Non-resident Indians have to pay tax and file a return in India if there income from sources in India exceeds Rs. 2,50,000 in financial year 2014-15. Similar to resident Indians some deductions are available to non-resident Indians in their tax return.Once of the most popular means of claiming a deduction from gross total income is via Section 80C. For financial year 2014-15 and financial year 2015-16, a maximum deduction of Rs. 1,50,000 is allowed under section 80C.
Of the deductions under Section 80C, those allowed to NRIs are:
Life insurance premium payment: This deduction can be claimed where the policy has been purchased in the NRI's name or in the name of their spouse or any child's name (the child may be dependent/independent, minor/major, or married/unmarried). To claim deduction under section 80C, the premium must be less than 10 per cent of sum assured.
Tuition fee payment: NRIs can claim tuition fees paid to any school, college, university or other educational institution situated within India for the purpose of full time education of their children (maximum 2). This includes payments for play school, pre-nursery and nursery.
Principal repayments on loan for purchase of house property: NRIs can claim deduction for repayment of loan taken for buying or constructing residential house property. Also allowed for stamp duty, registration fees and other expenses for purpose of transfer of such property to the NRI.
ULIPS or unit linked insurance plan: Investment in ULIPS is also allowed as a deduction under Section 80C. This includes contribution to Unit Linked Insurance Plan of LIC Mutual Fund e.g. Dhanraksha 1989 and contribution to Other Unit Linked Insurance Plan of UTI.
Other allowable deductions
Deduction from house property income for NRIs: Similar to Residents, NRIs can claim a deduction of maximum Rs.2,00,000 for interest paid on a home loan for a house property which is lying vacant. For a property which is rented out, the entire interest out go is allowed as a deduction. While calculating rental income of the house property, deduction towards property tax paid as well as 30 per cent standard deduction is allowed to be claimed.
Deduction under Section 80D: NRIs can claim a deduction for premium for health insurance of themselves and family or parents in India. This deduction is available up to Rs. 15,000 for insurance of self, spouse and dependent children and isRs.20,000, where an NRI or spouse is a senior citizen. NRI can claim a deduction for insurance of parents (father or mother or both) up to 20,000 if their parents are senior citizen and Rs. 15,000 if the parents are not senior citizens. Therefore, an NRI will be able to claim a maximum deduction of Rs. 40,000 under this section for FY 2014-15. Since FY 2012-13, within the existing limit a deduction of up to Rs. 5,000 for preventive health check-ups is also available.
Deduction under Section 80E: Section 80E allows NRIs to claim a deduction of interest paid on an education loan. This loan may have been taken for higher education for the NRI, or NRI's spouse or children or for a student for whom the NRI is a legal guardian. There is no limit on the amount which can be claimed as a deduction under this section. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. No deduction is allowed on the principal repayment of the loan.
Deduction under Section 80G: If eligible donations have been made as per section 80G of the income tax act, deduction is allowed to NRIs.
Deduction under Section 80TTA: Non-resident Indians are also allowed to claim a deduction on income from interest on savings bank account up to a maximum of Rs. 10,000 like resident Indians. This is allowed on deposits in savings account (not time deposits) with a bank, co-operative society or post office and is available starting FY 2012-13.
Let's take a look at some of the deductions which are not allowed to NRIs.
Deduction from house property income for NRIs: Similar to Residents, NRIs can claim a deduction of maximum Rs.2,00,000 for interest paid on a home loan for a house property which is lying vacant. For a property which is rented out, the entire interest out go is allowed as a deduction. While calculating rental income of the house property, deduction towards property tax paid as well as 30 per cent standard deduction is allowed to be claimed.
Deduction under Section 80D: NRIs can claim a deduction for premium for health insurance of themselves and family or parents in India. This deduction is available up to Rs. 15,000 for insurance of self, spouse and dependent children and isRs.20,000, where an NRI or spouse is a senior citizen. NRI can claim a deduction for insurance of parents (father or mother or both) up to 20,000 if their parents are senior citizen and Rs. 15,000 if the parents are not senior citizens. Therefore, an NRI will be able to claim a maximum deduction of Rs. 40,000 under this section for FY 2014-15. Since FY 2012-13, within the existing limit a deduction of up to Rs. 5,000 for preventive health check-ups is also available.
Deduction under Section 80E: Section 80E allows NRIs to claim a deduction of interest paid on an education loan. This loan may have been taken for higher education for the NRI, or NRI's spouse or children or for a student for whom the NRI is a legal guardian. There is no limit on the amount which can be claimed as a deduction under this section. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. No deduction is allowed on the principal repayment of the loan.
Deduction under Section 80G: If eligible donations have been made as per section 80G of the income tax act, deduction is allowed to NRIs.
Deduction under Section 80TTA: Non-resident Indians are also allowed to claim a deduction on income from interest on savings bank account up to a maximum of Rs. 10,000 like resident Indians. This is allowed on deposits in savings account (not time deposits) with a bank, co-operative society or post office and is available starting FY 2012-13.
Let's take a look at some of the deductions which are not allowed to NRIs.
Some investments mentioned under Section 80C may not be allowed to non-residents:
1. Investment in PPF are not allowed - NRIs may not be allowed to open new PPF accounts, however PPF accounts which are opened while they are were a Resident may be allowed to be maintained.
2. Investments made in NSCs
3. Post Office 5 Year Deposit Scheme
4. Senior Citizen Savings Scheme.
5. Investment under RGESS under section 80CCG: Deduction under section 80CCG or Rajiv Gandhi Equity Savings Scheme was introduced effective assessment year 2013-14. This deduction was allowed to increase participation of retail investor participation in equity markets. When the specified conditions are met deduction allowed is lower of 50 per cent of amount invested in equity shares or Rs.25,000. This deduction is not available to NRIs.
6. Deduction for the differently-abled under section 80DD: Deduction under this section is allowed for maintenance, including medical treatment of a handicapped dependent (a person with a disability as defined for this section) is not available to NRIs.
7. Deduction for the differently-abled under section 80DDB
8. Deduction under this section towards medical treatment for a dependant who is disabled (as certified by a prescribed specialist) is available only to Residents.
9. Deduction for the differently-abled under section 80U
10. Deduction for disability where the tax payer himself suffers from disability as defined in the section is allowed only to Resident Indians.
11. Exemption on sale of property for an NRI
12. Long-term capital gains (when property is held for more than 3 years) is taxed at 20 per cent. Do note that long-term capital gains earned by NRIs are subject to deduction of TDS.
13. NRIs are allowed to claim exemptions under section 54, Section 54EC and Section 54F on long-term capital gains. Therefore, an NRI can take benefit of the exemptions from capital gains at the time of filing a return and claim a refund of TDS deducted on Capital Gains.
14. Exemption under Section 54 is available on long-term capital gains on sale of a house property. Exemption under Section 54F is available on sale of any asset other than a house property. Whereas, exemption is available under Section 54 EC when capital gains from sale of a property is reinvested into specific bonds.
1. Investment in PPF are not allowed - NRIs may not be allowed to open new PPF accounts, however PPF accounts which are opened while they are were a Resident may be allowed to be maintained.
2. Investments made in NSCs
3. Post Office 5 Year Deposit Scheme
4. Senior Citizen Savings Scheme.
5. Investment under RGESS under section 80CCG: Deduction under section 80CCG or Rajiv Gandhi Equity Savings Scheme was introduced effective assessment year 2013-14. This deduction was allowed to increase participation of retail investor participation in equity markets. When the specified conditions are met deduction allowed is lower of 50 per cent of amount invested in equity shares or Rs.25,000. This deduction is not available to NRIs.
6. Deduction for the differently-abled under section 80DD: Deduction under this section is allowed for maintenance, including medical treatment of a handicapped dependent (a person with a disability as defined for this section) is not available to NRIs.
7. Deduction for the differently-abled under section 80DDB
8. Deduction under this section towards medical treatment for a dependant who is disabled (as certified by a prescribed specialist) is available only to Residents.
9. Deduction for the differently-abled under section 80U
10. Deduction for disability where the tax payer himself suffers from disability as defined in the section is allowed only to Resident Indians.
11. Exemption on sale of property for an NRI
12. Long-term capital gains (when property is held for more than 3 years) is taxed at 20 per cent. Do note that long-term capital gains earned by NRIs are subject to deduction of TDS.
13. NRIs are allowed to claim exemptions under section 54, Section 54EC and Section 54F on long-term capital gains. Therefore, an NRI can take benefit of the exemptions from capital gains at the time of filing a return and claim a refund of TDS deducted on Capital Gains.
14. Exemption under Section 54 is available on long-term capital gains on sale of a house property. Exemption under Section 54F is available on sale of any asset other than a house property. Whereas, exemption is available under Section 54 EC when capital gains from sale of a property is reinvested into specific bonds.
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