Non-resident Indians (NRIs) often have to pay tax twice- in their host country and native country. As you live and earn overseas, your host country will make you pay the tax against your foreign income. However, being an NRI, if you still possess assets or investments in India and draw money out of it, you will also be taxed in India. But, as an NRI, there are many ways to save on taxes.
Here are some tips to help you optimise your taxes while living in a foreign land.
Curb Most of Your Deductions
Most of the basic deductions that Indian residents are entitled to are unavailable to NRIs. Hence, you cannot avail of tax deductions if you invest in social schemes such as Public Provident Funds, National Certificates etc. Being an NRI, you also cannot access tax deductions available for medical benefits or medical expenses. However, you have access to the National Pension System (NPS) and related tax deductions. Under Income Tax Act Section 80CCD (1), you can opt for a tax deduction on contributions you or your employer makes towards the NPS. You are eligible to avail of a tax deduction of up to Rs 1.5 lakh. Additionally, you can have an extra allowance of Rs 50,000 to encourage further investment under the NPS. To take advantage of this additional deduction, you being an NRI, must have to exceed the limit of Rs 1.5 lakh by making other investments allowed for deduction. Your additional contributions towards the NPS can be used to claim this additional deduction.
Get a PAN Card
A Permanent Account Number (PAN) is a code that recognises you as a taxpayer in India. A PAN card helps prevent tax-related fraudulent activities. Most importantly, you need a PAN card to claim an income tax refund.
Money made from India above a certain threshold is subjected to tax Deducted at Source (TDS). Being an NRI, if you fail to provide your Permanent Account Number when you look for investment options in India, you are likely get charged a higher TDS. Therefore, you can ensure to pay less TDS by getting your PAN card.
Maintain Your NRI Status
The amount you earn abroad while living there is not taxable in India. However, your non-resident status is in doubt as the Indian IT department can still tax your income. If you wish to prevent tax affairs from being messed up, ensure that you maintain your NRI status.
You are required to plan your visits to India not to jeopardise your non-resident status. Your residential status and income determine your tax liability in a country. With the changes in your residential status, your tax liability in India will also be impacted.