Non-Resident Indians (NRIs) are subject to specific tax rules in India regarding income earned from Indian bank accounts. Here’s a comprehensive overview of the main rules and rates that apply:
1. Taxability of Bank Account Interest
NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) Accounts:
Interest earned on NRE and FCNR accounts is fully exempt from tax in India.
NRO (Non-Resident Ordinary) Accounts:
Interest earned on NRO accounts is taxable in India. The income is taxed at the applicable slab rates for NRIs.
2. Applicable Tax Rates and Slabs
Old Tax Regime (FY 2023–24):
Up to ₹2,50,000: Nil
₹2,50,001 – ₹5,00,000: 5%
₹5,00,001 – ₹10,00,000: 20%
Above ₹10,00,000: 30%
New Tax Regime (FY 2024–25):
Up to ₹3,00,000: Nil
₹3,00,001 – ₹7,00,000: 5%
₹7,00,001 – ₹10,00,000: 10%
₹10,00,001 – ₹12,00,000: 15%
₹12,00,001 – ₹15,00,000: 20%
Above ₹15,00,000: 30%
Basic Exemption Limit:
₹2.5 lakh (old regime)
₹3 lakh (new regime)
3. Surcharge and Cess
Surcharge:
10% for income above ₹50 lakh up to ₹1 crore
15% for income above ₹1 crore up to ₹2 crore
25% for income above ₹2 crore up to ₹5 crore (old regime); capped at 25% in the new regime
37% for income above ₹5 crore (old regime)
Health and Education Cess:
4% on the total tax payable (including surcharge)
4. Filing Requirements
Who Must File:
NRIs must file an Indian tax return if their total Indian income exceeds the basic exemption limit (₹2.5 lakh in the old regime, ₹3 lakh in the new regime).
ITR Forms:
ITR-2: For NRIs with income from sources like salary, house property, capital gains, or investments (but not from business/profession)
ITR-3: For NRIs with business or professional income in India
5. Deductions and Exemptions
Section 80C: NRIs can claim deductions for specific investments (e.g., life insurance, ELSS, principal repayment on home loans).
Section 80TTA: Deduction up to ₹10,000 on interest from savings accounts (not FDs) is available to NRIs.
Section 87A Rebate: Not available to NRIs under any regime.
6. Other Key Points
Only Indian income is taxable:
NRIs are taxed only on income earned or accrued in India. Income earned and received outside India is not taxable in India.
Tax Deducted at Source (TDS):
Banks deduct TDS at 30% (plus surcharge and cess) on interest from NRO accounts.
Double Taxation Avoidance Agreement (DTAA):
NRIs may be able to claim credit for taxes paid in India in their country of residence, subject to DTAA provisions.
Summary Table: Tax on Indian Bank Income for NRIs
Account Type
Tax on Interest in India
TDS Applied
Exemption/Deduction
NRE
No
No
Fully exempt
FCNR
No
No
Fully exempt
NRO
Yes
Yes (30%+)
Section 80TTA (₹10,000 max)
In essence:
Interest from NRE/FCNR accounts is tax-free in India.
Interest from NRO accounts is fully taxable at slab rates, with TDS applied by banks.
NRIs must file a tax return if their Indian income exceeds the exemption limit, but they cannot claim the section 87A rebate.
Deductions under sections like 80C and 80TTA are available, but only on eligible investments and savings account interest, not on fixed deposits.
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