What are Deductions and Exemptions Tax laws for NRIs?

Section NRI Taxation under the Indian Income Tax Act, 1961, is applicable for people who are earning outside the home country India. It is of paramount importance to note that rules, regulations, perks, liabilities and exemptions of these people is vastly different to Income Tax laws applicable to residents of India. In the following paragraphs we shall deal in detail with about how you can determine your residential status and then we shall talk about deductions and exemptions for NRIs.

How do I Determine My Residential Status?

Your residential status determines your tax liability in India. According to the Indian Income Tax law, people are generally divided into two categories for tax purposes.

They are:

• Resident and
• Non-resident

Criterion for being a resident of India

Section 6 (1) of the Income Tax Act, 1961, lays down two sets of parameters to determine if a particular individual is Indian citizen or not. If the person meets any of the following two criteria, he/she will be deemed a resident of the country

Condition 1

An individual is in the country for 6 months (182 days to be more precise) or more in a financial year. The same is applicable to a Person of Indian Origin (PIO) who is on a visit to India. A PIO is a person whose parents or grandparents were born before the country was partitioned.

Or

An individual is in India for more than two months (60 days) in a financial year or lived for a whole year (365 days) or more during the last four years preceding immediately the current year.

Deductions and Exemptions for NRIs

Similar to resident citizens of India, NRIs too are eligible to claim several of the deductions listed under income tax rules and section 80C.

Deductions under Section 80C

NRIs too can enjoy the benefits of deductions under Section 80 in a way similar to Indian residents. For FY 2017-18, a maximum deduction of up to INR 1.5 lakhs is allowed under Section 80C for NRIs from their gross total income.

Deductions available to NRIs under Section 80C are enumerated as following:

• Payment of premium on life insurance: It is imperative for the policy to be issued to either the NRI, his spouse or his children who could be either dependent, independent, married, single, minor or major. Please note that the premium cannot exceed 10 per cent of the sum insured.
• Fee paid for children’s tuition: Tuition fee paid towards full-time education of two children in India. The child may be educated in pre-school, pre-nursery, nursery, school, college, university, etc.
• Loan taken for buying a house property: An NRI is allowed deduction on the loan if the NRI has taken a loan to build or purchase residential property in the country. The exemption is also allowed on stamp duty, registration fees and other expenses that the person may have to incur to transfer the property in his own name.
• Unit-linked insurance plan (ULIPS): To facilitate deduction under Section 80 C, ULIPS is sold with life insurance cover.
• Investments in ELSS: Equity Linked Saving Scheme (ELSS) has been a preferable investment vehicle for NRIs in in recent years as under Section 80 C, they can claim a deduction up to INR 1.5 lakhs. It offers a good way of increasing your capital as the fund is invested in equity market in a diversified manner to mitigate risks and maximize returns.

Other Deductions that are allowed

In addition to deduction allowed under Section 80C, an NRI is also qualified to demand rebate under different other existing Income tax laws which are discussed as following:

Deduction for a House Property purchased in India and Income received from it

Like an ordinary Indian citizen, the NRI too is eligible to lay claim to all the benefits and deductions from income from a house purchased in India.

Provision for Deductions allowed under Section 80D

NRIs are well within their rights to claim a deduction of INR 30,000 for premium they pay on health insurance. For senior citizens it has been increased to INR 50,000 from April 1, 2018. A deduction not exceeding INR 25,000 is allowed for premium paid on health insurance for spouse and dependent children. Also, deduction for insurance of either or both parents up to 50,000 is allowed if parents are senior citizens and 25,000 if they are not.

Provision for Deductions allowed under Section 80E

Under this Section, NRIs are allowed to claim deduction for any interest they are compelled to pay for educational loans they have taken. The loan can be for own higher education or that of the NRI’s spouse, children or for a person whose the NRI is a legal guardian.

Provision for Deduction under Section 80G

Under this Section, NRIs are allowed to claim a rebate for donations they make to social causes inside the country.

Provision for Deduction under Section 80 TTA

Like ordinary Indian residents, NRIs too can demand a deduction on income accruing from interest on savings account in a bank, post office or a co-operative society. The maximum limit is up to INR 10,000.