NRIs are required to pay tax only on income originated or generated in India and can avail of certain tax saving options similar to Resident Indian and also some opportunities specific to NRIs.
NRIs can qualify for certain income exempt from Income Tax altogether. These are:
· Interest earned on Foreign Currency Non-Resident (Bank) [FCNR(B)] Deposits and Non-Resident Non-Repatriable [NRNR].
· Interest on notified bonds and savings certificate issued by the Government of India.
· The interest earned on Non-Resident External [NRE] accounts.
· Interest earned on Non-Resident Ordinary [NRO] savings accounts up to a limit
· Long-term capital gains up to Rs. 1-lakh from sale/redemption of shares or equity mutual funds.
· Long term capital gains on the sale of house property to extent reinvested in a new house property (u/s 54), invested in notified bonds of NHAI or REC (u/s 54EC), or on sale of a property other than a house if it is reinvested in a house property (u/s 54F).
Then there are certain deductions from rental income. Example Income from House property – interest on primary home loan upto 2 lakhs, property tax and standard deduction of 30%. Like resident Indians, NRIs can claim deductions on the purchase of house property in India. These deductions are for the property tax paid, interest on the home loan, and towards the principal amount.
Income tax deductions u/s 80C are available to all individual taxpayers with a total cap of Rs. 1.5-lakhs on them. Life insurance premium payments and Public provident fund are some of investments that qualify
National Pension Scheme for NRIs: Promoted by the Government of India, the NPS allows NRIs to build their retirement corpus with an additional Rs. 50,000 deduction u/s 80CCD 1(B) for investments in NPS.
Bank FDs: 5-year tax-saver bank fixed deposits are very popular among the NRIs as these are considered a safe investment option. You can open your FD using your FCNR, NRO, or NRE bank accounts. There is a lock-in of 5-years and the rate of interest depends on the bank and prevailing rates.
Health-related deductions u/s 80D: Medical insurance and preventive health check-ups for self and family up to Rs. 25,000 annually. Medical insurance and preventive health check-up of parents or parents-in-law also qualify.
For more details and current information refer to income tax website at https://incometaxindia.gov.in/Pages/i-am/non-resident.aspx