Tax Planning Strategies for NRIs: How to Minimize Double Taxation
Are you a Non-Resident Indian, settled in another country, and grappling with double taxation? Look no further than TaxDunia. Our team of professionals will assist in optimizing taxes and come up with personalized solutions to save taxes legally, while you can meet the compliance as well. This blog will offer you tax planning strategies and how you can minimize double taxation.
Double Taxation Avoidance Agreements (DTAAs)
One of the ways NRIs can save their taxes and minimize the effect of double taxation is by leveraging DTAA (Double Taxation Avoidance Agreements). India has signed the DTAA agreement with major countries in the world, and individuals residing in those countries can use the DTAA to minimize double taxation levied in both India and their country of residence. Under the DTAA agreement, India and the country of residence agreed to charge taxes at a specified rate.
Exemptions & Deductions
Under the Income Tax Act, NRIs are eligible to claim certain exemptions and deductions under certain provisions. These deductions and exemptions help reduce taxable income and eventually decrease the tax amount, optimizing tax with strategic planning.
Section 80C Deductions
If you have made investments in public provident funds, national savings certificates, ULIPs, or life insurance premiums, you can claim up to INR 1.5 lakhs per annum.
Deductions for Home Loan Interest
Up to INR 2 lakhs is allowable under section 24(b) for interest paid on a home loan taken for self-occupied properties in India. This benefit is provided to encourage the NRI make property investments in India.
National Pension Scheme (NPS)
Additional deductions up to INR 50,000 are allowed under section 80CCD for contributions to NPS. NRIs can save a significant amount from taxable income while creating a retirement corpus. It is a great way to save taxes and utilize them for retirement corpus.
Life Insurance Policies
Under section 80C, NRIs can claim deductions on life insurance policies along with tax exemptions under section 10(10D) on the maturity proceeds of life insurance policies.
Utilizing NRE and NRO Accounts
NRE Accounts: Non-Resident External Accounts offer a wide range of tax benefits. These are bank accounts designed for NRIs to manage their foreign earnings in India. It allows them to deposit funds in Indian Rupees.
Interest earned on NRE accounts is nontaxable in India, and the interest and principal sum are fully repatriable, making NREs an attractive option to park their foreign income.
NRO Accounts: Non-Resident Return Ordinary Account is a bank account for NRIs. It manages their holdings and income earned in India. NRO allows NRIs to receive funds in Indian or foreign currency but withdrawals and repayments are only in INR, suitable for managing domestic income from sources such as rent, dividends, or pension.
The interest earned on NRO accounts is taxable in India, but NRIs are allowed to deduct expenses incurred for earning the income.
Get Started with TaxDunia
The tax professionals at TaxDunia can better help you minimize double taxation. Our experts examine your case closely and then come up with a personalized plan so that you can get the maximum possible. Filing your ITR makes the process even smoother; therefore, begin with us today and ensure a hassle-free compliance.
FAQs
How does DTAA affect the NRIs and their income in India?
As the DTAA is an agreement signed between India and the country of residence, it prevents double taxation of non-resident Indians and offers them a much better option to save taxes.
How dividends received from Indian companies by NRIs are treated?
If there is no DTAA agreement between India and the country of residence, the dividends received by NRIs from Indian companies are taxed at the rate of 20% (plus cess and surcharge) under section 115A, subject to TDS. If DTAA is signed, then the rates would be as per the agreement.
Are capital gains received from selling a property in India by NRIs taxable?
Yes, capital gains received from selling a property in India attract taxes. The rate of taxability depends on the holding period, whether the gains are short-term or long-term. Exemptions are also available under sections 54 and 54F for reinvestment in a new property.
What steps can NRIs take to comply with repatriation tax regulations?
If NRIs transfer funds from India to the country of residence, they need to do the same with proper means such as NRE and NRO accounts. The funds should comply with the FEMA (Foreign Exchange Management Act) guidelines. They also have to comply with the Repatriation of Funds Regulations laid out by the Reserve Bank of India.
