NRI Earnings and Income Tax
The Reserve Bank of India, with the aim to encourage Non-Resident Indians (NRIs) to invest more in their homeland and to facilitate foreign exchange inflow into the country, has made income earned in NRE (Non-Resident External) accounts non-taxable. There are two primary ways that an NRI can earn income.
Firstly, through rental income from buy-to-let properties, which is deposited into their NRE account. Since NRE bank accounts operate on a repatriation basis, you can transfer your earnings abroad. All NRIs can enjoy income tax exemption on NRE accounts. However, income held in NRO (Non-Resident Ordinary) accounts is taxable.
Secondly, this is an initiative to encourage NRIs to invest more in Indian companies. As any investment for an NRI can be made through NRE accounts, having income tax exemption will motivate them to make more investments. You can invest in shares, mutual funds, debentures, and other certificates of deposits. An insurance policy is another way to enjoy tax exemption. However, you must pay the insurance premiums in the foreign currency you hold overseas. Alternatively, you can choose to pay through a resident foreign currency account with Indian banks. Payments can also be made via checks within a limited period of time, drawn on accounts either maintained by your parent or spouse, held in your own name or jointly in both names. This way, you can avoid any foreign exchange conversion rates. If you choose to pay from your accounts held abroad, it involves significant costs.
According to the 2008-2009 income tax rules, the income tax exemption applies to an income level of 1,50,000 Rupees for an NRI. Senior citizens have an exemption limit of 2,25,000 Rupees, but this does not cover NRI senior citizens.