Non resident Indians (NRIs) have tax benefit that are largely similar to resident Indians and the following exemptions are available on specific investments. Most of the benefits of Section 80C and others like Section 80D and Section 80G are also available to NRIs just like resident Indians.
NRIs are required to pay taxes on income earned in India during a particular financial year. So, any income that has been either accrued or received in India shall form part of the taxable income of NRI. Just like a resident India, an NRI must also take up tax saving in India to decrease tax liability and increase return on investments. Here are some of the key NRI investments with the concomitant tax benefits.
Deposits on NRE accounts with authorized banks
Here is what you need to know about tax exemptions on bank deposits for an NRI:
- Interest earned on Non Resident External (NRE) account is exempt from tax for an individual who qualifies as a ‘person resident outside India’ under the exchange control law.
- Interest earned on Non-Resident Ordinary (NRO) account (savings or fixed) is fully taxable like a resident account. However, like a resident Indian, a deduction up to Rs 10,000 can be claimed for each financial year.
- The interest earned on Foreign Currency Non-Resident (FCNR) account is tax-free. However, the principal amount is subject to wealth tax at the extant rates.
NRI now trade like Resident India. No PIS Account Required.
Open NRI Trading Account Now
How can NRIs claim deductions under Section 80C?
A deduction up to an overall ceiling Rs 1.5 lakh is allowed for the premium paid towards term insurance plans under Section 80C. NRIs can also avail the tax benefits on the premium payable when they buy the insurance policy online.
Apart from term insurance, NRIs can also claim benefits under Section 80C on contributions made to the Unit Linked Insurance Plans (ULIP) on schemes authorized by IRDA. As in the case of resident Indians, ULIP investment is eligible under Section 80C subject to a minimum lock-in of 5 years.
In addition, NRIs can also claim tax exemption on investments in Equity-linked savings schemes (ELSS) under Section 80C of the Income Tax Act. ELSS schemes can be purchased online, but that is only possible once the KYC is fully done as per the prevalent rules and regulations for NRIs. Of course, ELSS represents an equity investment and hence there is an element of market risk in ELSS. However, ELSS is a very tax efficient instrument for NRIs.
NRIs can also claim benefits of Section 24 for interest on home loans
Buying a house property allows the NRI to create a physical asset in India for post-retirement settlement but is also very tax efficient. The interest outflow and principal repayment are eligible for tax rebate. Total deduction for interest payment on home loans is Rs.1.50 lakh, whereas the principal amount repayment on home loan qualifies for tax rebate of Rs.1 lakh.
Can NRIs invest in the National Pension Scheme of the government?
NRIs are eligible to subscribe to NPS provided they have retained their Indian citizenship. This can be a very useful investment if the NRI plans to retire and settle down in India as it assures regular income. NRIs can contribute to NPS from either the NRE or the NRO accounts. There is one catch here. The pension must be received in India only and cannot be repatriated. NPS is also eligible for tax exemption. The other advantage of NPS is that it is classified as (Exempt-Exempt-Tax) EET and hence it is cost-effective. The government backing makes it virtually safe and secured. However, any withdrawal is subject to tax.
Make the best of Health Insurance Plans for NRIs
NRIs can buy health insurance IRDA authorized companies for themselves and their family members and claim deduction under Section 80D. The NRI can also avail the dual benefit structure for senior citizens and non-senior citizens. The deduction for health insurance is up to Rs25,000 for insurance of self and family. In addition, the NRI can claim deduction for insurance of parents up to Rs30,000 if their parents are a senior citizen (above 60 years).
Education loans may not be often used but they have no upper limit for exemption
Unlike most other exemptions, the big advantage of education loans is that there is really not an upper limit in this case. NRIs can avail educational loans and claim tax deductions on the interest paid under section 80E. The loan can be taken for higher education for self, spouse or children. The big advantage for an NRI is that there is no upper limit on the amount which can be claimed as a deduction. The only condition here is that the loan is available for a maximum period of 8 years and this exemption is only available on the interest component and not on the principal component.
In a nutshell, NRIs enjoy the same tax privileges as resident Indians. Quite often, NRIs are required to weigh the relative tax benefits of India vis-à-vis their country of residence.