6 Tax Benefits available to you as an NRI: Paying taxes to the government is one of the most significant duties of every citizen as by paying taxes, you contribute not only to the country’s economic progress but also its infrastructural progress. Non-resident Indians are also subjected to Indian tax laws and regulations if they are engaged in business, or they have an account which is actively involved in transactions in India. However, the government has made some amendments which provide many benefits to NRIs.
If you are an NRI, you are subject to different exemptions provided by the government. The subsequent sections mention such six provisions as per current laws that provide tax benefits to NRIs:
- Deductions Allowed Under Section 80C (Maximum up to Rs 1.5 lakhs)
Life Insurance Premium Payment: You can claim deductions on the premium paid for life insurance for NRI up to Rs 1.5 lakhs if the policy is under your, your spouse’s or your children’s names. However, the premium paid for life insurance for NRI must be less than 10% of the sum assured. Many insurance companies offer specific life insurance for NRIs, like term plans, ULIPs, investment plans etc., and you can choose one that suits your needs the best.
- Children’s Tuition Fee Payment: The tuition fees that have been paid to any school, college or any reputed educational institution within India for full-time education are tax deductible. However, the exemption is made available only for two children in a family.
- Principal Repayments on Loan on A Purchase of House Property: You can claim a deduction for repayment of the principal of any loan which you have taken for buying or constructing a residential house. The exemption is also allowed for stamp duty, registration fees etc. related to the transfers of the properties.
- Deductions Allowed Under Section 80D
You can avail deduction on premium paid towards health insurance up to Rs 25,000 for insurance of self, spouse and kids. If you are a senior citizen, you can avail deduction of up to Rs 50,000 against this head. Additionally, you can claim a deduction for insurance of parents up to Rs 50,000 if your parents are senior citizens and Rs 25,000 if the parents are not senior citizens. Also, within the limits as detailed above, a deduction of up to Rs 5,000 is also available for preventive health check-ups.
- Deductions Allowed Under Section 80E
Under the provision of this section, you can claim a deduction of interest paid on education loan which is taken for higher education for self, spouse, children or a student for whom you are the legal guardian. The amount that can be claimed does not have an upper limit, however, this deduction is only available for a maximum of 8 years or till the time interest is paid, whichever is earlier.
- Deduction Allowed Under Section 80TTA
A deduction on income accruing from interest on savings bank account can be claimed up to a maximum of Rs 10,000.
- Special Tax Provisions for NRE Account
The Foreign Exchange Management Act (FEMA) guidelines stipulate that NRIs cannot have saving accounts in their name in India. It is thus mandatory that you open an NRE/NRO account.
NRE account can be any kind of account, including savings, current, recurring or fixed deposits. You can only deposit foreign currency in this account, which gets converted into Indian rupees at the time of deposit. The money from this account may be repatriated at any time. The interest accrued in this account is not taxable. What is more, is this account can be maintained for up to 2 more years after an NRI shift back to India.
- Other Tax Benefits
Normally, long-term capital gains, i.e. if a property is sold after being held for more than 3 years, are taxed at the rate of 20%. However, you can claim exemption from this tax under the sections 54, 54EC and 54F which have special provisions for reinvestment of the capital gain.
You can also avoid double taxation by seeking relief under provisions of Double Taxation Avoidance Agreements (DTAA). There are two methods to claim tax relief under DTAA – exemption method and tax credit method. Under the exemption method, NRIs are taxed in only one country and exempted in the other while in the tax credit method, the income is taxed in both countries, and tax relief can be claimed in the country of residence. However, it is important to note that for availing any tax benefits under the DTAA you need to obtain a Tax Residency Certificate.