Non-resident Indians are one of biggest sources of foreign income to India. NRIs are allowed to keep their NSCs and PPF accounts but they must not extend after maturity. Now, government has closed saving window for non-resident Indians. But new rules say that existing PPF accounts will be closed and when you becomes an NRI NSCs will be treated as encashed. Also, these investments will earn just 4% till maturity. This article explains how to avoid TDS.
New tax rules for NRIs
New rules have been added to financial list that NRIs face in India. These Income tax rules for Non-residents are different from those for resident. Income that NRI earn abroad is not taxable in India. However, tax reporting is highly planned and TDS rules are hard. And NRIs do not enjoy some of tax benefits that common people are eligible for.
For example, NRIs are not eligible for some tax deductions as well as medical treatment of disabled depended (under sec 80DD), family member treatment for specified diseases (under sec 80DDB), self or dependent disability (under sec 80u) or income (under sec 80QQB). Also see Mutual Funds have many Tax Advantages
TDS can be pain for NRIs
Under India Income tax laws any payment made to non-resident is liable for TDS and such payment is chargeable to tax in India. Tax deduction at source is main pain point for NRIs. Resident investors who invest in stocks and mutual funds are not focus to TDS, but NRIs are.
In case of short-term capital gains from stocks are issue to 15% TDS and 30% high rate those who from debt funds and debentures, gold and property. Even long-term gains from gold and property has 20% TDS. However, TDS on interest on bank deposits is 10% for resident people, but NRIs have 30% TDS.
TDS rates for NRIs
So, if Non-resident earns rent from India property then tenant has to deduct 30% TDS from payment. There are various procedures required to add to problems. NRIs need to submit Form 15 CA for payment of their rental income. Check Section 80 C tax saving tool to save tax
In some cases, you need to give certificate wherein chartered accountant certifies details of payment, TDS rate and TDS deduction as per Section 195 or if any DTAA (Double Tax avoidance agreement is applicable and other details of payments. TDS is painful for older individuals whose incomes do not fall in tax net. Unlike resident Indians, NRIs cannot submit 15G Form or H to get away TDS. Even a person earning less than Rs 2.5 Lakh a year will be focused to 20-30% TDS.
How to avoid NRI TDS problem
There is one way NRIs can avoid high TDS by second holder in joint investments. In all investments, first holder will always tax charge. So, if first holder is a resident of Indian, then you will not be charges to any TDS. Similarly, if NRI is second holder in property then TDS will not apply unless rent is above Rs 50,000 a month.
Another method to get away tax is by investing in spouse or adult children, if they have resident status only. It is also good plan to give fixed deposits gifts to children or parents before going on an out of the country job because NRIs are not allowed to hold resident fixed deposits.
Methods to get away tax problem
If you already have fixed deposit jointly with resident family member then bank may allow deposit to be held till maturity or renew it further. If an NRI still want to hold deposit jointly, then you can open an NRO (non-resident ordinary) savings account with resident family member as second holder. You can also buy mutual funds with resident Indian as primary holder and NRI as joint holder.
But, equities cannot be invested jointly because NRIs who want to trade in Indian stock markets have to register with bank offering portfolio investment schemes. You need to keep in mind that joint holding only get away from TDS. Both investors and property owners have to bear tax liability on income.
How to claim tax benefits
Interest earned on NRE account is tax-free and you can exempt for two year after you returns to India. This is the best to retain deposits held in foreign currency in NRE account to earn tax-free interest for two more years. After two years, tax status will be change then these deposits can be moved to regular savings account.