NRIs are citizens of India who are temporarily living in India, having a valid government-issued Indian passport. Also, citizens who reside abroad on a Visa for employment or business purposes are also known as NRIs. They also possess equal benefits to what Indian citizens get, such as the right to invest in India. NRI investment plans include Mutual Funds, Retirement Plans, NPS, ULIPs, Real Estate, equity, etc. Also, some plans offer tax-free investment options, which help increase wealth. This article will help explore different tax-free investment plans, exemptions & deductions thereon, hence making well-informed decisions which best align with your financial objectives.
Tax-Exempt Income for NRIs in India
Provided are the different types of income exempt from tax for NRIs:
- Interest on NRE & FCNR Accounts:
Interest received on NRE & FCMR accounts is exempt from tax.
- Interest on Notified Bonds & Government Savings Certificates:
Interest received on some notified bonds & government savings certificates is also exempt from tax.
- Dividends from Indian Companies:
Dividends received on Indian companies’ shares are also exempt from tax, but attract a TDS of 20%.
- Long-Term Capital Gains (LTCG):
Long-term capital gains earned on equity shares or equity-oriented mutual funds are subject to tax at 12.5% per annum on any amount above INR 1.25 lakhs yearly.
- Tax Exemptions Under Sections 54, 54EC, & 54F:
The long-term capital gains are exempt from tax under all these sections.
- Section 54:
It deals with an exemption on the amount of long-term capital gains earned from the sale of a residential property.
- Section 54F:
It allows exemption on the long-term capital gains earned from the sale of capital assets, such as shares, jewellery, etc.
- Section 54EC:
It allows exemption on any long-term capital gain earned if the gains are further reinvested in a house.
- Claiming TDS Refund on Capital Gains:
NRIs are allowed to get the TDS amount refunded on any capital gains earned at the time of income tax return filing.
Tax Deductions for NRIs in India
Provided are the different deductions under different sections of the income tax available for NRIs:
- Deductions Under Section 80C
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Life Insurance Premium Payment
The life insurance plan bought in the name of self, spouse & children by an NRI, any premium amount paid 10% less than the amount of sum assured is eligible for a tax deduction.
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Children’s Tuition Fees Payment
Tuition fees paid to any school, college, educational institute or university in India are eligible for a deduction of tax u/s 80C, maximum up to 2 children.
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Principal Repayment on Home Loans
The repayment of the principal amount of a home loan is eligible for a maximum tax deduction of up to INR 1.5 lakhs u/s 80C.
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Stamp Duty & Registration Charges
The amount spent on stamp duty or registration charges incurred on the purchase of propertyiseligible for a deduction of tax u/s 80C, a maximum of up to INR 1.5 lakhs.
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Unit Linked Insurance Plan (ULIPs)
Those who do not prefer long-term premium payments, one-time investment options in ULIPs are highly suggested. This means making a payment towards the premium amount in one go, which includes both the investment & insurance factor.The NRIs are eligible to avail a deduction of tax on the amount of interest received u/s 10(10D).
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NRI Investment in ELSS
It allows a deduction of taxation on the amount of investments made, a maximum of up to INR 1.5 lakhs per annum u/s 80C of Income Tax Act, 1961.
- Other Deductions
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Deduction of House Property Income for NRIs
Any income received from house property bought in India by an NRI is eligible for a deduction of tax u/s 80C. Additionally, interest received on a home loan & property tax paid are also eligible for a tax deduction.
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Deductions under Section 80D
The premium amount paid towards health insurance is eligible for a tax deduction upto INR 50,000 for self & parents, in case of more than 60 years of age. &, the deduction amount would be INR 25000 for self, parents, spouse, & dependent children in case of age less than 60 years.
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Deductions under Section 80E
Any interest amount paid on an educational loan is eligible for a tax deduction.
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NRI Deductions under Section 80G
NRIs are permitted to avail of a deduction towards the donation amount for social causes.
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Deductions Under Section 80TTA
Any income received in the form of interest on a savings bank account, up to a maximum of INR 10,000, is eligible for tax deduction.
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NRI Deductions under Section 24(b)
Any interest amount paid on the home loans for the purchase or construction of a self-occupied property is eligible for a maximum tax deduction of INR 2 lakhs.
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Section 80CCD(1)
Amount towards NPS is eligible for deductions up to 10% of their gross total income, a maximum of up to INR 1.5 lakhs.
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Section 80CCD(1B) – NPS
Any amount deposited towards NPS is eligible for an additional deduction of INR 50,000.
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Property Tax Deduction
The property tax paid by NRI on the rental properties in India can be deducted from the rental income they receive when the taxable income is calculated.
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Tax Exemption on Gifts
Any gift received from any individual, including parents, children, or siblings, is exempt from tax, up to INR 50,000. However, any gift received from a non-relative of more than INR 50,000 is taxable under the head “Income from Other Sources”.
Conclusion
As NRIs are allowed to invest in India, they should be well aware of the rules, regulations, taxes, & documentation required to do so. To make an informed decision, they can also take expert or professional advice, which will help them align the investment plan with their financial goals. NRIs get many tax-free investment plan options, like FCNR accounts, NRE fixed deposits, tax-free bonds, PPF, etc. These plans provide a sense of security, high returns, along with taxation benefits, hence increasing wealth.