The Non-Resident Indian (NRI) tax structure in India is quite different from the UK, and with the changing global economic landscape, it is becoming increasingly important for NRIs to understand how their tax liabilities in India are affected by their residency status in the UK. This article will explore the various ways in which NRIs can save tax in India from the UK, and how they can take advantage of the different tax structures in both countries.
What is an NRI?
An NRI or Non-Resident Indian is an Indian citizen who is living in a foreign country and not paying taxes in India. NRIs can either be a person of Indian origin who is a resident of another country, or a foreign national of Indian origin.
NRIs are subject to the same income tax laws as Indian citizens living in India, but they are also eligible for certain tax benefits under the Indian Income Tax Act, such as tax exemptions on certain types of income and deductions on certain expenses.
Tax Implications for NRIs Living in the UK
NRIs living in the UK are subject to the tax laws of both countries, and must pay taxes in the country where they earn the income. For example, if an NRI earns income in the UK, they must pay income tax in the UK, and will also be liable for tax in India on any income earned in India.
In addition, NRIs living in the UK must also pay taxes on any income earned outside of the UK, such as from foreign investments or from real estate. This is known as Foreign Tax Credit (FTC).
NRIs living in the UK are also subject to the taxation of capital gains, which is the tax on the profit made when an asset is sold. Capital gains tax is charged at 18% on profits above a certain threshold.
How Can NRIs Save Tax in India from the UK?
NRIs living in the UK can save tax in India by taking advantage of the various deductions and exemptions available under the Indian Income Tax Act.
The most common deductions available to NRIs are:
- Standard Deduction: A standard deduction of up to Rs 50,000 is available to NRIs who have earned income from a business or profession in India.
- Interest on Home Loan: Interest paid on a home loan taken to purchase a property in India is eligible for a deduction of up to Rs 2 lakhs.
- Long-term Capital Gains: Long-term capital gains on sale of a house or plot of land in India are exempt from taxation up to a certain limit.
- Dividend Income: Dividend income from investments in Indian companies is exempt from taxation up to a certain limit.
- Gift Tax: Gifts received from an individual who is not a relative are exempt from taxation up to a certain limit.
- Tax-saving Investments: Investments made in tax-saving instruments such as Public Provident Fund (PPF), Equity-linked Savings Scheme (ELSS), and National Savings Certificate (NSC) are eligible for deductions under Section 80C of the Income Tax Act.
- Medical Insurance: Premiums paid for medical insurance can be deducted up to a certain limit.
In addition to these deductions, NRIs can also save tax by taking advantage of the Double Taxation Avoidance Agreement (DTAA) between the UK and India. Under this agreement, NRIs can claim relief from double taxation on income earned in both countries.