point.
  2. They can also retain their income from India (via any assets) in the home country itself.
  • If you convert the account to NRE/NRO your residential status will not be automatically updated on the income tax e-filing portal. You will have to specifically select the status as NRI while filing your ITR.
  • Yes, you will have to select your residential status on Quicko under your profile section. Here’s an article for your reference. Add Profile Details on Quicko : Help Center
  • You can file your ITR now and later change the status of your bank account.
    Remember that 31st July 2023 is the last date to file ITR for FY 2022-23/AY 2023-24
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Hello,

I have 2 more doubts, I hope you can help me.

  1. Before coming abroad for studies. I sent money to Germany for education purposes in June 2022. Since it was more than 7 Lacs and not an education loan money so I paid TCS accordingly, somewhat 5%. It is also reflected in my AS26.
    I want to know if I can claim this TCS back while filing ITR this year ?
  2. In the last financial year I sent some stocks to my friend on Zerodha as a Gift/ Stock transfer. Now I read on Zerodha and other websites also about the tax implications. I found that in this case I am not liable for tax since I have not sold the stocks but transfer it from one Demat account to another as a gift. The receiver is liable for the tax upon selling those stocks.
    Here my Zerodha “Tax Profit Loss” statement is taking this transaction into account and including this as a profit and under taxable income, am I liable to pay tax on this or not?
    What options do I have in this case?
    Thankyou

Regards,
Manan Joshi.

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Hi @Manan_Joshi

  1. Yes you can claim the TCS while filing your ITR for FY 2O22-23.

  2. Your understanding seems to be correct. Since you’ve gifted shares to a non-relative (a friend) there shall be no tax liability on you. When your friend sells these shares, he will be liable to pay the capital gains tax.
    You can ignore these transactions from your Zerodha Tax P&L and pay tax on the remaining one. Make sure you’ve enough proof to show these shares they are gifted.
    You can also submit a request to Zerodha for the same. Here are 3 articles for your reference.
    Are there any income tax implications on the gifting of shares?
    Gift stocks and ETFs to your friends and family – Zerodha
    How to gift securities?

Hope this helps.

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Hi @Shrutika_Shah and @Muskan_Balar

I’m planning on moving to Saudi Arabia for work related purposes mid-September 2024. That would make my stay for FY24-25 less than 182 days in India for FY24-25.

Q1. I will be considered an NRI for the tax filing of FY24-25 right?

I would be earning into a bank account in Saudi Arabia after I move there and would be working for a Saudi company. And Saudi Arabia as a country doesn’t levy any income tax.

Q2. So, for FY24-25, would I have to pay any income tax in India for the money earned from my job there?

Of course I would pay tax for the income earned between April - September 2024 while I’m in India. My question is about the salary earned for my work in Saudi for the new company.

Q3. Also, does the amount of tax to be paid in India for the salary earned in Saudi depend on any scales (based on the amount earned), and are they dependent on any DTAA rules?

Requesting answers for these 3 questions, and any additional information is welcome. Thanks!

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Hey @vvvl22,

Yes, you’ll be considered an NRI.

As you’ll be an NRI, you won’t have to pay taxes in India for the income earned outside.

The income earned in Saudi will not be taxable in India as you’ll be an NRI.

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Hey @Surbhi_Pal ,

Thanks for the information.
However, while going through this article (Income Tax for NRI and Foreign Income - Learn by Quicko ), I realized that the number of days in India to be considered a resident has been changed to 120 days rather than 182 days.

So, does that qualify me as an NRI for FY24-25 if I leave the country mid-September?

However, the residential status calculator on quicko (Residential Status Calculator for Income Tax | Resident, NRI or RNOR status check | Quicko ) still considers me an NRI with the current scenario as it has the threshold as 182 days.

Could you please clarify on this front about the residential status and the eventual tax implications for the salary earned in Saudi Arabia from their company?

Thanks!

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Hi @vvvl22,

The article was written with respect to the changed rules during COVID-19. I’ll get it updated from the team. However, for now you can refer to the below thread for accurate information: