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. Dividends received on shares of Indian companies and on units of Mutual Funds.
iii. Any sum received under life insurance policy 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.
iv. Long term capital gains earned upto Rs. 1,00,000 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;
v. Long term capital gains earned upto Rs. 1,00,000 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.
vi. 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.
vii. 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;
viii. 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.
NRIs may plan investments in India to achieve tax efficiency on above investments.
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 a 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 receives a notice from the Income Tax Department to explain the source of investments made in India.