NRI Taxes and Bona Fide Workers in the Middle East

NRI Taxes and Bona Fide Workers in the Middle East

Bona fide NRI workers in other countries, including the Middle East, don’t have to pay taxes on their foreign income.

Finance Minister Nirmala Sitharaman, who presented the union budget on February 1, 2020, had proposed taxing non-resident Indians who do not pay taxes abroad. The proposal created a lot of confusion and online protests.

However, leading tax advisors made it clear that an Indian who has a residence visa in the Middle East will not be taxed in his or her home country. Further clarification came from the finance minister herself. She said, “NRIs working in the Middle East, North Africa, and other parts of the world must pay taxes on their income, which they earn in India, and not on the income they earn outside the country.”

What Changed for NRIs Since the 2020 Budget

For a non-resident Indian earning more than Rs 15 lakh in a financial year, the rules determining whether or not someone is an NRI from a tax perspective have changed.

Which Income is Taxable Now?

All income generated in India becomes taxable. The Indian taxation system depends on the source of the income generated. The tax collector can tax NRIs on par with resident Indians on income generated from:

  • A property in India
  • Capital gains out of the transfer of property or assets in India. The assets also include investments in shares, securities, etc.
  • Interest from bank deposits, including savings accounts
  • Salary received in India

Abolition of Dividend Distribution Tax

The Finance Ministry has also abolished the Dividend Distribution Tax, popularly known as DDT. Now, the dividend income with the shareholders and unitholders will be taxed. Previously, it was tax-free for NRIs.

According to the amendment, the NRI would be taxed at 20% of the dividend income. They will be taxed only at 10% if the dividend is received from Global Depository Receipts (GDR) of an Indian company, and the payment has been made in foreign currency.

NRIs can also benefit from Double Tax Avoidance Agreements (tax treaties) that India has signed with various countries to avoid double taxation and improve their income.

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