India’s income tax rules that came into effect from 1 September this year have a bearing on the tax liability of non-resident Indians (NRIs) who earn income back home from various sources.
A new section in the income tax laws stipulates that an individual is required to deduct tax at 5% for paying a sum in excess of INR 5m ($69,289; £57,318; €63,168), for carrying out any work in pursuance of a contract or by way of fees for professional services during a financial year.
Though residing outside India, most NRIs take out life insurance cover back home, mainly for availing tax exemptions. Under the new TDS (tax deducted at source) rule the maturity proceeds in a life insurance policy is tax-free only if the sum assured is at least ten times of the premium.
If the annual premium paid on the insurance policy is less than 10% of the sum assured, the amount received on maturity are exempt from tax.
For example, if the premium value stands at INR 100,000 ($1,385; £1,146; €1,262), the sum assured needs to be at least INR 1m ($138,522; £114,640; €126,311) for the maturity value to be tax-free.
Bond interest taxable
India’s Central Board of Direct Taxes has clarified that interest income from corporate bonds is taxable in India, irrespective of the residential status of the income earner, which means there is not discrimination between residents and NRIs.
The tax would be deducted at source by the payer or the company whose bonds the investors hold.
With the prevailing volatility in the stock market, there is a new love for capital guaranteed corporate bonds, and many NRIs now prefer to put their money in bonds.
If the investor is an NRI, tax deducted at source on interest income from corporate bonds is normally at 30%.
For all these incomes, the NRI is required to file an income tax return and pay taxes in India if the total taxable income exceeds INR250,000 ($3,464; £2,865; €3,158) in a year.
If the taxable income is below the maximum amount, the NRI has to file a tax return to claim refund of any excess tax deducted on the income.
Directorships in foreign firms
India’s Central Board of Direct Taxes has clarified that NRIs are no more required to reveal their directorships in foreign firms that do not generate any income from India.
An NRI taxpayer who is a director in a domestic firm, as well as in a foreign firm that does not have any income received in India, will only require to submit the details of directorship in the domestic firm.
