In a significant move, the Indian government has introduced new tax rules for Non-Resident Indians (NRIs). Here’s a breakdown of the key changes:
- NRIs Will Be Taxed as Residents After 120 Days
Under the new rule, NRIs who stay in India for 120 days or more and earn over ₹15 lakh in India will be taxed as residents. This means that more NRIs will now be taxed on their global income, so it’s important to plan your travel carefully to avoid higher tax liabilities.
2. Global Income Now Under Tax Scrutiny
Previously, only income earned in India was taxed for NRIs. Now, if you qualify as a Resident but Not Ordinarily Resident (RNOR), India may tax your foreign passive income, including interest, dividends, and capital gains from foreign assets.
3. Declaration of Foreign Assets and Bank Accounts
NRIs and residents must now declare all foreign assets and bank accounts during tax filing. Failing to disclose these can result in penalties of 300% of the tax due and criminal charges.
4. Higher Scrutiny of Foreign Remittances
The Liberalized Remittance Scheme (LRS) has come under stricter tracking. Sending ₹7 lakh or more abroad will now attract higher tax collection at source (TCS). Remittances for foreign education and medical purposes will still have lower TCS but require more documentation.
5. Foreign Businesses with Indian Clients Are Now Taxable
The new Significant Economic Presence (SEP) rule means foreign businesses serving Indian clients, even without a physical office in India, may be taxed in India. This applies to IT companies, e-commerce platforms, and consultants earning from Indian clients.
6. Stricter Rules for DTAA (Double Tax Avoidance Agreement)
NRIs using DTAA benefits must now provide additional documentation. Misuse of DTAA could lead to penalties and legal action.
7. Changes in Taxation of Foreign Crypto and Offshore Investments
Investments in foreign cryptocurrencies, mutual funds, ETFs, and foreign stocks will now be subject to new tax rules. NRIs must report these investments to avoid fines.
8. Foreign Pension and Retirement Accounts Now Taxed
Withdrawals from foreign retirement accounts, such as 401(k) or EPF, may now be taxed in India. NRIs must disclose these accounts during tax filing.
9. Special Tax Relief for Returning NRIs
Returning NRIs will enjoy a special two-year tax relief period. Foreign income earned before their return will not be taxed, and they will get RNOR status for two years. After that, their global income will be taxed in India.
10. Penalties for Non-Compliance
The government is cracking down on tax evasion. Failing to report foreign income or assets can result in severe penalties, including a 300% penalty and jail time. Transactions over ₹50 lakh not reported can lead to income seizure.
Key Takeaways:
- NRIs staying in India for 120+ days will be taxed as residents.
- Foreign income, including crypto and offshore investments, will now be taxed in India.
- Foreign assets and bank accounts must be disclosed during tax filings.
- Higher penalties for non-compliance with these new tax rules.
- NRIs should stay informed and comply with these new regulations to avoid significant penalties.
