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Mint
3 hours ago
- Business
- Mint
NRI taxation: How to claim special tax concessions
MUMBAI : Non-resident Indians (NRIs) and Persons of Indian Origin (PIOs) often maintain a financial footprint in India through shares, deposits, or other financial instruments. However, many are unaware of the benefits of the Income Tax Act's sections 115C and 115I, which provide concessional tax treatment on certain incomes. Mint explains who can claim these benefits on which assets and when. The types of income that qualify for concessions The concessions apply to two specific types of income. 'The special tax provisions apply to income from foreign exchange assets such as interest, dividends, etc., or anything derived from specified foreign exchange assets. Long-term capital gains (LTCG) from the sale of foreign exchange assets are also covered," said Hardik Mehta, managing committee member, Bombay Chartered Accountants Society. Also Read: Golden tax window for NRIs: What RNOR means and how to use it However, Laxmi Ahirwar, director at chartered accountant firm P.R. Bhuta & Co, clarified that NRIs can not claim any deduction under Chapter VI-A (sections 80C to 80U), adding that even the indexation benefit on LTCG is not available. Foreign exchange assets The definition of a foreign exchange asset is strictly linked to the source of funds. 'Specific assets acquired or purchased with, or subscribed, using convertible foreign exchange are classified as foreign exchange assets. These are: shares in a private or public limited Indian company, debentures issued by a public limited Indian company, deposits with a public limited Indian company, any security issued by the central government, or any other security that the central government may specify by issuing a notification," explained Ahirwar. Mehta added: 'When you transfer US dollars from your foreign bank account to your non-resident external (NRE) account, these funds are initially converted into INR before being deposited into the NRE account. Consequently, if equity shares are bought utilising funds from the NRE account, they are considered as foreign exchange assets. However, if the same shares are acquired using domestic funds from the non-resident ordinary (NRO) account, they will not qualify for the preferential tax rate under the special tax provisions." Funds transferred from NRO to NRE According to Ahirwar, funds routed through NRE accounts are generally eligible for concessional tax treatment under sections 115C to 115I of the Income Tax Act, provided the investment is made using foreign exchange remitted into India. In contrast, investments made using funds from NRO accounts are not eligible, as these typically consist of income earned or accumulated within India. A frequent point of confusion arises when funds are transferred from an NRO to an NRE account using Forms 15CA and 15CB, a process permitted under the Foreign Exchange Management Act (FEMA). However, Ahirwar clarified that simply moving funds in this manner does not automatically qualify them for tax concessions. The key factor remains the original source of the money—it must have been inwardly remitted in convertible foreign exchange, not generated or retained domestically. 'This area is often subject to litigation," Ahirwar noted, 'as tax authorities may ask for proof that the investment was made from genuine foreign exchange inflows and not converted from Indian income." Even if the funds sit in an NRE account, the origin trail must be clearly established. Also Read: Do NRIs have to pay tax on mutual fund gains in India? Ahirwar added that case laws have consistently emphasized that the source of funds takes precedence over the type of bank account used. Therefore, taxpayers must maintain proper documentation, such as bank remittance advice or foreign inward remittance certificates, to demonstrate compliance and claim concessional tax treatment with confidence. Under Section 115E, the tax rates are fixed and applied on a gross basis. Mehta shared that 'as per Section 115E, the special tax rate on investment income is 20% and on LTCG 12.5%. The above taxation is on a gross basis, and no deductions or indexation benefits are available to the assessee. For those reinvesting their LTCG, Mehta added, 'LTCG is exempted from tax if net consideration is invested within six months from the date of sale in another foreign exchange asset or a savings certificate." If the price of a new foreign exchange asset is less than the net sale consideration, the exemption would be computed proportionately. A three-year lock-in would be applicable to the new foreign exchange asset purchased. 'If the new asset is transferred or sold within three years of purchase, then the exemption claimed earlier will be taxable in the year in which the new asset was transferred or sold," he explained further. For example, Mr A sells shares that qualify as foreign exchange assets for ₹10 lakh and earns LTCG of ₹2 lakh on the sale. Per Section 115E, this LTCG would typically be taxed at 12.5% on a gross basis. However, if the NRI reinvests the entire net sale proceeds within six months in any specified asset or any other assets as the central government may specify, the LTCG can be exempted from tax. But Mr A reinvests only ₹8 lakh out of the ₹10 lakh net sale consideration into a specified asset. Because the reinvestment is less than the net sale consideration, the exemption on the LTCG will be computed proportionately. This means the exempted LTCG will be calculated as (LTCG/net sale consideration) multiplied by the amount reinvested. In this case, ( ₹2 lakh/ ₹10 lakh × ₹8 lakh) ₹1.6 lakh would be exempt from tax. The remaining ₹40,000 would be taxable. Furthermore, the new foreign exchange asset bought with the reinvested amount will have a mandatory lock-in period of three years. If the NRI sells or transfers this new asset before the completion of three years, the earlier exemption claimed on the LTCG will be reversed and taxed in the year of such transfer or sale. This rule ensures that the reinvestment is maintained for a minimum period to qualify for the exemption. Continuous tax exemption Even after the initial three-year lock-in period, NRIs can continue to enjoy exemptions on LTCG, provided the proceeds from the sale are reinvested into eligible foreign exchange assets within the stipulated time. 'The tax exemption on LTCG doesn't have to be a one-time benefit," said Gautam Nayak, a chartered accountant. 'If the sale proceeds are reinvested into qualifying assets within six months, and those assets are held for the required period, the exemption can be carried forward indefinitely with each reinvestment cycle." This reinvestment must occur within six months of the sale of specified assets. Nayak explained that maintaining a proper documentary trail is critical in such cases. 'NRIs must be able to demonstrate that the original investment was made using convertible foreign exchange and that each subsequent reinvestment complied with the conditions specified under the Income Tax Act." Without clear proof of the source of funds and asset eligibility, claims for exemption may not hold up during assessment or scrutiny. For example, an NRI invests ₹20 lakh in shares using funds from their NRE account. After one year, the investment grows to ₹40 lakh. To claim the capital gains exemption, the entire ₹40 lakh must be reinvested within six months into another qualifying foreign exchange asset. After holding the new asset for the required three years, if its value increases to ₹60 lakh and is sold again, the exemption can still be preserved, provided the ₹60 lakh is reinvested once more into an eligible asset within six months. This cycle of reinvestment and exemption can continue as long as the NRI complies with the reinvestment timeline, asset eligibility, and documentation requirements. Even after an NRI returns to India and becomes a resident, they may continue to enjoy these concessions under certain conditions. 'NRIs returning to India can continue being governed under these special provisions for their investment income (except interest, dividend income on shares in an Indian company) by furnishing a declaration to the assessing officer, along with their income tax return (ITR)," Mehta explained. Also Read: EPF nightmare for NRIs: Service gaps, missing UANs, and frozen funds 'If an NRI becomes a resident in India in any subsequent year, he may submit a return of income along with a written declaration to the assessing officer stating that the special tax provisions should continue to apply to their investment income from foreign exchange assets," Ahirwar added.
Hindustan Times
3 days ago
- Business
- Hindustan Times
5 things NRIs should keep in mind before investing in property in India
Anita Reddy, an NRI residing in the US, has decided to purchase a residential flat in Hyderabad to stay during annual visits. She has checked RBI rules, verified the property title, and applied for a home loan. She has authorized her father in India with power of attorney. NRIs can legally purchase residential and commercial properties in India under Foreign Exchange Management Act (FEMA) rules, but are not allowed to buy agricultural land, plantation property, or farmhouses unless acquired through inheritance or specifically approved by the Reserve Bank of India (RBI). When acquiring property, if the purchase is funded from abroad, the funds should be remitted into an NRE (Non-Resident External) account. 'The payment for the property must be made through this NRE account. It is important to retain the bank statement as proof of the source of funds. This documentation will be crucial if the NRI wishes to repatriate the proceeds from the sale of the property back to their country of residence,' says Ankit Jain, Partner, Ved Jain and Associates, chartered accountancy firm. 'They are also eligible for home loans from Indian banks and housing finance companies, with loan repayments made using these accounts as per RBI guidelines' says Anupam Rastogi, co-founder and chief business officer, Square Yards, a real estate marketplace. If the purchase is funded through income or funds already held in India, the NRI can use any domestic bank account for the payment. Additionally, while making payment to the seller, the NRI must ensure that Tax Deducted at Source (TDS) is properly deducted on the sale consideration, even if the NRI does not regularly file tax returns in India. Failure to deduct and deposit TDS can lead to a tax liability for the buyer. 'It is also advisable that, after acquiring the property, the NRI files annual income tax returns in India, even if the income generated from the property is below the taxable threshold. Maintaining a consistent tax record can simplify compliance and tax calculations when the property is eventually sold,' says Jain. Under the old tax regime one claims deductions on home loan principal under Section 80C and home loan interest under Section 24(b) of the Income Tax Act, if they have taxable income in India. The 3.5% US excise tax on remittances by non-US citizens increases the cost of investing in India, as it is charged to the sender and not creditable in India. 'NRIs should account for this cost, remitting more to receive the desired amount in INR. India does not tax inward remittances, so funds received through banking channels can be fully used. Where possible, joint remittance with a US citizen family member may reduce the burden,' says Gagandeep Sood, Associate Director, Fox Mandal Global, a professional services firm. India does not impose any limit on the amount NRIs can remit inward for property investment. Such remittances are freely permitted, provided the funds are from legitimate sources and routed through authorised banking channels. There is no tax on inward remittances by NRIs in India. Also Read: Government proposes bill for online property registration, documents. Here's what it means for you 'NRIs should maintain NRE accounts, as funds brought in through authorised banking channels comply with FEMA regulations. Although Indian Income Tax authorities do not require documentation for the 3.5% US remittance tax, it is advisable to retain records of the sender, transaction details, and purpose to establish the legitimacy and source of funds, especially in high-value transactions,' says Sood. These are the following documents that NRIs need to have in place when they plan to buy a property in India. Passport and OCI/PIO card:A valid passport is mandatory. If you hold an Overseas Citizen of India (OCI) or Person of Indian Origin (PIO) card, you can use it instead of an Indian passport. PAN card:Required for tax purposes, especially if you plan to rent out the property or sell it later. Proof of address: Both Indian and overseas address proof (utility bills, bank statements, or rental agreements) may be required. Power of attorney (if applicable): 'If you're not physically present in India for the transaction, you may need to authorize someone via a registered and notarized Power of Attorney (PoA),' says Ravi Shankar Singh, managing director, Residential Transaction Services, Colliers India, a real estate services firm. Proptech has really simplified the buying process for NRIs in India. Developers are also setting up camps in countries with a large Indian population. Most NRIs today are IT professionals or engineers who have gone abroad for short to medium term projects and with an intention to return to India. While deciding on this high involvement purchase NRIs should keep certain things in mind. They should choose a reputed developer with a credible track record. 'The selected city should offer employment upon their return. The location and city should offer great physical and social infrastructure, And finally it should have international airport connectivity,' says Shankar. 'Before finalizing a property deal, NRIs should verify the property's title, check for any legal encumbrances, ensure all government approvals and permits are in place, and consult a real estate lawyer. This due diligence helps avoid legal disputes, fraud, and ensures a smooth transaction,' adds Rastogi. Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
Economic Times
22-05-2025
- Business
- Economic Times
NRI deposit inflows at an 11-year high in FY25 as rates entice
Agencies Representational image The Indian diaspora is flocking towards local banks as their deposits surged to a decadal high, promoted by attractive rates amid depreciation in the rupee. Inflows into NRI deposit schemes rose 10% year-on-year to $16.2 billion in FY25 from inflows of $14.7 a year ago, the data released in the Reserve Bank of India's latest monthly bulletin showed. This is the highest inflow in 11 years. Both dollar (FCBR(B)) and rupee deposits (NRE(RA)) surged reflecting higher returns in the Indian markets. Of the total inflows of NRI deposits, $7.1 billion flowed to FCNR (B) (foreign currency non-resident (banks) deposits which are essentially dollar deposits and the foreign exchange risk is borne by the bank which accepts the deposit. This was 11% higher compared to the previous fiscal year. Industry executives said that in case of FCNR (B) deposits, NRIs get at least 50-60 basis points more compared to deposits in their home country. "We had seen many NRI customers locking in deposits on the expectation that rates have peaked and it will start to come down because of the reduction in the RBI repo rate. Banks were also offering attractive rates on NRI deposits because there was intense competition to mobilise deposits in the previous financial year. Depreciation in the Indian rupee has also led to higher inflows in NRI deposits because they tend to make more returns in such cases," said Joy P V, executive vice-president and country head, deposits, wealth and bancassurance, at Federal Bank. (Join our ETNRI WhatsApp channel for all the latest updates) Inflows into NRE(RA)-non-resident external (rupee accounts) deposits-which are rupee deposits where the currency risk is borne, rose to over $9.1 billion in FY25 from $8.3 billion a year ago.
Time of India
22-05-2025
- Business
- Time of India
NRI deposit inflows at an 11-year high in FY25 as rates entice
The Indian diaspora is flocking towards local banks as their deposits surged to a decadal high, promoted by attractive rates amid depreciation in the rupee. Inflows into NRI deposit schemes rose 10% year-on-year to $16.2 billion in FY25 from inflows of $14.7 a year ago, the data released in the Reserve Bank of India's latest monthly bulletin showed. This is the highest inflow in 11 years. Both dollar (FCBR(B)) and rupee deposits (NRE(RA)) surged reflecting higher returns in the Indian markets. Of the total inflows of NRI deposits , $7.1 billion flowed to FCNR (B) (foreign currency non-resident (banks) deposits which are essentially dollar deposits and the foreign exchange risk is borne by the bank which accepts the deposit. This was 11% higher compared to the previous fiscal year. Industry executives said that in case of FCNR (B) deposits, NRIs get at least 50-60 basis points more compared to deposits in their home country. Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like People in Gunabati Are Finding Amazing Rental Deals Apartments for rent | Search Ads Learn More Undo "We had seen many NRI customers locking in deposits on the expectation that rates have peaked and it will start to come down because of the reduction in the RBI repo rate. Banks were also offering attractive rates on NRI deposits because there was intense competition to mobilise deposits in the previous financial year. Depreciation in the Indian rupee has also led to higher inflows in NRI deposits because they tend to make more returns in such cases," said Joy P V, executive vice-president and country head, deposits, wealth and bancassurance, at Federal Bank . Inflows into NRE(RA)-non-resident external (rupee accounts) deposits-which are rupee deposits where the currency risk is borne, rose to over $9.1 billion in FY25 from $8.3 billion a year ago. Live Events
Mint
22-05-2025
- Business
- Mint
NRI Credit Cards: Types, benefits, eligibility and application process explained
Non-resident Indians (NRIs) may be living abroad but a vast majority of them continue to have financial obligations in India. An NRI credit card will be a useful tool for them to manage their expenses in India. A credit card issued in India will also help NRIs make payments during their travels to their home country. With this, NRIs can avoid using cards, which are issued abroad, in India, thus cutting down on foreign transaction fees. Here is a guide on NRI credit cards, its types and benefits. An NRI credit card is issued to non-resident Indian citizens by Indian banks primarily for usage in their home country. It can be used for transacting both in online and offline modes just like in the case of credit cards issued to resident Indians. Banks offer Non-Resident External (NRE)/ Non-Resident Ordinary (NRO) bank account-based credit cards for NRIs. While NRO account-based credit cards can be used only for domestic transactions, NRE account-based credit cards can be utilised for both domestic and international transactions. But to get the credit card, the customer has to be present at the bank's branch during the card application process. You can apply for an NRI credit card by visiting your bank's branch in India or overseas and submit the application form with the required documents. Some banks, however, require the NRI to be present in India during the card application process. These credit cards are also issued against NRE/NRO fixed deposits (FDs) held by NRIs. NRI credit cards offer a host of benefits. NRIs can make online payments with the option to pay both in Indian and international currencies. But international transactions attract foreign exchange conversion charges. These credit cards also offer access to international ATMs where NRIs can withdraw cash in the local currency. But banks levy withdrawal fee and foreign exchange conversion charges for using international ATMs. NRI credit cards offer most of the benefits that are available to domestic credit cards. You can accumulate rewards and earn cashbacks on domestic (India) transactions made on NRI credit cards. You can also avail exclusive airline partnerships that offer benefits such as lounge access, bonus miles and priority check-in. Leading banks allow NRIs to add their family members as supplementary cardholders. NRIs should have a valid NRE or NRO account with the card issuing bank to get the credit card. The primary cardholder should be 21 years old. But some banks issue cards for even those who are only 18 years old. Here is the list of documents that you have to submit to avail an NRI credit card: Copy of valid passport Valid work permit/employment visa/admission letter Indian address proof: Passport/utility bill/Bank statement Foreign address proof: Utility bills (any one of the latest electricity, water, telephone bill)/Residence permit/Property tax) Permanent Account Number (PAN) card or in the absence of a PAN card, Form 60(if applicable) Foreign Account Tax Compliance Act (FATCA)declaration as applicable for the United States (US) or Common Reporting Standard (CRS) for the United Kingdom (UK), Canada or any of the more than 100 countries that have adopted CRS. Previous three months' income statement or average quarterly balance. Indian reference address and Indian phone number. If you are availing the NRI credit card against your NRE/NRO FDs, the credit limit is typically capped at a certain percentage of the deposit amount—usually at 80%. Some banks have set a minimum FD limit and allow only individual FDs for availing the credit card. The NRI credit card eligibility criteria differs from bank to bank and is usually determined by factors such as income, employment and financial history of the customer. An NRI credit card is quite useful for managing expenses in India. But choose it only if you are a frequent traveller to your home country and have recurring expenses that involve payments in the local currency (Rupee). A good NRI credit card should have high international acceptance, zero forex markup, excellent rewards programmes and quick customer support. Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.
