There are many investment options that Non Resident Indians (NRIs) have in India. Most of the investment options that are opened to domestic Indians are also opened to NRIs, except a few like the National Savings Certificates, PPF and most of the small saving schemes.
NRO Deposits: The worst in terms of tax liability
The worst to be hit are the NRO deposits. NRIs have to a TDS of 30 per cent, apart from the applicable cess. So, if you earn an interest of Rs 10,000, a sum of Rs 3,000 or slightly more would be cut by way of TDS.
Interestingly, the NRO savings account and NRO deposits are directly subject to TDS and there is no benefits like submitting a 15G and 15H form.
The only way you can save some tax on these deposits is if you are in a country which has signed a Double Taxation Avoidance Agreement (DTAA) with India. To know more about DTAA click
TDS the worst for NRIs
Non Resident Indians have been left with little choice, because they are straightway subject to higher TDS and do not get benefits like 15G and 15H. On shares too, the treatment of TDS is not the same. Indian domestic investors pay capital gains tax on shares when they file their tax returns. NRIs on the other hand are subject to a TDS of 15 per cent on short term capital gains tax on sale of shares.
Of course, profit on sale of shares after one year does not attract a tax liability in either case. The situation for rent on property rented out is also the same, where there is a higher TDS for an NRI.
How should an NRI save tax on investment?
a) Opting for NRE deposits and NRE savings accounts
One of the first things that an NRI should do is not remit money into the NRO account. There is a TDS of 30 per cent, plus cess on interest earned on NRO Savings and NRO Deposits.
However, NRE deposits and a NRE savings account does not attract income tax. So, the income earned by way of interest is tax free in the hands of the NRI investor. The interest rates currently being offered by banks is the same on the NRE and the NRO Deposit, so why opt for an NRO account.
Opting to be a second holder
A Non Resident Indian (NRI) can also opt for being the second holder in an FD of a domestic resident, to save tax on investment. This would ensure that the TDS would be lower, as domestic residents are subject to a TDS of only 10 per cent, as against 30 per cent (plus cess).
Long term investment in shares
The good thing for an NRI is that long term investment in shares is for a period of one year, unlike most other asset classes, where long-term is defined as a period of three years. So, an NRI should invest for a period of more than one year in shares, in which case there would be no capital gains tax on shares. This is another investment, by way of which an NRI can save tax. Of course, returns are not assured and shares are risky.