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Benefit Provisions

With the growing focus by the Indian tax authorities to tax NRI income, NRIs should not only stay abreast with the tax filings but also ensure right options are selected and tax benefits/exemptions are appropriately claimed.

Indian tax system provides an option to NRIs to tax income from specified assets at reduced tax rates on gross basis without going through the cumbersome process of computing the taxable income. This benefit is available for interest income (around 20%) and capital gains on sale of specified assets held for more than one year (around 10%) and where the assets are acquired using convertible foreign exchange.

Also, the capital gains are exempt from income tax if the sale consideration is reinvested again in the specified assets within a period of six months subject to certain lock in conditions. Specified assets include shares in Indian company, debentures and deposits issued by Indian public company, and Central Government Securities. 

On opting the above, NRIs need not file income tax return if they have only the above income (from specified assets) in the tax year and entire tax has been withheld at the time of receiving the said income. NRIs would need to exercise the above option cautiously. This can be done after comparing the taxes under the normal provisions, which provide for taxing income on a slab rate basis after specified deductions based expenditure/investments/contributions. 

In addition to the above special scheme, NRIs would also be eligible for exemptions on income arising in India in case there are residents of countries where India has signed tax treaty with favourable provisions (as compared to the Indian income tax).

Hence an NRI would need to take into account the beneficial provisions of the respective tax treaty to claim benefit and avoid double taxation. 

Further, a NRI returning to India for good can claim wealth tax exemption for the assets brought by him to India or assets acquired by such money up to seven years commencing from the year in which such person returned to India subject to fulfillment of other conditions.

Last but not the least, NRIs should obtain tax registration number (PAN) to avoid higher tax deductions in certain cases. For instance, at the time sale of unlisted Indian shares held for more than one year, tax is deducted on the capital gains at a higher rate of around 20% (instead of around 10%), in case NRI does not have PAN.