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Posted by Rupesh Shah  09 Aug 2011
Tax tips for Indians abroad

When we think of earning investments/income, the first thing that comes to our mind is the tax to be paid on them. We Indians (RI & NRI) are more concerned about the outgoing than the incoming.

Once you start investing in India, you’re also liable to pay tax to Indian Government. Let’s try to understand the basic tax structure which is applicable to NRIs.


The following incomes are calculated for Tax purpose in India:
•    Income received in India
•    Income accruing or arising in India
•    Income deemed to accrue or arise in India

Income earned and received outside India is not taxable in India.

NRIs are taxable on income accrued or received in India. Income earned and received outside India such as overseas business income, overseas bank interest incomes, etc. is not taxable in India

An NRI is treated at par with RI for taxation matters.


Income Tax Slabs – AY 2011-2012


Tax Slabs (in Rs) 

Income tax 

Indian Male/NRI/HUF 

0 to 1,60,000 


1,60,001 to 5,00,000 


5,00,001 to 8,00,000 


Above 8,00,000


Having said that, in simple terms, if you’re earning less than Rs 1,60,000 (approx $3600) income in India, then you’re not liable to pay income tax in India. If you earn Rs 8,00,000(approx $18,000) then you will be paying Rs. 94,000 (approx $2,100) as tax.

However, there are a few investments which do not attract income tax or special tax.

Following are a few examples:

•    Interest earned by a resident outside India from non-resident external (NRE) accounts
•    Interest earned by an NR or NOR from foreign currency (non-resident) (FCNR) accounts
•    Interest on notified securities, bonds, annuity certificates and savings certificates issued by the Central Government
•    Interest on bonds issued by local authorities and notified by the Central Government in the official gazette
•    Dividends received from Indian companies and from specified mutual funds
•    Long-term capital gains from the transfer of equity shares in a company or units of an equity oriented fund provided such transaction has been subjected to securities transaction tax
•    Latest  tax rates applicable for Investment in Mutual fund /Stocks.

Scheme                     Type                                                         Tax Rate
Money Market Fund    Dividend Distribution Tax                              27.04%
Other debt Schemes   Dividend distribution Tax                              13.52%
All Debt Scheme         Long term Capital Gains with indexation        20.60%
All Debt Scheme         Long term Capital Gains without indexation   10.30%
All Debt Scheme         Short term Capital gain                                30.9%^
All Equity Schemes*    Long Term Capital Gain                               NIL
All Equity Schemes*    Short term Capital Gain                               15.45%
All Equity Schemes*    Dividend Distribution Tax                              NIL

Note: All tax rates are inclusive of surcharge & cess
^ assuming highest tax bracket
* STT @ 0.25% on equity schemes when redeemed or switched


Tax slabs

Image Courtesy: www.sxc.hu

Contributor: tijmen

(Rupesh is an independent Investment advisor since last 5 years. Now pursuing CFP. He works an an IT Manager in a multi-national company in Mumbai. Rupesh is an expert on matters related to NRI investment in India.)

You can reach Rupesh on Facebook: http://www.facebook.com/rcsshah/Rupesh
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