Has it become extremely difficult to manage your income in India and abroad? As your income doubles, so do your responsibilities. But don’t worry! We have some tips that can help you plan your taxes and save better too. Read on.
If you’re an NRI, you’ll be aware of how complicated maintaining your finances are! Apart from planning them right while you’re abroad, you need to ensure that you’re doing everything right in India as well. A lot of things change according to your residential status and tax rules are one of them.
As an NRI, you’ll be expected to do a couple of things differently as compared to a resident Indian. Unless you’re aware of the latest tax rules, filing your taxes and maintaining your Savings Account could become a little troublesome for you.
Additional Reading: The NRI dream home in India!
To ensure that you don’t end up regretting having made a bad financial decision, we’ve put together a list of things that’ll help you plan better. If you stick to this list, both your taxes and savings will be sorted.
Before we take you through the best ways to plan your taxes, you first need to know what taxes are applicable to you. As an NRI, the way you’re taxed will be completely different compared to a resident Indian.
What is taxable?
- Any income earned or accrued as salary via India
- Any capital gains related to real estate or other capital investments in India
- The interest earned from any capital investments or securities and other such short-term investments in India
What isn’t taxable?
- Interest accrued from NRE account
- Allowance paid by the Indian Government for your services abroad
- Interest earned on bonds and specific saving certificates that were subscribed via foreign exchange (the country you’re currently residing in may tax you for this)
- Long-term gains from sale of equity (this is, however, subject to securities transaction)
Filing tax returns
If you have a source of income in India, and your income as an NRI is above Rs. 2,50,000 in India, you’ll need to file your returns. Your income source could be anything ranging from rent money to capital gains or interest (if it exceeds the taxable limit). The good news is that you can claim deductions like any other resident Indian.
While filing your returns in your new home country, you must check if they have a DTAA (Double Tax Avoidance Agreement) with India or not. In case they do, you can opt for tax credit for the taxes paid in India.
In most cases, you don’t need to worry about tax deductions since most of it is already done before you receive it. For instance, the tax deductions are already done for Mutual Fund withdrawals and Fixed Deposits.
You can save taxes by investing in pension plans, tax-saving Mutual Funds, and Life Insurance policies.
Confused about where and how to save? Don’t worry! Here are some tips to help you save better:
- If you don’t have any plans to return to India in the near future, and have an NRO (Non-Resident Ordinary) rupee account; convert it into an NRE account. That way, you’ll save on the TDS deductions. Did you know that the RBI allows a maximum transfer limit of up to USD 1 million from NRO to NRE accounts? But note that you need to pay your taxes before you make the transfer. Now that you know, make the most of it. All you need to do is get a certificate from a Chartered Accountant to your bank. That’s it!
- Are you investing enough? If yes, where? We hope that you’re diversifying your investments instead of putting them all in one place. This reduces risk and increases the chances of getting better returns too! Don’t remain stuck on Fixed Deposits. Try and explore other tax-efficient options like Mutual Funds.
- Real estate is definitely a great option for you to invest in. Confused about what’s the better option – investing in a flat or buying a piece of land? Don’t be! Buying a piece of land will work better for you and will yield better returns too. To avoid any complications, you need to have someone back here to take care of the property (unless you want to fly back each time there’s an issue).
- Have you ever considered Portfolio Management Services? If you haven’t, maybe you should. You basically get an expert to manage all your investment accounts. You could either give them the power of attorney and they can take all decisions on your behalf or you could use their expert advice and invest accordingly (on your own). Either way, your money is in better hands and you have experienced people managing it for you.
We hope those tax planning and saving tips help! Looking for an NRI Home Loan?
I am a Canadian citizen, previously Indian. I have some income in India. Recently, I went to India and wanted to invest in mutual funds to avail Section 80C deduction. I could not find a company which could invest my Rs150000 due to some rules that prevent such investment from Canadian or US citizens. My PPF has matured, therefore, I cannot put any more money into it. I need to invest 150000 each year to avail Section 80C deduction to save income tax. There seems no way I can do it. Can you suggest something?
Hi Nirmal, The issue with investing in Mutual Funds under Section 80C is that Mutual Funds have to register with the securities authority in US and Canada, for NRIs or PIOs to be able to invest in the funds in India. Due to the inconvenience faced, fund houses generally refuse such investments. As far as we know, NRIs / PIOs can invest in all instruments under Section 80C that apply to Indian residents. Please talk to a Chartered Accounted to see if you can find a way around this.
Great write up, Shrutika.
These are some great tips for NRIs which can help a lot.
One point that could be added for NRIs who plan to return to India at some time in the future is: before they leave India in the first place, open a PPF account so the 15 years lock-in clock starts ticking. If the plan is to come back in the future, keep investing and when you come back, let’s say 10 years later, you will have to only wait for 5 years to get the lump sum accessible 😉
Hope this helps.
Hi Amandeep Singh,
Thanks for writing to us. We hear you and we agree completely.
Have a nice day!
Hi.. you have mentioned about Portfolio Management Services however can you please elaborate the tax% for each categories such as LTCG, STCG and for FNOs.
Hi Raghu, The taxation for capital gains will be the same as that of a resident Indian. Please read this blog post for more information.