Guide to the India Income Tax Act for NRIs

Are you about to move to a foreign country like the U.S.? Or have you already moved out just recently? Whichever it is, you must know that there are multiple things to consider before you do it and they all come under the India Income Tax Act. What is this though, and how does it affect an NRI? Here’s all you need to know about this.

What Is the India Income Tax Act?

The India Income Tax Act refers to the way the Statute of Income Tax in India is changing. What it works with is the administration, levy, collection, and recovery of the Income Tax. Under the Tax Act, the income that is generated for NRIs in India and resident Indians has taxes applied to it. As such, depending on how many days someone spends in India during the financial year, the tax status is calculated.

How Does the India Income Tax Act Affect NRIs?

There have been changes to the number of days an Indian national can stay out of India by the Income Tax Act. Depending on the number of days, one may be called a Non-Resident of India. Whereas in the past, you needed to be outside the country for 182 days, the changes that were made increased the number of days, and now you have to stay abroad for more than 240 days.

Not to mention that if you’re in a different country that is not considered a resident by that country, then as an NRI, you will be deemed as an Indian resident. Consequently, you will be taxed on your worldwide income.

Your stay could be for various purposes. For instance, you could be there for your job, for travel purposes, or just enjoying a well-deserved vacation. But this doesn’t mean citizenship will be changed. You should be aware that not all countries will fall under the purview of dual citizenship even when the person has citizenship in both India and another country. One of the countries that aren’t granted dual citizenship under Indian laws is the U.S.A.

9 Steps NRIs Should Take Before Moving Out of India

If you just recently moved to any foreign country or were planning to make this move, there are a few things to know. You should complete some tasks before leaving the country and staying there for a while. Here’s what you should do:

1. Let Every Financial Institution Know

If you are already sure that you are going to travel outside of India for a while – more than 182 days – you should notify financial institutions of this. For instance, you need to let all banking, insurance, safety deposit lockers, and any other institutions know that you will not be in India for the following period, and specify that it will take longer than 182 days. You should do the same with long-term savings and retirement accounts, letting them know about the NRI status change.

2. Make an NRE Account

The next step you should consider is opening a Non-Resident External Account (NRE). It will be useful because it will let you remit funds while you’re outside of India. At the same time, it will be free of tax. If not, you can also open a Foreign Currency Non-Resident Account (FCNR), as it will help you bring to India the amount you’ve earned while you were in a foreign country.

3. Getting a Power of Attorney

You need a Power of Attorney, but in order to do this, it needs to be a person that you can trust. For instance, it could either be a close family member or a close friend of yours, who can conduct formalities on your behalf in India. This should include all activities that need a signature from you, such as financial authorizations and anything of the sort.

4. Convert to an NRO

Since you will be letting your local bank know that you are changing your status, the bank you have should be converted to a Non-Resident Ordinary (NRO) account. This account will work similar to your typical savings account, only that it can be used for rupee payments in India regularly. The coolest thing about this account is that it accepts foreign earnings as well. You can then easily convert this money into Indian rupees.

Bear in mind that this will include all of your potential joint accounts. In case you are the main person operating the account, then affidavits and power of attorney will have to become the secondary account holders so they can act while you’re not present.

5. Convert Demat to PIN

Did you have a DEMAT account before changing your status to NRI? Well, you should know that while it will still work, it will be non-repatriable. So, there will not be equity investments on real estate or agriculture that can be conducted on these accounts.

This is why you should consider converting DEMAT accounts to a PIN account.

6. Loan Repayment

Your loan repayments shouldn’t stop – in fact, you should keep making them even while abroad. To make this possible, you need to find good remittance tools after you change to an NRI. One of these is CompareRemit.

7. NSC and PPF Accounts

If you have any National Savings Certificates and Provident funds that act as long-term savings, then they can run until they expire. But an NRI will not allow you to start a new one, withdraw money from it, or extend it. If you want to take it to a foreign country, you have to deposit it to an NRO account.

8. Policy of Insurance

As an NRI, you will generally not get coverage for medical problems while you’re abroad. Simply put, you will not have medical insurance. You need to find an insurance plan that works globally, such as VisitorsCoverage.

If you go outside India, you should make sure to take a look at the life insurance policies.

9. Income Reporting

If you are living in the U.S. as an NRI, then you should be aware that the American government has mandated that you will report all the money you earn outside of the States. This will also include the cash you earn from fixed deposit accounts or rental properties.

You will have to submit FBARs every year – otherwise, the U.S. government will apply severe penalties that you surely don’t want to deal with. Under $10,000, you should know there are no taxes liable.

Conclusion

It’s important to know what to do if you are planning to be outside of India for a longer time, especially since you may be affected by the India Income Tax Act. You must know the steps to take and hopefully, this article helped you in this regard. Make sure to declare your change of status to all financial institutions before you leave India and make annual reports to the U.S. government about your income. All in all, if you are aware of all of these, you will have a trouble-free experience.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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