Tax Exemption for NRIs (Income Tax, Wealth Tax, and Gift Tax)

Tax Exemption for NRIs (Income Tax, Wealth Tax, and Gift Tax)

The rules guiding taxes and tax exemptions are quite different for NRIs as compared to resident Indians. Both a resident Indian and an NRI like you would be interested to learn about and take advantage of the benefits of tax exemptions. So, let’s take a look at the details of tax exemption benefits available to NRIs.

Exemptions from Income Tax

As an NRI, you can enjoy tax exemption in India on income from the following:

  • Deposits in the Non-Resident External (NRE) Account
  • Deposits in the Foreign Currency Non-Resident (FCNR) Account
  • Units held with Unit Trust of India (UTI) Mutual Fund and other designated mutual funds
  • Dividends that have been declared by an Indian company
  • Any amount received under a life insurance policy upon the policy’s maturity
  • Long-term capital gains up to ₹1,00,000 that you have earned by selling the units of an equity-oriented fund
  • The remuneration that you receive by being an employee of a foreign enterprise qualifies for tax exemption if it is for the services that you have rendered during your stay in India.

However, there are conditions attached to it.

  • The enterprise should not be involved in any business or trading activity in India.
  • Your stay in India during the previous financial year should have been equal to or less than 90 days.
  • If you are employed on a foreign shipping line, then the remuneration that you receive from the company qualifies for exemption. But, there is a condition: Your stay in India during the previous financial year should have been equal to or less than 90 days.

Exemptions from Wealth Tax

Every financial year, wealth tax is payable by an individual based on his/her net wealth. An Indian citizen and a resident but not ordinarily resident (RNOR) would pay tax for his/her global net wealth. For others, it would pertain to only the assets located in India.

For wealth tax purposes, your assets might include items like:

  • Residential and/or commercial building
  • Farmhouse
  • Guesthouse
  • Cars, yachts/boats, or aircraft
  • Jewelry and bullion
  • Gold and silver utensils
  • Urban landholding
  • Cash in hand in excess of ₹50,000

You won’t need to pay any tax up to ₹10,000,000. Thereafter, the wealth tax is levied at 1%.

Exemptions from Gift Tax

Under the Liberalized Remittance Scheme (LRS) of the Foreign Exchange Management Act (FEMA), a resident Indian can send remittance of up to $2,50,000 per year for different purposes. These purposes include gift, donation, maintenance of a relative, etc. Earlier, such a gift was fully exempt.

However, there has been a rule change. This amount of money is deemed to have accrued in India. Hence, gifts received by a non-resident as remittance from India are taxable in India. But gifts received from certain specified relatives won’t be treated as income and, hence, won’t attract tax liability. Relatives include spouses, siblings, siblings of the spouse, spouses of the sibling, parents, and siblings of either parent.

Hopefully, this information is helpful to you in understanding the scope of the tax exemptions as they apply to you.

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