Exempt Income for Non-Residents

1. Which income of Non Resident (NR)s are exempt from tax in India?

Ans.

For NRs, certain incomes, although falling within the scope of total income of the individual, may still be exempt from tax. Such income has been specified under provisions of the Act. List of such incomes are as follows:

i. Interest earned on NRE a/c provided such person is “resident outside India” as per FEMA or permitted by RBI to maintain such a/c;

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. If 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) is transferred outside India, by one NR to another NR, then capital gains arising on such transfer are exempt from income tax;

vi. Any sum received under life insurance policy provided the policy was issued before April 1, 2003. Further, Any sum received under life insurance policy on death of any person. 

vii. Any sum received under life insurance policy provided the policy was issued on or after April 1, 2003 but on or before March 31, 2012 and yearly premium does not exceed 20% of the sum assured. In case of a policy issued after April 1, 2012, the sum received under the policy shall be exempt if the yearly premium does not exceed 10% of the sum assured;

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 NR, 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.

xii. Salary received by a NR, 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 FY;

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. In case of sale of units of an Equity Oriented Fund or a Business Trust, being a long-term capital asset, first Rs.1,00,000/- (Note 1) of gains arise on such sale shall be exempted provided that Securities Transaction Tax (STT) has been paid on sale of such units;

xv. In case of sale of equity shares, being a long-term capital asset, first Rs.1,00,000/- (Note 1) of gains arise on such sale shall be exempted provided that STT has been paid on sale. Further, if the said shares are purchased after October 1, 2004 then STT is required to be paid on purchase also, subject to certain exceptions.

Income of minor child included in income of parent is exempt from tax up to Rs. 1,500/- per minor child. However, no such exemption shall be available if individual opts for offering income to tax under the new regime. Refer to Chapter on Tax liability in India for taxability under the new regime.

2. Are STCG on sale of mutual fund units invested from NRE a/c exempt from tax?

Ans. No, only Interest income earned on deposits in NRE a/c are exempt from tax. Accordingly, income on any other investments credited to NRE a/c, unless specifically exempted under the Act, would be taxable.

3. Whether any unabsorbed amount from maximum amount not chargeable to tax of Rs 2,50,000/- can be utilized by NR to reduce Short Term Capital Gains (STCG) or Long Term Capital Gains (LTCG) taxable on sale of equity shares or units of an Equity Oriented Fund or a Business Trust?

Ans. No.

4. A NRI receives dividend in April, 2020 from shares of an Indian company and units of mutual fund. What is the taxation on such dividends received?

Ans. Dividends received from shares of an Indian Company and units of mutual funds shall be taxable in the hands of non-resident w.e.f 1st April, 2020. Accordingly, dividend received in April, 2020 shall be taxable in the hands of NRI as per the provisions of the Income Tax Act or DTAA rates (whichever is more beneficial). 

5. If any sum is received under life insurance policy on death of person, then whether the criteria of yearly premium up to 20%/10% of sum assured is to be considered to determine whether said income is exempt from tax for NR?

Ans. No, in case where any sum is received under life insurance policy on death of person, then entire sum received is exempt from tax.

6. What are the exemptions which are not available if individual opts to offer income under the new regime proposed recently under the Finance Act, 2020?

Ans.

Section

Particulars

10(5)

Leave Travel Concession

10(13A)

House Rent Allowance

10(14)

Allowance other than Transport Allowance granted to a divyang employee, Conveyance Allowance, travel on tour or transfer allowance and daily allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty

10(17)

Allowances to MPs/MLAs

10(32)

Deduction of income of minor child upto Rs. 1,500 per child for maximum 2 children

 

 













Note 1:

The said limit of exemption upto Rs. 1,00,000/- is cumulative limit for gains on sale of both units of an Equity Oriented Fund or a Business Trust and Equity Shares.

Updated 09/2023