An NRI can enjoy complete exemption from income-tax while remaining an NRI and thus, he need not pay any income-tax under the Income Tax Act in India. However, NRIs deciding to return to India on a permanent basis are often perplexed as to the tax planning to be adopted by them to be able to have zero income tax level for their earnings in India. One important point that should be remembered by an NRI returning to India on a permanent basis is that his income, like interest on nonresident (external) account which was completely exempt when he was an NRI would no longer be so exempt when he returns to India. However, in respect of his foreign income on the investment allowed by the RBI to be kept abroad, he would not be liable to tax in India so long as he remains a resident but not ordinarily resident in India. But if an NRI carries on any business abroad while remaining a resident in India, he would not be liable to tax thereon in India. However, a zero tax liability can be obtained by an NRI returning to India on Indian income by adopting proper tax planning in respect of his investment in his name as well as in the names of his family members.
One important aspect that should be taken care of by a returning NRI is that there should be sufficient investment in the names of the spouse and major children. Besides, a new file in the name of Hindu undivided family can also be started by the returning NRI. The investment should be made in each of the files in such a manner that the amount of taxable income is kept below exemption limit, which is Rs. 2,50,000 for an individual male and female for the Assessment Year 2015-2016. Every returning NRI must adopt tax planning carefully so as to avoid clubbing of the income of his spouse or daughter-in-law or minor children with his income. Likewise, an NRI can make investments through the help of well- known brokers in shares of reputed companies so that there is security along with liquidity of investment and the dividend income is eligible to exemption under Section 10(34) . The investment may also be made in mutual funds as the income from mutual funds is exempt from tax.
If there is any taxable income, say on account of rental income or investment in non-banking deposits, etc., then the tax incidence can be reduced through investments in PPF, NSCs, Life Insurance premium, specified and notified infrastructure bonds, units, etc. under Section 80C where deduction from income is allowed upto maximum investment of ` 1,50,000 per tax-payer
Where an NRI is interested in having a house, he can invest his funds in the purchase or construction of a self-occupied residential house, the income of which will be nil for income tax purposes. Further, he can even borrow moneys from his relative and get a deduction on interest upto Rs. 1,50,000 every year from any other taxable income. The above account of tax planning to be adopted by an NRI gives the most important aspects of tax planning to achieve a zero income tax level.