India Budget 2021: TDS cut, remittance limit top NRI wish list

As we approach the budget date, expectations from the Prime Minister Narendra Modi’s government seem to soar with every passing day. The budget is going to be different than before as for the first time it will be completely paperless in the wake of ongoing Covid-19.

Everyone has been facing tough time with current Covid-19 situation around the world, the businesses have suffered, job losses are plenty, household budgets have taken a turn. It can be said that this budget is going to be one of the most awaited budget as everyone hopes for a relief from the government.

“What will the budget have for me”? Is the most important question that bothers most Non Resident Indians (NRIs).

Let’s try to summarise what taxes do the NRIs pay currently and what are they expecting from this budget.

Tax laws for NRIs vary significantly when compared to the laws that are applicable for resident Indians.

Some of them are:

•Income tax slabs for NRIs are based only on the income, barring any gender, age or other specification.

•In case of Tax Deducted at Source (TDS), all incomes of NRIs are charged irrespective of any threshold value.

•No nominal deductions are applicable on investment income except under specific situations.

•Tax filing is not normally required for NRIs if the income is subject to clauses under Section 115G of the Income Tax Act, 1961.

Normally, NRIs will be subject to tax in India if the income is sourced or received in India. As per the law income is divided into broadly five heads which are: income from salary; income from house property; capital gains; income from business or profession; and income from other sources.

Let’s try to understand how a NRI will calculate taxable income:

Income from salary

The salary income is taxable when it is received in India or someone receives on your behalf. Therefore, if you are an NRI and you receive your salary directly to an Indian account it will be subject to income tax in India. This income is taxed at the slab rate you belong to. Another important point to note is that salary will be considered to arise in India if your services are rendered in India. So even though you may be an NRI, but if your salary is paid towards services provided by you in India, it shall be taxed in India immaterial of where you are receiving the income. In most cases the NRIs may not fall in this category as they will not have salary income in India as they are already working abroad.

Income from house property

Income from a property which is situated in India is taxable for an NRI. The calculation of such income shall be in the same manner as for a resident. This property may be rented out or lying vacant. Currently the income tax allows a person to keep two properties as vacant or self-occupied properties without paying any tax on deemed rental. If there is more than two properties vacant then on the remaining property one has to pay the tax on the deemed rental based on the rental value of that locality. Further, a NRI is allowed to claim a standard deduction of 30 per cent, deduct property taxes, and take benefit of an interest deduction if there is a home loan. The NRI is also allowed a deduction for principal repayment under Section 80C. Stamp duty and registration charges paid on the purchase of a property can also be claimed under Section 80C. Income from house property is taxed at slab rates as applicable. For Example, an NRI owns a house property in Chennai and has rented it out while he lives in Dubai. He has set up the rent payments to be received directly in his bank account in Dubai. Even though rent is received directly in Dubai, income from this house which is in India shall be taxable in India. The direct remittance to Dubai account shall be only after making payment of TDS and subject to chartered accountants certificate for foreign remittance. As per the income tax laws a tenant who pays rent to a NRI owner must remember to deduct TDS at 30 per cent.

Capital gains

Any capital gain on transfer of capital asset which is situated in India shall be taxable in India. Capital gains on investments in India in shares, securities shall also be taxable in India. For example If you sell a house property and have a long-term capital gain, the buyer shall deduct TDS at 20 per cent.

Income from business or profession

Any income earned by an NRI from a business controlled or set up in India is taxable to the NRI.

Income from other sources

Interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on NRE and FCNR account is tax-free. Interest on NRO account, dividend etc. are taxable.

The income tax laws are quite stringent and above is just a small summary of the important parts.

Let us also understand that what are the deductions that are allowed for NRIs to save income tax?

• Allowed deductions for NRIs under Section 80C

• Life Insurance premium payment – Premium must be less than 10 per cent of sum assured and the insured must be the NRI, spouse or an children.

• Tuition fee payment – Fees paid to any institution in India for the full time education of any 2 children

• Principal payment on loan for purchase of house property — payment of EMI of a loan for a house property as well as stamp duty, registration fees and other expenses incurred in the transfer of a house property to an NRI will be allowed for tax deductions

• Investment in ULIPs – Investment in Unit Linked Insurance Plan of LIC Mutual Fund (Dhanraksha 1989) or ULIPs of UTI

• Deduction from House Property Income – Deduction up to a maximum of 2,00,000 for interest paid on a home loan for a house which is vacant and no limit on deduction for interest on rented property.

* Allowed deductions for NRIs under section 80D

• Premiums of health insurance of the immediate family and dependents maximum 50,000 depending on for whom the premium is being paid and age.

• Over and above that up to a maximum of 5,000 for preventive health check-ups.

• Allowed deductions for NRIs under Section 80E

• Deduction of interest paid on an education loan for the higher education of self, spouse, children or a dependent student subject to the earlier of a period of eight years or till the interest is paid. There is no cap for the interest amount.

• Allowed deductions for NRIs under Section 80G. Applicable only if appropriate donations have been made as per Section 80G of the income tax act

• Allowed deductions for NRIs under Section 80TTA

• Deductions up to a maximum of 10,000 on interest earned on savings bank account.

There are many other deductions based on the investments or expenditure allowed to NRIs in the law. Now since we already know what are the current tax structure for NRIs in India, here is the wishlist of what NRIs are expecting in this budget.

• Reduction on rate of Tax deduction at Source (TDS) : Currently all the income paid to NRIs in India are subject to highest rate of tax or rate specified in DTAA with respective countries. For example, rent payments are subject to 30 per cent tax, when NRI sells the property the buyer demands to deduct tax at 20 per cent on sale amount even if there is a loss in the property. In this budget we wish FM Nirmala Sitharaman consider the hardship of NRIs in claiming refunds due to unnecessary high deduction of TDS.

• More clarity with regards to the definition of NRIs and relaxation for NRIs stuck in India due to Covid for 4-5 months. This will be the most awaited announcement for most the of the NRIs as their tax planning will completely depend on this.

• Increase in the deductions limit linked to investments e.g. deductions u/s 80C, 80D, 80E etc.

• Increase in the limit of remittances from India to abroad from $1 million to a reasonable amount since the limit of has not been changed for so many years and NRIs need more money to be remitted abroad for various reasons e.g. Children’s education, medical purpose, buying properties etc.

• Special Covid relief rebate from the income for people suffering job losses or business losses.

• Rethinking on tax on long term equities as that will encourage more and more NRIs to invest in Indian Markets.

• Increase in the basic exemption limit with no conditions attached.

Dixit Jain is the managing director of The Tax Experts DMCC. Views expressed here are his own and do not reflect on newspaper’s policy