Income Tax Knowledge Bank

Deductions Allowed to NRIs – Yadnya Investment Academy

NRIs – Deductions & Exemptions Allowed under Income Tax in India

Introduction

What are the deductions allowed to NRIs under the different heads of income? Can NRI claim tax benefit of PPF under section 80C? In this article, we will discuss what deductions are allowed to NRI under the heads income from Salary or income from house property (except Income from Business / Profession). We will also discuss about the deductions allowable to NRI under Chapter VIA of Income Tax Act, 1961.

In our earlier NRI-related articles, we have discussed – How to determine Residential Status of NRIs, NRI Status under Income Tax Act & FEMA and Transactions Restricted & Permitted to NRIs under FEMA & IT Act.

Income Tax Knowledge Bank by Tax Yadnya

Deductions Allowed to NRIs

  • Taxable Income is divided under five heads of Income. Viz.
    1. Income from Salary
    2. Income from House Property
    3. Income from Business or Profession
    4. Income under the head Capital Gain
    5. Income from Other Sources
  • The deductions and exemption available from the taxable income are also divided income head wise. Also, there are certain deductions which are commonly given under Chapter VIA.

Deductions under the head ‘Income from Salary’

Following deductions and exemptions are allowed to NRI

Deductions Allowed to NRIs under the head ‘Income from Salary’
Deductions Allowed to NRIs under the head ‘Income from Salary’

Deductions under the head ‘Income from House Property’

All deductions that are allowed to Resident are also allowed to NRI.

Deductions under the head ‘Income from House Property’

Exemptions under the Head ‘Capital Gain’

  • NRI Can claim exemption under following sections against the Capital Gain from sale of house property or any other capital asset.
  • Section 54
    • If NRI has sold a Residential house property, then the capital gain on the sale of the property can be claimed as exempt under section 54, if can reinvests the capital gain amount in another residential property.
  • Section 54F
    • If NRI has sold a capital asset OTHER THAN the residential property, but reinvests the capital gain amount in the Residential House Property, then he can claim exemption under section 54F.
  • Section 54EC
    • If NRI has sold a residential property, land or building or both, and reinvests the money in Government bonds like REC, NHAI, then he can claim exemption under section 54EC. However, the maximum investment limit is Rs. 50,00,000. It means, even if he invests more than Rs. 50,00,000 still he can claim exemption up to Rs. 50,00,000 only.

Deductions under the head ‘Income from Other Sources’

  • Gift received from Relatives
    • If NRI receives any gift received from his relatives, then it is fully exempt from tax.
  • Gift received from Others
    • If NRI receives any gift from his friends or any other person other than his relatives, then it is exempt if the monetary value of the gift is Rs. 50,000 or less.
    • If the monetary value of the gift exceeds Rs. 50,000, then the entire amount is taxable in the hands of NRI.
  • Family Pension Received
    • If NRI receives a family pension on behalf of his demised family member, then–
      • 1/3rd of the Family Pension Amount OR
      • Rs.15,000, whichever is Lower is exempt from tax.

Deductions under Chapter VIA of Income Tax Act, 1961

Following deductions can be claimed by NRI.

SectionEligible InvestmentsMonetary LimitAllowed to NRI
Section 80C– Life Insurance Premium
– EPF Contribution
– School Fees
– Tax Saver FDs
– ELSS
– Repayment of Housing Loan Principal
up to Rs.1,50,000Yes
Section 80C– Public Provident Fund
– National Saving Certificates
– Senior Citizen Savings Scheme
– Post Office Savings Certificates
No
Section 80D– Health Insurance Premium
– Preventive Health Check-up
– For Senior Citizens : up to Rs.50,000  
– For Others : up to Rs.25,000
Yes
Section 80DDMedical Expenses incurred for dependent family members for specified diseases– If disability is 40% to 80% : Rs.75,000  
– In case of severe disability (above 80%) : Rs.1,25,000
No
Section 80DDBMedical Treatment of Self and dependents– Below 60 Years : Rs.40,000
– 60 Years and above : Rs.1,00,000  
No
Section 80UMedical Expenses incurred for specified diseases for Own Disability No
Section 80EInterest on repayment of education loanNo upper CapYes
Section 80GDonation to Charitable Trust50% / 100% of the deduction limitYes
Section 80TTAInterest on SavingsUp to Rs. 10,000Yes
Section 80TTBInterest on Savings and *Other Deposits   (*FD / RD / Bonds / Debentures etc.)Up to Rs. 50,000No
Deductions Allowed to NRIs under Chapter VIA of Income Tax Act, 1961

Exemptions Available to NRI

Interest on NRE and FCNR account are fully exempt from tax. However, Interest on NRO Account is fully taxable in the hands of the NRI.

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