Being an NRI, it is quite an uphill task maintaining one’s finances. Apart from ensuring that you are doing the right things abroad, you have also got to maintain that things are in perfect order in your own country India. There are many things that undergo changes with your residential status with tax rules being one of the foremost amongst them. Few things need to be done differently if you happen to be an NRI. If you are not keeping yourself updated with the latest tax rules then filing the taxes and dealing with your Savings Account can indeed become a matter of a headache.
Here are a few things to follow to make sure that you make good financial decisions and plan better both your tax and savings better:
Planning the taxes well – Prior to discussing how you can save your taxes as an NRI, the first and foremost thing to know are the taxes pertinent to you, as you would be taxed totally different in comparison to a residential Indian.
Defining taxability– As an NRI, you only need to pay tax for what you earn in India and not for what you earn abroad. The fundamental rule here is the same for both Indian residents and NRIs. If your annual income exceeds Rs.2,50,000 you are liable to pay taxes as an NRI just like a residential Indian would have to do. But a residential Indian has to pay taxes on the interest they earn from their savings account as well. However, an NRI doesn’t need to pay any taxes earned from their FCNR (Foreign Currency Non-Residents Account) and NRE (Non-Residential Accounts). The vital aspect to keep in mind is that as tax rules differ from one country to another, one might have to pay taxes for goods or things that are tax exempted in India. Hence, having knowledge of taxes in India won’t suffice for the reckoning. As an NRI, you also need to be equally well-acquainted with the tax rules and norms in your country of residence.
Calculated filing for tax returns– If a person in India has a source of income, it is obligatory for him/her to file returns. The source of income can be anything but you must file returns the moment it exceeds the aforementioned limit of Rs.2, 50,000. However, the good thing in this regard is that deductions can be claimed by an NRI just like any other residential Indian.
As an NRI, what you need to do first is to check if there is a Double Tax Avoidance Agreement (DTAA) between your country of residence and India. If they do have a DTAA with India then you can opt for a tax credit for the taxes that are paid in India. In the majority of the cases, there is no need to worry regarding the deduction of taxes for it is already done before one receives it. For example, for Fixed Deposits and Mutual Funds, the taxes are already deducted beforehand.
How to save taxes- Taxes can be saved by proper investments in life and health insurance policies, bank deposits, home loan, education loan and Mutual Funds.
Here are a few saving tips to aid you to save proficiently-
- If you have any plan of returning to India in the near future and possess a Non-Resident Ordinary (NRO) rupee account, it is better and profitable for you if you convert it into an NRE account for that will help save TDS. A maximum transferable amount limit of USD 1 million from NRO to NRE accounts is allowed by the Reserve Bank of India (RBI). However, that tax needs to be paid before the transfer is done.
- Also if you are someone who likes to invest, then it is highly recommended to scatter your investments rather than putting them all in a single place. Not only does it reduce the risk factor but also simultaneously increases the possibilities of getting enhanced returns as well.
Thus, by getting oneself fully acquainted with the tax rules and following the above tips, an NRI can be on the right side of things when it comes to complying with tax rules as well as in facilitating his/her tax savings.