SPECIFIC PROVISIONS WITH INVESTMENT INCOME OF NRI
Table of Contents
SPECIFIC PROVISIONS WITH INVESTMENT INCOME OF NRI
As a NRI you’ll be able to avail of a special provision associated with investment income. A NRI income shall be taxed @ 20%, where he invests in certain assets in India.
INVESTMENTS ELIGIBLE FOR SPECIAL TREATMENT
The income derived from the subsequent assets in India acquired in foreign currency shall qualify for special treatment:
- Investment in the shares of Indian Companies (Public or Private company)
• Investment in the debentures, being issued by a publicly-listed Indian company.
• Deposits made with the banks and public companies.
• Any security of the Central Government
No deduction under Section 80 is going to be allowed while calculating investment income.
SPECIAL PROVISION IN RESPECT OF LONG-TERM CAPITAL GAINS
On long term capital gain arising from the transfer or sale of those assets, no advantage of indexation and deduction under Section 80 is allowed. But you’ll be able to still save your taxes, by availing exemption on the gains earned under Section 115F. Under this, you’re required to reinvest the web consideration received within the amount of six months from the date of sale of the first asset, into the subsequent assets:
- Shares in an Indian company
• Debentures of an Indian public company
• Deposits with banks and Indian public companies
• Central Government securities
• NSC VI and VII issues
The entire capital gain would be exempt if the entire of the net consideration is re-invested. However, if the price of recent asset purchased, falls short than the consideration, then the capital gain would be exempt proportionately, i.e.,
Total Capital Gain X Cost of New Asset
—————————–
Total net consideration
Exemption=
NOTE: The exemption is withdrawn if the new asset purchased is transferred or converted into money within a period of three years from the date of purchase. The NRI is eligible to withdraw the amount from the special provision, at any point of time and in such an event, the investment income and LTCG shall be charged to tax as per the standard provisions of Income Tax Act, 1962.
Just like resident individuals, the NRIs have been provided with the exemptions under section 54, section 54EC and section 54F on long-term capital gains, arising on account of sale of house property. The long-term capital gain is often invested under:
| SECTION | ASSET SOLD/ TRANSFERRED | ASSET TO BE INVESTED IN | TIME PERIOD FOR INVESTMENT | QUANTUM OF EXEMPTION |
| 54 | · RESIDENTIAL HOUSE PROPERTY
· HOLDING PERIOD OF 3 OR MORE YEARS |
· RESIDENTIAL HOUSE PROPERTY IN INDIA |
· WITHIN ONE YEAR BEFORE THE DATE OF TRANSFER OF ASSET. · PURCHASED AFTER 2 YEARS FROM THE DATE OF TRANSFER OF ASSET. · CONSTRUCTION WITHIN 3 YEARS FROM THE DATE OF TRANSFER OF ASSET. · THE NEW ASSET CANNOT BE SOLD OR TRANSFERRED BEFORE THE END OF 3 YEARS. |
· WHERE THE ENTIRE CAPITAL GAIN HAS BEEN INVESTED FOR ACQUISITION OF NEW ASSET, THE FULL AMOUNT OF CAPITAL GAIN WOULD BE EXEMPTED.
· WHERE PARTIAL CAPITAL GAIN HAS BEEN INVESTED, THE CAPITAL GAIN NOT ADJUSTED IN NEW ASSET, SHALL BE CHARGED TO LONG-TERM CAPITAL GAIN TAX. |
| 54F | · CAPITAL ASSET OTHER THAN HOUSE PROPERTY
(NOTE: YOU SHOULD NOT OWN MORE THAN ONE RESIDENTIAL HOUSE PROPERTY AT THE TIME OF TRANSFER OF THE CAPITAL ASSET) |
· TO CLAIM FULL EXEMPTION, ENTIRE SALE PROCEEDS SHOULD BE INVESTED IN NEW ASSET.
· WHERE THE PARTIAL INVESTMENT HAS BEEN MADE, THE EXEMPTION WOULD BE: COST OF THE NEW HOUSE X CAPITAL GAINS SALE RECEIPTS |
||
| 54EC | · CAPITAL ASSET BEING RESIDENTIAL HOUSE PROPERTY | · BONDS OF NATIONAL HIGHWAY AUTHORITY OF INDIA (NHAI) OR RURAL ELECTRIFICATION CORPORATION (REC) | · THE SAID INVESTMENT BE MADE WITHIN 6 MONTHS FROM THE DATE OF TRANSFER.
· THE MAXIMUM AMOUNT OF INVESTMENT THAT CAN BE MADE IS RS. 50 LAKHS. · THE NEW ASSET CANNOT BE SOLD OR TRANSFERRED BEFORE THE END OF 3 YEARS. |
· AMOUNT INVESTED OUT OF CAPITAL GAIN; OR
· RS.50 LAKHS; WHICHEVER IS LOWER |
- Relevant proofs should be shown to the customer so no TDS is deducted by him.
• In case, the customer deducts TDS, advantage of these exemptions may be availed at the time of return filing by NRI and refund of such TDS may be claimed.
DEDUCTIONS AVAILABLE TO NRI
- Deduction under Section 80C:
The maximum amount of deduction available under the section is of Rs.1,50,000. Section 80C comprises of –
- Life premium Payments-
Deduction would be available, where the policy has been purchased in NRI’s name or in the name of his/her spouse or any child’s name. The premium must be but 10% of sum assured. - Tuition Fee Payment-
- NRI can claim deduction of tuition fees paid to any school, colleges or any universities situated in India for the aim of full-time education of their children.
- Principal repayment of home loans-
Like Residents, NRIs may claim deduction for principal repayment of house property loan borrowed for the needs of constructing or purchasing a residential house property. Other expenses like tax charges, registration fees, being incurred in respect of acquiring of such property, shall also be eligible. - Unit Linked Insurance Plan (ULIP)-
Investment in ULIP’s offers twin advantage of insurance and investment under one integrated plan. The lock-in period is of 5 years. Premium paid in respect of own, spouse and children shall be eligible for deduction. - Equity Linked Tax Saving Scheme (ELSS)-
- Deduction under Section 80D:
NRIs can claim deduction for premium got insurance of themselves and family or parents in India.
The three possible situations and tax benefits for every is shown below:
| POLICY TAKEN FOR | DEDUCTION ALLOWED | TOTAL TAX BENEFIT |
PARENTS BELOW 60 YEARS |
RS. 25,000
RS. 25,000 |
RS. 50,000 |
| 2. SELF, SPOUSE & CHILDREN BELOW 60;
PARENTS ABOVE 60 |
RS. 25,000
RS. 30,000 |
RS. 55,000 |
| 3. SELF, SPOUSE ABOVE 60 & CHILDREN;
PARENTS ABOVE 60 |
RS. 30,000
RS. 30,000 |
RS. 60,000 |
3. Deduction under Section 80E:
- Section 80E allows NRIs to assert a deduction of interest paid on an education loan. Such a loan shall be taken for pursuing higher education of the NRI, or his spouse or children or for a student, in respect of whom, the NRI is a trustee.
- There’s no limit on the number which might be claimed as a deduction under this section. The deduction shall be available, for the earlier of, period of 8 years or the interest is paid. No deduction would be available in respect of principal repayment of loan.
4. Deduction under Section 80G:
- Where the NRI makes eligible donations, as prescribed under section 80G of the IT Act, 1962, the same shall be eligible for deduction to NRIs.
Income Tax Deductions applicable for the Financial Year 2024-25
All the Important Income Tax Applicable Due Dates & Limits
**********************************************************
If this article has helped you in any way, i would appreciate if you could share/like it or leave a comment. Thank you for visiting my blog.
Legal Disclaimer:
The information / articles & any relies to the comments on this blog are provided purely for informational and educational purposes only & are purely based on my understanding / knowledge. They do noy constitute legal advice or legal opinions. The information / articles and any replies to the comments are intended but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as a legal advice or an indication of future results. Therefore, i can not take any responsibility for the results or consequences of any attempt to use or adopt any of the information presented on this blog. You are advised not to act or rely on any information / articles contained without first seeking the advice of a practicing professional.