Dividend earned by NRIs is taxable in India from FY 2021. Here's what you need to know.

 Many Non-Resident Indians like to invest in the Indian market after moving abroad. The Indian stock market and other investment options allow NRIs to make an extra buck on their hard-earned money. However, one should know that this income is taxable in India. From FY2021, all income earned by dividends from shares of an Indian company is taxable in India. NRIs who receive dividends from their investments will be taxed 20%, surcharge plus 4% health and education cess.

Here’s everything you need to know about the NRI incomes that are taxed in India and how you can make the most of exemptions on your income.

Taxes on NRE Savings Accounts & NRO Savings Accounts

Most Non-Resident Indians either have an NRE Savings Account (Non-Resident External) or an NRO Savings Account (Non-Resident Ordinary). Income from NRO Savings Accounts is taxable in India, however, if the NRI’s resident country has issued a tax residency certificate, they may have to pay a lower tax rate on the interest income if the double taxation avoidance agreement (DTAA) is signed between the NRI’s home country and country of residence. Interest earned from NRE Savings Accounts is not taxed in India.

Salary Income

If an NRI has rendered his/her services in India and received remuneration for the same, this income is taxable in India irrespective of the place of receipt. The rate of tax will be applied as per the slab rate for the particular financial year.

Income from leasing property in India

Most Non-Resident Indians have properties in India which they rent out to make some additional income. It is to be noted that this income is taxed for NRIs on the same lines as resident Indians. Just like for most resident Indians, a standard deduction of 30%, deduction of property tax paid, and interest on home loans are granted to NRIs. NRIs can also claim Section 80C deduction for principal repayment, registration charges, and stamp duty. The income from house property is taxed as per individual slab rates applicable.

Not only is the NRI liable to pay tax but the tenant of the property also has to pay a 30% TDS deduction. The tenant is also required to file form 15CA and submit it to the income tax department.

Income from business

Many NRIs set up their businesses in India and then move abroad. The income from these businesses is accrued in India and hence, it is taxable in India.

Capital Gains Income

Residential property, shares, gold of Indian origin will be taxable in India. If NRIs transfer capital assets from India, they will be liable to pay capital gain tax same as a resident Indian.

In case an NRI decides to sell his/her residential property with more than 2 years holding period, the buyer has to deduct 20% TDS. If the holding period is not more than 2 years, then the TDS deducted has to be at 30%. NRIs can however claim capital gains exemption by investing in another residential property or by investing in capital gain bonds.

The capital gains coming after the sale of Indian stock and securities will be taxed as the same as for resident Indians. It’s considered a long-term capital gain if the holding is over 12 months and is taxed at 10% for gains over Rs. 1 lakh. For holdings, less than 12 months, 15% tax is charged. In the case of debt mutual funds, long-term capital gains are considered if the holding is for more than 36 months and is taxed at 20%. However, for anything less than 36 months, the tax will be at an individual slab rate.

Unlike resident Indians, NRIs cannot adjust their capital gains income from the basic exemption limit of Rs. 2.5 lakh.

Double taxation relief 

NRIs need not pay tax in India as well as their country of residence if the Double Taxation Avoidance Agreement (DTAA) is signed by the two countries. This allows the NRI to only be taxed in one country and exempted in another. 

 

Investing in Indian assets is always a good idea but one needs to be mindful of the ever-evolving tax laws in India and how one can make the most out of their investment. SBM Bank India offers a range of products and services that help you align with your financial goals. They have investment and tax experts on board, always ready to help you build and maintain an impressive portfolio so that you can make the most out of your hard-earned money.

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