financial services

How NRIs can Dodge Tax Troubles


There is a bit of tension seeping in for all Non-Resident Indians (NRI’s), as the Government has shut the tax efficient small savings window for NRIs. So far NRIs had the luxury of keeping their Public Provident Fund (PPF) accounts and National Savings Certificates (NSCs), but did not have the liberty to extend them after maturity. But the new rules by the Government may come as a complete shocker to you, here’s why…

According to the new rules their PPF accounts will be closed and their NSCs will be considered as encashed when the holder turns into an NRI. These investmentswill now only earn 4% till maturity.

These new rules have shut the door on income investments to save taxand come on the heels of the unending list of financial double standards that NRIs face in India. The tax rules for NRIs certainly differ than those for resident citizens. There is no tax for foreign income and the tax reporting is very elaborate, not only this, the tax deduction at source is quite rigid and NRIs don’t get to enjoy a few privileges that are enjoyed by the resident citizens. This is not the end of their troubles, however, adding fuel to the fire NRIs are not eligible for a number of tax deductions like medical treatment of the disabled dependent (section 80DD), treatment of a family member suffering from specified diseases (section 80DDB), disability of self or dependent (section 80U) or royalty income (section 80QQB).


TDSis a major problem for NRIs. Resident investors in stocks and mutual funds are not subjected to TDS, but unfortunately NRI’s are. Short-term capital gains from stocks are levied 15% TDS, while debt funds and debentures are hard-hit by 30% TDS. Even long-term capital gains like gold and property are also subject to 20% TDS. Bank deposits are a very tax effective investment for masses across the globe but there is no relief for NRIs here as well, as they must shell out 30% TDS on bank deposits which is way more than the 10% TDSpaid by resident citizens.

If an NRI is getting rent for a property, the tenant is supposed to deduct 30% TDS from the rent. NRIs need to submit form 15CA for remittance of their rental income.

Well you can take care of all these troubles by following some of the tricky yet easy steps: –


One way via which NRIs can get relief from high TDS outgoes, is by becoming the second holder in joint investments. The first holder is always obliged to meet the tax liability and if the first holder is an Indian resident then he/she is not subjected to TDS. Similarly, if an NRI is the second holder of the property, TDS will not apply if the rent is not more than Rupees 50,000 per month.

Another way to dodge income tax is by thinking about your children and spouse, that is, by investing in the name of your adult children and spouse. In order to save tax, you can also gift your adult children or parents Fixed Deposits before going abroad, as NRIs don’t have the liberty of holding resident fixed deposits.

Well, if you left overseas in a hurry and you still hold a fixed deposit jointly with a resident family member then fret not, as the bank may allow you to hold the deposit till maturity, but may not allow you to renew it. If you wish to keep the fixed deposit then you can open a Non-Resident Ordinary (NRO) savings account with the resident family member as the second holder.

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