I am an engineer working in Saudi Arabia and I am repatriating my income to India through remittances to my Non-Resident External Account (NRE). How to report remittances in income tax return (ITR)?
-Jaydip Patel
Indian income tax law does not tax income earned by a non-resident outside India unless it is directly earned in India. Once such income is earned outside India, it cannot be said to be “received” in India after its subsequent remittance to India. Therefore, any internal transfers to the NRE account will not be taxable in India. Therefore, you are not obliged to report the internal transfer in your tax return.
I am a 45-year-old non-resident Indian (NRI) living in Dubai and have some investments in India, including fixed deposits and rental properties. What are the current tax rules for NRIs regarding income earned in India?
— Name withheld upon request
Since you have not mentioned the type of fixed deposits you have opened in India, I will explain the taxation of income arising from all three types of deposits that non-residents can open in India. Interest accrued on non-resident foreign currency (FCNR) and non-resident external (NRE) deposits is tax-exempt in India, while interest accrued on non-resident ordinary (NRO) deposits is taxable in India.
The interest earned on NRO deposits would be classified under the heading ‘Income from other sources’ and would be taxed at the appropriate flat rates, regardless of whether you opt for the elderly or modern tax regime. Under certain court decisions, interest earned on NRO deposits created through foreign remittances may qualify for taxation at the rate of 20% (plus applicable fees and duties) under special rules applicable to NRIs. If you have opened NRO deposits from inward remittances, you can benefit from professional advice in this regard if you opt for these provisions.
The rental income earned by an NRI from rental properties is calculated and taxed in the same manner as that of a resident. You are entitled to a deduction for municipal taxes, a standard deduction (30% of the annual net value) and a deduction for interest on borrowed capital. Income from residential property will again be taxed at the appropriate rates, regardless of whether you choose the elderly or modern tax regime.
Harshal Bhuta is a partner in the licensed accounting firm PR Bhuta & Co.
Posted: May 27, 2024 17:36 EST
