Are you an Indian currently living abroad? Are you sending remittances to family overseas? Here are 5 tax rules to follow for non-resident Indians.
Taxes can be a source of uncertainty for non-resident Indians who lack clarity about their obligations. In the following article, we go over 5 tax rules you need to know to stay out of trouble if you are an Indian working abroad.
Who Are the Non-Resident Indians?
To be considered a non-resident Indian, it is enough just to move to another country for a week and work there.
If you stay longer than 182 days in India in one year, or 352 days over the course of four consecutive years, you are considered a resident.
If you are an Indian citizen who left the country for more than 182 days in one year, or 352 days over the course of four consecutive years, you are considered a non-resident.
The tax rules change for people who become non-resident Indians.
In certain cases, as a non-resident Indian, you are eligible for deductions: for example, if you are paying a premium life insurance in your name, your spouse’s name, or your child’s name. Also, if you are paying any tuition fees to an educational institution in India for your child, you are eligible for deductions too.
Non-resident Indians suffering from certain disabilities are also eligible for deductions. Keep in mind that the taxpayer must be the one who is suffering from the disability. If your parent, spouse, or child has a disability, you do not qualify for deductions.
If you are selling a property and reinvesting the money in specific bonds, you are eligible for exemptions.
After selling the property, you have 6 months to invest your money in these bonds if you want to claim the exemption.
You cannot take the money out from your bonds right away. You are only able to sell the bonds after 3 years from the day you made the investment.
1. Income Tax
You will pay income tax if you are making any income in India, or income that is received in India, no matter the location of the person sending you the money.
This includes salary, interest income from deposits, goods, and properties that are sold in India.
If you lived outside of India for more than a year, you can claim tax refunds for all of your income in India. Also, you will have to file a return for all the future financial losses if you do not plan to stay in India in the near future.
2. Taxes on External Income
If you decide to make a permanent return to India after living abroad for a few years, you will not pay taxes on your foreign income right away.
If you lived in another country for nine consecutive years and you return to India, you will go through a transition phase of two years. In this phase, you will not pay any taxes on income that derives from foreign sources and, after this, you will pay one tax for all your sources of income.
3. Avoid Double Taxation
You can easily avoid being taxed twice by claiming tax relief. According to the Double Tax Avoidance, you can avoid double taxation by either using the exemption method or the tax credit method. If you pick the exemption method, you will be taxed in only one country and exempted in the other.
The tax relief can help you get rid of paying taxes in the country that you are currently a resident.
4. Disclose All Your Assets
If you are planning to return back to India and you become a resident again, you have to disclose all of your assets. This includes more than just that you earned or own in India; it also includes assets such as properties and sources of income from abroad.
Your assets should be disclosed on your tax return. You will not be taxed on your external sources of income as you transition back to Indian residency. However, you will be fined if you do not reveal them.
After the transition phase is over, and you become a permanent resident of India, you will pay a global tax on all your sources of income.
5. Non-resident Indians Cannot Open a Public Provident Fund
A PPF is a savings account that is tax-free for Indian residents. If you opened a tax-free savings account before you became a non-resident, you are free to keep the account for 15 years. After 15 years have passed, you do not have the option to extend. Also, you cannot open a public provident fund once you move out of India.
Becoming informed about taxes is quite important if you want to save money by avoiding fines.
It is helpful for non-resident Indians to know what happens if they have multiple sources of income, both from India and their country of residence, as well as what to do if they send money abroad.
By simply being informed, you can avoid double taxation and file claims for deductions and exemptions.