Introduction
When it comes to taxation, Non-Resident Individuals (NRIs) have specific considerations based on their residential status and the income they generate in India. The assessment year 2023-24 brings forth the choice between the old tax regime and the new tax regime, which offers reduced tax rates under Section 115BAC of the Income Tax Act. It is important for NRIs to understand these tax slabs and the implications of choosing one regime over the other.
The old tax regime follows a progressive tax structure, where the tax rate increases as the income rises. On the other hand, the new tax regime provides a lower tax rate for certain income brackets, but it eliminates various exemptions and deductions available in the old regime. This means that NRIs opting for the new tax regime will not be able to claim deductions under sections such as 80C, 80D, 80TTB, and HRA.
This article delves into the tax slabs for NRIs under both regimes, shedding light on the implications of selecting one over the other. Making an informed decision becomes vital for NRIs to optimize their tax obligations in the given assessment year.
Tax Slabs Applicable to Non-Resident Individuals (NRI) for Assessment Year 2023-24:
| Tax Regime | Income Tax Slab | Income Tax Rate |
|---|---|---|
| Old Tax Regime | Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% above ₹2,50,000 | |
| ₹5,00,001 – ₹10,00,000 | ₹12,500 + 20% above ₹5,00,000 | |
| Above ₹10,00,000 | ₹1,12,500 + 30% above ₹10,00,000 | |
| New Tax Regime (u/s 115BAC) | Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% above ₹2,50,000 | |
| ₹5,00,001 – ₹7,50,000 | ₹12,500 + 10% above ₹5,00,000 | |
| ₹7,50,001 – ₹10,00,000 | ₹37,500 + 15% above ₹7,50,000 | |
| ₹10,00,001 – ₹12,50,000 | ₹75,000 + 20% above ₹10,00,000 | |
| ₹12,50,001 – ₹15,00,000 | ₹1,25,000 + 25% above ₹12,50,000 | |
| Above ₹15,00,000 | ₹1,87,500 + 30% above ₹15,00,000 | |
Note: The rates of surcharge and Health & Education cess remain the same under both tax regimes.
Surcharge, Marginal Relief, and Health and Education Cess:
| Component | Details |
|---|---|
| Surcharge | Additional charge levied on income above specified limits |
| Surcharge Rates (Based on Income) | |
| 10% | Taxable income above ₹50 lakh – up to ₹1 crore |
| 15% | Taxable income above ₹1 crore – up to ₹2 crore |
| 25% | Taxable income above ₹2 crore – up to ₹5 crore |
| 37% | Taxable income above ₹5 crore |
| Maximum Surcharge (Certain Incomes) | Maximum surcharge on income from dividends or specific |
| provisions (111A, 112A, and 115AD) is 15% | |
| Marginal Relief | Relief from surcharge when it exceeds the additional |
| income that triggers surcharge | |
| Health and Education Cess | Additional 4% levy on income tax plus surcharge |
Understanding these components, such as the surcharge rates, marginal relief, and health and education cess, is essential for accurately calculating tax liabilities for individuals with higher incomes. Incorporating these factors into tax planning and compliance ensures adherence to tax regulations and effective fulfillment of financial obligations.
Determine Residential Status
A Non-Resident Individual refers to an individual who does not qualify as a resident of India for tax purposes. The determination of an individual’s residential status is based on Section 6 of the Income Tax Act, 1961, as outlined below:
To be considered a Resident in India for any given year, an individual must meet one of the following conditions:
- Stay in India for a period of 182 days or more during the previous year, or
- Stay in India for a period of 60 days or more during the previous year and a total of 365 days or more during the four years immediately preceding the previous year.
If an individual fails to meet both of the conditions mentioned above, they will be categorized as a Non-Resident for that particular previous year.
However, in the case of an Indian citizen or a person of Indian origin visiting India within the year, the 60-day period mentioned in condition (2) will be replaced with 182 days. This concession also applies to an Indian citizen who departs from India in any previous year as a crew member or for employment purposes outside India.
The Finance Act of 2020, effective from Assessment Year 2021-22, has made amendments to the aforementioned exception. It states that if an Indian citizen or a person of Indian origin has a Total Income, excluding Income from Foreign Sources, exceeding ₹15 lakh during the previous year, the 60-day period mentioned in condition (2) will be substituted with 120 days.
Additionally, the Finance Act of 2020 introduced a new Section 6(1A), applicable from Assessment Year 2021-22. It states that an Indian citizen earning a Total Income exceeding ₹15 lakh (excluding income from foreign sources) will be deemed a Resident in India if they are not liable to pay tax in any country.
ITR Forms for NRI
Here are the details of the applicable income tax return forms for Non-Resident Individuals:
- ITR-2 – Applicable for Non-Resident Individuals This return form is applicable to both Individual (whether Resident or Non-Resident) and Hindu Undivided Family (HUF). It is to be used when the individual or HUF does not have income under the head Profits and Gains of Business or Profession. Individuals who are ineligible to file ITR-1 can use this form.
- ITR-3 – Applicable for Non-Resident Individuals This return form is applicable to both Individual (whether Resident or Non-Resident) and Hindu Undivided Family (HUF). It is to be used when the individual or HUF has income under the head Profits and Gains of Business or Profession. Individuals who are ineligible to file ITR-1, ITR-2, or ITR-4 can use this form.
