How to Calculate Your NRI Taxable Income in India

Taxable income is a portion of NRI income on which income tax is levied under Indian tax laws. It is your total eligible income for income tax after permitted deductions. Only income earned and received in India is taxable for an NRI. Foreign income that is earned and received outside India is generally not taxed in India, subject to the individual’s residential status and specific exceptions under the Income Tax Act. Let’s understand how to calculate taxable income for NRIs. 

What Income Is Taxable for NRIs in India?

To understand what is taxable income for an NRI, you should identify the Indian source income. Here are the sources of income taxable for NRI

• Taxable income for NRIs

• Salary earned or received in India

• Salary for services rendered in India, even if received abroad

• Rental income from property in India

• Capital gains from sales of Indian properties, shares, and mutual funds 

• Interest income from NRO accounts, bonds, fixed deposits, and other Indian investments 

Income not taxable for NRI includes:

• Foreign business or professional income

• Salary earned and received outside India

Step-by-Step: How to Calculate Taxable Income for NRIs

Here is the step-by-step guide to calculate taxable income as an NRI.

1. Calculate total income: Calculate the gross Indian income. Only income that is earned, accrued, and received in India is included in total income. You have to total all incomes from the given categories.

2. Subtract deductions: Once you calculate gross income, you should subtract the eligible deductions. NRIs can claim these deductions under Chapter VI-A. Under the old tax regime, NRIs can invest in the Public Provident Fund (PPF), which has a 15-year lock-in period, and claim deductions under Section 80C. They can claim deductions under Section 80D for health insurance premiums (including certain overseas health insurance policies) and under Section 80E for interest paid on education loans.

• Under the old regime, a standard deduction of ₹50,000 is allowed on salary earned in India. 

• Under the new regime, a larger standard deduction (e.g., ₹75,000) may be available, but most Chapter VI-A deductions aren’t allowed. 

Claiming these deductions will reduce taxable income. You can't claim HRA (rented outside India) or 80U (disability, if not India-based).

3. Calculate Net Taxable Income: Now, you should calculate the net taxable income after deductions. Formula is, Total Indian Income – Eligible Deductions = Taxable Income

Example:

• Gross Indian Income: 9 lakh 

• Total deductions claimed: 1.5 lakh

• Taxable Income for NRI = ₹7,50,000

• Then, this amount is taxed according to slab rates under the chosen tax regime. 

Choosing Tax Regimes and Slabs

NRIs must choose between the old and new tax regimes because income tax rules for NRIs vary based on this choice. The old tax regime allows deductions such as Sections 80C, 80D, and standard deductions at the highest rates. 

The new tax regime provides lower rates but has fewer deductions. Your selection of the right regime affects your tax liability. This is why NRI must use the NRI income tax calculator before filing. Here is the breakdown of the regime comparison

Common Mistakes NRIs Make in Tax Calculation

Here are the common mistakes you should avoid while calculating taxable income:

• Ignoring foreign income rules: Many NRIs mistakenly include the income earned outside India while filing. But only Indian sourced income is taxable, so don't include the earnings from income like salary abroad, foreign bank interest, or overseas investments. 

• Misclassifying residential status: Identifying yourself as a resident or NRI incorrectly can lead to wrong tax calculations. Tax liability is based on residential status, so you should ensure that you check the 182-day rules during filing. 

• Missing allowable deductions: NRIs ignore the deductions they are eligible for, like section 80C, section 80D, and standard deductions on total taxable income. If you miss these deductions, you may pay the high tax on income. 

• Incorrect use of TDS credits: Another mistake to avoid is incorrect use of TDS credits. Tax deducted at source on NRO accounts, capital gain, and salary must be reflected in Form 26AS. If you fail to use TDS credits correctly, then it results in you paying tax twice or missing refunds. 

Filing and Compliance Tips

NRI must fill the correct ITR form, reflect TDS credits properly, and claim DTAA benefits. Follow the given steps to manage Indian taxes efficiently and increase refunds. 

• Select the correct ITR form: NRIs must file the ITR-2 or ITR-3 on the basis of their source of income. Rental income, salaried income, and capital gains require the accurate selection of the ITR form. 

• Reflect TDS and credits accurately: Check the Form 26AS to ensure that all TDS deductions on Indian income are recorded properly. Claim these credits while filing and avoid high tax. 

• Claim DTAA benefits if applicable: If you paid tax in another country with which India has a Double Taxation Avoidance Agreement (DTAA), then you can claim relief and avoid being taxed twice. For this, you must complete the documentation, including TRC and Form 10F and declaration of claims. 

• Maintain supporting documents: Keep all proofs of your taxes paid, income, and deductions, and simplify the tax filing. It helps you to avoid penalty notices from the income tax department. 

• Use an NRI income tax calculator: NRIs are suggested to cross-check their taxable income by using the NRI tax calculator and maintain accuracy. 

Conclusion

You should understand the taxable income for NRIs and follow the step-by-step approach to simplify the tax compliance. By identifying the tax source income, applying the deductions, and choosing the right tax regime, you can determine the tax liability accurately. Once you know the correct taxable income, it helps to avoid legal issues, improve long-term financial planning, and manage cash flows. 

Get expert help in calculating taxable income for NRIs. Download Rupeeflo for NRI tax income planning with a few clicks. 

FAQs

1. What does taxable income mean for NRIs in India?

Taxable income is income that an NRI earned, accrued, and received in India. Any income earned from sources outside India is not taxable. 

2. How is taxable income for an NRI different from resident?

The taxable income for NRIs is different from residents in terms of the scope of taxation. NRI is taxed on income only earned and received in India, but a resident is taxed on global income.

3. Can NRIs claim deductions under Indian tax laws?

Yes, NRI is allowed to deduct income earned in India in terms of Indian taxation. The eligibility to deductions is determined by the source of income.

4. Do NRIs pay tax on foreign income in India?

No, there is no payment of tax on foreign income of NRIs in India.Nevertheless, they might also be taxed on their foreign income in the country of residence, depending on the local tax regulations and on the existing DTAAs.