How Union Budget 2023-24 will Impact NRI
The budget proposal includes some perks for NRI taxpayers and investors. The Finance Minister has suggested granting tax treaty benefits during TDS (Tax Deducted at Source) on dividends paid to non-residents, as per Section 196A of the Act, providing relief to NRI mutual fund investors. This means that NRIs will have to pay a lower TDS on their mutual fund dividend payments, which are currently taxed at a rate of 20%
The budget proposal seeks to lower the TDS rate on dividends paid to NRIs by entities other than a company under Section 196A of the Income Tax Act. The current TDS rate for such mutual fund income paid to non-residents is 20%.
A new NRI tax regime has been introduced with an increase in the income tax rebate limit to Rs. 7 lakh from Rs. 5 lakh, meaning that income up to Rs. 7 lakh per year is exempt from taxation.
The TCS rate for foreign remittances for education and medical treatment will remain at 5% for amounts exceeding Rs. 7 lakh, and the TCS rate for education loan remittances will remain at 0.5% for amounts exceeding Rs. 7 lakh.
However, the TCS rate for foreign remittances for other purposes under the Liberalized Remittance Scheme (LRS) and for purchasing overseas trips has been raised from 5% to 20%
The Finance Minister unveiled new income tax brackets, which differ from the previous ones. Under the previous regime, individuals with an annual income of up to Rs. 5 lakh were exempt from paying income tax, but the rebate limit has now been increased to Rs. 7 lakh in the new tax regime. This means that if an individual’s annual salary is Rs. 7 lakh, they will not have to pay any income tax. Previously, the rebate was set at Rs. 5 lakh.
The following are the updated income tax brackets and rates for NRIs (Non-Residential Indians) for the Assessment Year (AY) 2023-24. However, individuals have the option to continue with the old income tax regime.
| Income Tax Slab | New Regime Slab Rate |
|---|---|
| Rs. 3.00 lakh to Rs. 6.00 lakh | 5% |
| Rs. 6.00 lakh to Rs. 9.00 lakh | 10% |
| Rs. 9 lakh to Rs. 12.00 lakh | 15% |
| Rs. 12 lakh to Rs. 15.00 lakh | 20% |
| Above Rs. 15.00 lakh | 30% |
The new income tax regime will be the default option, meaning that if an individual does not make a choice, the new regime will be selected automatically.
In the new regime, the rebate under Section 87A has been increased to Rs. 7 lakh, and the standard deduction has been raised to Rs. 52,500.
To summarize, this budget provides numerous advantages for NRIs earning income in India. Under the new tax laws, NRIs can benefit from lower tax rates or receive a larger tax incentive. As a result of the lower TDS on mutual fund dividends, NRIs can invest more in mutual funds in India. India has already established itself as a prime destination for investors worldwide, and with the simplified tax regime and reduction in TDS on mutual fund income for NRIs, it becomes even more appealing for investors and presents a great opportunity for them.
