Exempt Income for NRIs
  • Interest earned on NRE accounts
     

  • Interest paid to NRI or to RNOR on foreign currency deposits, i.e., FCNR and RFC deposits. The exemption for interest on RFC account and FCNR account continues till such time as the account holder continues to be RNOR
     

  • Income on distribution from units of Mutual Funds
     

  • Dividend component of the income distributed by the business trust to unit holders of the business trust
     

  • If eligible foreign currency Bonds or GDR of Indian Company issued under GDR schemes is transferred outside India, by one NRI to another NRI, then capital gains arising on such transfer are exempt from income tax
     

  • Long Term Capital Gains from sale of equity shares / units of equity oriented mutual fund if such transaction is chargeable to STT.
     

  • Interest on deposits made with scheduled bank with approval of RBI.

  • Dividends on shares of Indian companies*
     

  • Any sum received under life insurance policy provided the policy was issued on or after April 1, 2003 but on or before March 31, 2012 and yearly premium does not exceed 20% of the sum assured. In case of a policy issued after April 1, 2012, the sum received under the policy shall be exempt if the yearly premium does not exceed 10% of the sum assured
     

  • Transfer of Government security carrying periodic payment of interest made outside India by a NRI to another NRI
     

  • Interest, premium on redemption and other payment on notified securities, bonds, certificates and deposits
     

  • Remuneration received by Foreign Diplomats / Consulate and their staff (subject to certain conditions).

*Note: Dividend is exempt only upto FY 2019-20. From FY 2020-21, post abolishing of Dividend Distribution Tax, Dividend is taxable for NRIs. This is a serious matter of consideration for most of our NRI Clients who have significant Dividend income in India. There is scope for planning taxes and reallocation of portfolio to minimize taxes. Click here to contact us by posting your query.

Points to Remember:

  • While filing Return of Income, it is necessary to disclose all incomes, even though they may be exempt from tax.

  • It is important to note that from April 1, 2018, if the listed equity shares were purchased on or after October 1, 2004 and STT was not paid on purchase of such shares, long-term capital gains on sale of listed equity shares shall be taxable subject to certain exceptions.

Frequently asked questions

An NRI acquired listed equity shares on April 1, 2005. He had purchased such shares from off-market from his uncle and had not paid STT on such transaction. He sells the shares in April, 2017 on a stock exchange. Whether gains on sale of such equity shares would be exempt from tax?


Income from long-term capital gains on transfer of equity share in a company or a unit of equity oriented fund where such transaction executed on a Recognized Stock Exchange and is chargeable to Securities Transaction Tax (STT). From April 1, 2018, if the listed equity shares were purchased on or after October 1, 2004 and STT was not paid on purchase of such shares, long-term capital gains on sale of listed equity shares shall be taxable subject to certain exceptions.




Are short-term capital gains on sale of mutual fund units invested from NRE Account are exempt from tax?


No, only interest income earned on deposits in NRE a/c are exempt from tax. Accordingly, income on any other investments credited to NRE a/c, unless specifically exempted under the Act, would be taxable in the hands of the NRI.





 

Sign up for our newsletter for all the latest tax, FEMA, advisory, investment, accounting and finance news.

As an added bonus, we will answer your first query for free!
 

We'll also throw in a free tax regime comparer for you to minimize your taxes.

©2020 by Galactic Advisors.