Exempt Income for NRIs

Income exempt from taxation in India in the hands of Non-Resident Indian (NRI)

 

Certain specified income are completely exempt from tax in the hands of an individual who is a Non Resident in India under the Foreign Exchange Management Act 1999 and the Income-Tax Act, 1961(‘the Act’).

The details of such income on which NRIs enjoy exemption from tax are captured below:

i.       Interest earned on Non-Resident External (NRE) Account (a/c) and Foreign Currency Non Resident (FCNR).

ii.      Interest paid to NR or to RNOR on foreign currency deposits, i.e., FCNR and RFC deposits. The exemption for interest on RFC a/c and FCNR a/c continues till such time as the a/c holder continues to be RNOR;


iii.      Interest paid to NR or to RNOR on deposit made on or after April 1, 2005, in Offshore Banking Unit;


iv.      Interest paid to NR by unit located in International Finance Services Centre in respect of monies borrowed by said unit from NR on or after September 1, 2019;

v.      Any sum received (Including bonus) under life insurance policy/Unit Linked Insurance policies (ULIP(s)) upon maturity of policy, pre-mature withdrawal provided;

    • For a policy that was issued on or after April 1, 2003 but on or before March 31, 2012 and the yearly premium does not exceed 20% of the sum assured.
    • For a policy issued after April 1, 2012, the yearly premium does not exceed 10% of the sum assured; 
    • Any sum received on death or for any sum received under life insurance policy issued before 1 April 2003 is exempt even if the premium payment exceeds the threshold prescribed above.

    • According to Finance Act, 2021, any ULIP purchased on/after February 1, 2021, qualifies for tax exemption if
      • the annual premium for any financial year (FY) does not exceed 20%/10%/15%, as applicable of the sum assured; and
      • the total premium paid in any FY does not exceed Rs. 2,50,000/-.

However, in case of the policyholder’s death, the death benefit will be entirely tax-exempt

    • According to Finance Act, 2023, any life insurance policies other than ULIP issued on or after April 1, 2023, the tax exemption is available if-
      • the annual premium for any FY does not exceed 20%/10%/15%, as applicable of the sum assured; and
      • Annual premium payable for any year during the term of policy does not exceeds Rs. 5 lakhs. If the premium is payable by a person for more than one life insurance policy, the exemption shall be available only for those life insurance policies (other than ULIPs), where the aggregate amount of premium does not exceed Rs. 5 lakhs in any FY during the term of any of those policies

However, in case of the policyholder’s death, the death benefit will be entirely tax-exempt.


Please refer FAQs 5, 6 and 7 on Exempt income for NRIs for better understanding on availability of the exemption.


vi.       Long term capital gains earned upto Rs. 1,25,000/- upon of sale of units of an equity Oriented Fund or a Business Trust provided that STT has been paid on sale of such units.


vii.       Long term capital gains earned upto Rs. 1,25,000/- upon of sale of equity shares provided that STT has been paid on sale. However, if such equity shares are purchased after October 1, 2004, then STT is required to be paid on purchase also, subject to certain exceptions.


viii.       Transfer of Government security carrying periodic payment of interest made outside India by a NR to another NR;


ix.       Remuneration received by Foreign Diplomats / Consulate and their staff (subject to certain conditions);


x.       Royalty or fees received by a NR for technical services rendered in or outside India to the National Technical Research Organization;


xi.       Remuneration received by Non-Resident Individual, not being a citizen of India, as employee of a foreign enterprise for services rendered by him during his stay in India, if:

    • Foreign enterprise is not engaged in any trade or business in India;
    • His stay in India does not exceed in aggregate a period of 90 days in such previous year; and
    • Such remuneration is not liable to be deducted from the income of employer chargeable under this Act.

xiii.       Salary received by a Non-Resident Individual, not being a citizen of India, for services rendered in connection with his employment on a foreign ship if his total stay in India does not exceed 90 days in the previous year;


xiii.        Remuneration received by an Individual, who is not a citizen of India, as an employee of the Government of a foreign state during his stay in India in connection with his training in any Government Office/Statutory Undertaking, etc.


xiv.        Capital gains arising on transfer of eligible foreign currency Bonds or Global Depository Receipts (GDR) of Indian Company issued under GDR schemes or rupee denominated bond of an Indian Company (issued outside India) by one Non-Resident to another Non-Resident.


xv.         Any income which is chargeable to equalization levy under Chapter VIII of the Finance Act, 2016


xvi.        NRIs may plan investments in India to achieve tax efficiency on above investments.

Other points

Filing ROI - The exempt income earned by NRIs in India is also required to be reported in the Return of Income (ROI) filed by the NRI. This updated tax information/records help NRI to comply with procedural documentation for repatriation of income and assets held in India. It also helps to have records as and when they receive a notice from the Income Tax Department to explain the source of investments made in India

 


- Updated 11/2024