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In focus-Taxation and Investment avenues
for Non-resident Indians (NRIs)

Confused about your India related investments?


Wondering about the tax implications on each of them?

The below article provides a brief description of the asset classes permissible to NRIs, with the
tax implications on each of them.

So, go ahead and use the power of knowledge and become a smart NRI Investor!

Investment avenues permissible for NRIs-


The following investment avenues are permissible for NRIs
i) Bank deposits
ii) Equity, Mutual Funds and Exchange Traded Funds (ETF)
iii) Real Estate
iv) Insurance

Taxation regulations for NRIs


The income of NRI accruing or arising in India is taxable in India. The income tax slabs for NRIs
is as follows :

Income Rate

Under Rs. 1,60,000 Nil

1,60,001 – 5,00,000 10%

5,00,001 – 8,00,000 20%

Over Rs. 8,00,000 30%

Please note that the amount of income tax shall be increased by 3% education cess.

Tax implications on Investments


i) Bank deposits- An NRI can hold three types of deposits- Non Resident External Account
(NRE), Non Resident Ordinary Account (NRO) and Foreign Currency Non Resident Indian
Account (FCNR) on the basis of the currency and source of deposits and earns interest on
the same.
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Tax Implications -
Interest on NRO deposit is taxable, Interest on NRE deposit & FCNR deposit are exempt.

Withholding Tax Implications (WHT) on interest-


• NRO deposits- WHT at the rate of 30.90% (30% plus 3% education cess) or rate
specified in Double Taxation Avoidance Treaty (DTAA) with respective country of
residence of NRI whichever is lower.
• NRE deposits- No WHT
• FCNR deposits- No WHT

Important note- Benefit of DTAA can be availed only if NRI has submitted valid PAN details,
proof of residency and other documents as prescribed within specified time.

ii) Equity, Mutual Funds and ETFs- NRIs can invest in equity, specified mutual funds and ETFs
in India. Investment in equity can be made either through PIS (Portfolio Investment scheme)
or through IPOs
a) Dividend Tax Implications –
Dividends on which dividend distribution tax has been paid by domestic company are
tax-free.

b) Capital Gain Tax Implications-


Shares of a company or any other security listed in a recognised stock exchange or a unit
of a Mutual Fund specified under section 10 (23D) of the Act held for a period more than
twelve months is treated as long term capital asset and those held for not more than
twelve months is treated as short term capital asset.

• For Equity and Equity Oriented Mutual Funds on which securities transaction tax has
been paid
a) Long-Term Capital Gains tax is NIL
b) Short-Term Capital Gains tax is payable @15.45% (15% plus 3% education cess)
others
• Others, inclusive of debt mutual funds
a) Long-Term Capital Gains tax is 10.30% (10% plus 3% education cess) without
indexation
b) Short-Term Capital Gains tax is payable at slab rates applicable

ETFs are taxed on the same lines as debt mutual funds

Withholding Tax Implications :


Tax on capital gains will be withhold as per the rates specified above.
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iii) Real Estate-NRIs can purchase real estate in India, other than agricultural property

a) Tax Implications for Income from House property :


The annual value of property shall be taxable as Income from House Property except 1
self occupied residential property. Annual value of the property would be calculated as
higher of rent received or receivable or notional rent as prescribed.

Following deductions are allowed from the annual value as computed above :
• Municipal taxes paid to local authority
• 30% of (Annual value – Tax paid)
• Interest paid on borrowed capital

However, if the interest is paid for self occupied property then deduction for interest on loan
borrowed shall be Rs. 1.5 lacs subject to conditions.

b) Capital Gain Tax Implications


Property held for a period more than thirty-six months is treated as long term capital
asset and those held for not more than thirty-six months is treated as short term capital
asset. On sale of property, depending upon the holding period, the seller will either earn
short-term of long-term capital gains.

• Long-Term Capital Gains tax is 20.60% (20% plus 3% education cess) after indexation
• Short-Term Capital Gains tax is payable at slab rates applicable
• In either case, once the tax is paid, the money is freely repatriable. Repatriation is
restricted to a maximum of two properties in a life time.

Please note if the capital gain earned on sale of residential house or any capital asset
other than residential house is invested in other residential house then the capital
gain on such asset is exempt from tax as per section 54 (no cap on residential
houses) and 54F (cap of two residential houses) respectively of the Act. However,
such capital gain can also be exempt if the money is deposited in the Bonds specified
u/s 54EC of the Act.

iv) Insurance-
a) Life Insurance
Life Insurance is a good way to protect your family, while at the same time, gives
tax-benefits under section 80C to you
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Tax Implication-
• Tax deduction available upto INR 100,000 (Please note that the maximum limit of Rs.
1,00,000 is available aggregate of Section 80C along with section 80CCC and 80CCD of
the Act)
• Maturity proceeds are tax-free under current Tax laws

b) Medical Insurance
Section 80D of the Act allows you to claim tax deductions for Medical Insurance Premia
paid for yourself and your spouse, parents and dependent children.

Tax Implication-
• Tax deduction available upto INR 15,000 for self, spouse and dependent children.
• Further tax deduction available upto INR 15,000 for parents.

Please note that in case any of the persons as specified above is a senior citizens i.e.
above the age of sixty five years then tax benefit upto Rs. 20,000 shall be available instead
of Rs. 15.000.

Implications as per proposed Direct Taxes Code (DTC) -


The DTC is proposed to be effective from April 1, 2011. Some of the major implications as per
DTC for NRI are as follows :

• Tax Slab under DTC

Income Rate

Under Rs. 1,60,000 Nil

1,60,001 – 10,00,000 10%

10,00,001 – 25,00,000 20%

Over Rs. 25,00,000 30%

The basic exemption for women and senior citizens above the age of sixty five years
shall be Rs. 1,90,000 and 2,40,000 respectively. Also, DTC is silent of applicability of
surcharge or cess. Further the deduction limit for savings in specified investments has
been proposed to be increased from Rs. 1 lakh to Rs. 3 lakh.
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• Income from House Property :

Under the DTC, in case of let out property gross rent taxable shall be amount of rent
received or receivable and 20% of gross rent shall be allowed as deduction. In case of
house property which is not let out, gross rent shall be nil and no deduction for taxes or
interest shall be allowed. However, in case of any one house property which is not let
out deduction on account of interest on capital borrowed for acquisition or construction
shall be allowed only up to Rs. 1.5 lakh per annum.

• Capital Gains

Income under the head ‘Capital Gains’ will be considered as income from ordinary
sources taxed at the maximum marginal rate as follows-

• Listed equity shares or units of an equity oriented fund held for more than one year
from the end of the financial year - Capital gains would be computed after allowing
deduction at a specified percentage of capital gains. Please note that benefit of
indexation would not be allowed. Also the specific rate of deduction for computing
capital gains is yet to be finalised.

• Other assets held for more than one year - Capital gain would be computed after
allowing indexation benefit.

• Assets held for less than one year - Capital gains would be computed without any
specified deduction or indexation benefit.

Please note that the base date of indexation is proposed to be shifed from April 1, 1981 to April
1, 2000. Also, STT is proposed to be calibrated.

Following capital gain are exempt from tax :

Gain arising on sale of Residential property / other property is exempt if such capital gain is
invested in another residential property provided that only one residential property is owned by
the NRI.

“Taxation and Investment avenues for NRIs” was covered as a topic in an exclusive webinar
organised by ICICI Bank NRI Services, presented by Mr. Sandeep Shanbhag.

For more details on topics and to obtain responses to your queries, please visit the NRI Engage
section of www.icicibank.com/nri
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Please note that the tax write up below is for the general understanding and reference. The
user need to verify all the facts, law and contents with the text of the prevailing statutes and
seek appropriate professional advice before acting on the basis of any information contained
herein as the taxation implications may vary depending upon the facts in each case /
interpretation by tax authorities and the tax laws are subject to change from time to time. ICICI
Bank Ltd expressly disclaims any liability to any person, in respect of anything done or omitted
to be done by any such person by placing reliance upon the contents of this write-up.

Definition of NRI:

An Individual who is not a resident under the Income-tax Act, 1961 (the “Act”) is a
non-resident in India.

As per the Act an Individual is said to be resident of India if he satisfies any of the
following 2 basic conditions :
a) He is in India for more than 182 days in the previous year, or
b) He is in India for more than 365 days in the 4 years preceeding the previous
year and more than 60 days in the previous year.

In the case of an individual on visit to India or a member of the crew of an Indian


ship or a person leaving India for employment outside India, the requirement of stay
in India of 60 days in condition (b) above is extended to 182 days.

An Individual is said to be resident but not ordinarily resident of India if-


a) He has been non-resident in India in 9 out of 10 years preceeding the previous
year or
b) He has been in India for 729 or less days during 7 years preceeding the previous
year.
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NRI Expert Speak

The scope of taxation for NRIs is extremely vast, given the


various facets that have to be taken into account. Mr. Sandeep
Shanbhag, an eminent personality in the field of NRI Taxation
guides you through the various aspects of taxation.

In this edition, Mr. Shanbhag answers queries on gifts to spouses from NRIs.

In the last article, we had covered “Gifting an Income to a non-earning spouse in India”.
To summarise, the important points were

• NRE accounts are in Indian banks and hence subject to laws in force in India
• The Income Tax Act specifically exempts interest from NRE accounts from tax,
however, other tax provisions are still applicable

In this edition, we will answer queries related to remittances for NRIs

“What is the tax I have to pay if I remit money to my spouse or a friend? Are there any
tax implications on jewellery, shares etc. Gifted to my relatives?”

Remittances sent by NRIs to their relatives are tax-free as India has discontinued gift tax
since 1998. Now, any sum money, sent to relatives remains tax-free. However, for a
non-relative, any sum above Rs. 50,000 will be taxable in the hands of the recipient. It
may be noted that the entire sum if it is over and above Rs. 50,000 is taxable and not just
the incremental amount above Rs. 50,000.

The value of any non cash property such as land or building, shares and securities,
jewellery, drawings, paintings, sculptures or any works of art etc. transferred without
consideration are subject to income tax in the hands of the recipient, as mandated
through Budget 2009

For immovable property the stamp duty valuation will be considered whereas for
movable property, the fair market value on the date of the gift will be considered for
arriving at the assessable value.

We hope you found this article useful. Do send in all your NRI taxation queries, and we
will try to answer them. In the next edition, we will cover another interesting aspect of
NRI Taxation.

Till then, Happy Investing!


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What’s new at ICICI Bank

At ICICI Bank it is our constant endeavor to make banking convenient for you. As a part of
this endeavour, we have enabled the following features which will help simplify your
banking transactions

Phone Banking: To help you manage your India banking needs while you are away we have
enabled the following features on all our Phone Banking Numbers

Mini Statement through IVR Request for a cheque book Apply for or Renew a Fixed
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Banking user ID instruction

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corporate office in Mumbai, India. This activity should not be construed as solicitation by ICICI Bank and/or its affiliates/group companies. The
invitation, information provided herein is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use
would be contrary to law or regulation. Reference to certain product and services in the newsletter or otherwise is for illustration purpose only
and should not be construed as solicitation by ICICI Bank and/or its affiliates/group companies and is subject to product/service specific terms
& conditions. Please familiarise yourself with the terms and conditions applicable, available at www.icicibank.com.

Please note that NRI Edge is a bouquet of features/facilities offered by ICICI Bank on the following NRI-based products and services 1) NRE SB
Account 2) NRO SB Account. 3) NRE FD 4) NRO FD 5) FCNR FD. Insurance cover is available at the sole discretion of the customer. By providing
your contact details, you understand and agree that your details would be shared with the insurance provider for verifying customers identity in
case of claims. Investment benefits: ICICI Bank makes and has made no representation or warranty as to the quality, condition, fitness and
performance of the third party products and services covered under NRI. Edge Facility. Further, ICICI Bank does not warranty that any third party
products/services shall be uninterrupted, timely, accurate, reliable, correct or secure; that such products/services shall be available at any
particular time or location; that any defects or errors will be corrected; ICICI Bank shall not be liable or responsible in any manner whatsoever
for any loss , damage cause by availing third party products/services or any demurrage costs or for any defect or variation in the quality, condition
or fitness or performance of such products/services or any guarantees or warrantees given by third party. Depending on your current or
permanent country of residence some of the products and services might not be available to you. Please contact us for more details. The
opinions, views rendered here are of a third party and ICICI Bank representatives in their individual capacity and ICICI Bank shall not be
responsible or liable for any loss or damage arising by relying on such views, opinions. Nothing herein is intended to constitute legal, tax,
securities or investment advice, or opinion regarding the appropriateness of any investment or a solicitation for any product or service. The use
of any information set out herein is entirely at the recipient's own risk.