Deductions and Exemptions for Non Residents

Non Residents

“Har Kisi Ko Mukkamal Jahan Nahi Milta”, par thoda tax exemption toh mil hi jaata hai. 😉
If you are weak in Hindi, then let me tell you this quote means that you cannot get entire universe, but yeah, you still get something.
Non Residents are allowed most of the deductions and exemptions, at par with resident Indians. However, there are certain deductions, which are not allowed to the Non Residents.

Check your residential status here

Let’s check allowable and non allowable deductions step by step.

Deductions Under Section 80C

Most of the deductions under Section 80 are also available to Non Residents. For FY 2016-17, a maximum deduction of up to Rs 1,50,000 is allowed under Section 80C from gross total income for an individual.

Of the Deductions Under Section 80C, those Allowed to Non Residents are:

  • Life insurance premium payment: The policy must be in the NRI’s name or in the name of their spouse or any child’s name (child may be dependent/independent, minor/major, or married/unmarried). The premium must be less than 10% of sum assured.
  • Children’s tuition fee payment: Tuition fees paid to any school, college, university or other educational institution situated within India for the purpose of full-time education of any two children (including payments for play school, pre-nursery and nursery).
  • Principal repayments on loan for the purchase of a house property: Deduction is allowed for repayment of loan taken for buying or constructing residential house property. Also allowed for stamp duty, registration fees and other expenses for purpose of transfer of such property to the Non Residents.
  • Unit-linked insurance plan (ULIPS): ULIPS is sold with life insurance cover for deduction under Section 80C. Includes contribution to unit-linked insurance plan of LIC mutual fund e.g. Dhanraksha 1989 and contribution to other unit -linked insurance plan of UTI.
  • Investments in ELSS


Other Allowable Deductions


Deduction from House Property Income for Non Residents

NRIs can claim all the deductions available to a resident from income from house property for a house purchased in India. Deduction towards property tax paid and interest on home loan deduction is also allowed. You can read about house property income in detail here.


Deduction under Section 80D

Non Residents are allowed to claim a deduction for premium paid for health insurance. This deduction is available up to Rs 30,000 for senior citizens and up to Rs 25,000 in other cases for insurance of self, spouse, and dependent children.

Additionally, an NRI can also claim a deduction for insurance of parents (father or mother or both) up to Rs 30,000 if their parents are senior citizens, and Rs 25,000 if the parents are not senior citizens.

Therefore, an NRI will be able to claim a maximum deduction of Rs 60,000 under this Section. Beginning FY 2012-13, within the existing limit a deduction of up to Rs 5,000 for preventive health check-ups are also available.


Deduction under Section 80E

Under this Section, NRIs can claim a deduction of interest paid on an education loan. This loan may have been taken for higher education for the NRI, or NRI’s spouse or children or for a student for whom the NRI is a legal guardian. There is no limit on the amount which can be claimed as a deduction under this Section. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. The deduction is not available on the principal repayment of the loan.


Deduction under Section 80G

Non Residents are allowed to claim a deduction for donations for social causes under Section 80G.
Here are all the donations which are eligible under Section 80G.


Deduction under Section 80TTA

Non-resident Indians can claim a deduction on income from interest on savings bank account up to a maximum of Rs 10,000 like resident Indians. This is allowed on deposits in savings account (not time deposits) with a bank, co-operative society or post office.


Deductions not Allowed to Non Residents

Some Investments under Section 80C:

  • Investment in PPF is not allowed
    (NRIs are not allowed to open new PPF accounts, however, PPF accounts which are opened while they are a resident are allowed to be maintained.)
  • Investments in NSCs
  • Post office 5-year deposit scheme
  • Senior citizen savings scheme


Investment under RGESS (Section 80CCG)

Deduction under Section 80CCG or Rajiv Gandhi Equity Savings Scheme was introduced in effective assessment year 2013-14. The main purpose behind this deduction was to increase retail investor participation in equity markets. Upon satisfaction of certain conditions the deduction allowed is lower of 50% of the amount invested in equity shares or Rs 25,000. This deduction is not available to NRIs.


Deduction for the Differently-Abled under Section 80DD

Deduction under this Section is allowed for maintenance including medical treatment of a handicapped dependent (a person with a disability as defined in this Section) is not available to NRIs.


Deduction for the Differently-Abled under Section 80DDB

Deduction under this Section towards medical treatment for a dependent who is disabled (as certified by a prescribed specialist) is available only to residents.


Deduction for the Differently-Abled under Section 80U

Deduction for disability where the taxpayer himself suffers from a disability as defined in the Section is allowed only to resident Indians.


Exemption on Sale of Property for an NRI

Long-term capital gains (when property is held for more than 3 years) is taxed at 20%. Do note that long-term capital gains earned by NRIs are subject to a TDS of 20%.

NRIs are allowed to claim exemptions under Section 54, Section 54 EC, and Section 54F on long-term capital gains. Therefore, an NRI can take benefit of the exemptions from capital gains at the time of filing a return and claim a refund of TDS deducted on Capital Gains.

Exemption under Section 54 is available on long-term capital gains on sale of a house property. Exemption under Section 54F is available on sale of any asset other than a house property.

Read more about Section 54.

Exemption is also available under Section 54EC when capital gains from sale of the first property is reinvested into specific bonds.

  • If you are not very keen to reinvest your profit from sale of your first property into another one, then you can invest them in bonds for up to Rs.50 lakhs issued by National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC).
  • The homeowner has 6 months’ time to invest the profit in these bonds, although to be able to claim this exemption, you will have to invest before the tax filing deadline.
  • The money invested can be redeemed after 3 years, but cannot be sold before the lapse of 3 years from the date of sale.

The NRI must make these investments and show relevant proof to the buyer to get no TDS deducted on the capital gains. The NRI can also claim excess TDS deducted at the time of return filing and claim a refund.

Know about NRI taxation here


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