Indians living and working in foreign countries are often worried about the tax* laws applicable to them in their home country. The same holds for people having an OCI or an Overseas Citizenship of India.
However, proper tax filing is essential to avoid legal troubles in our country. Therefore, you must know the details of ITR filing for NRI/OCIs and the taxation rules for NRI life insurance policies.
Read further to know everything about OCI taxation in India.
What is Overseas Citizenship of India?
The OCI is an immigration status introduced by the Government of India in August 2005 by amending the Citizenship Act of 1955. It is a unique form of citizenship offered to only some individuals.
A Person of Indian Origin (PIO) under a specific category who has migrated from our country to another foreign country (except Pakistan and Bangladesh) can apply for an OCI. The provision was introduced on the demand of Indians working in developed countries and wanting dual citizenship.
OCI is not to be misconstrued as 'dual citizenship' and it does not confer political rights. The registered Overseas Citizens of India shall not be entitled to the rights conferred on a citizen of India under article 16 of the Constitution with regard to equality of opportunity in matters of public employment.
A registered Overseas Citizen of India is granted multiple entry, multi purpose, life-long visa for visiting India. The OCI document looks like a passport, and it can be provided to people meeting any of the following eligibility criteria:
An individual who was an Indian citizen on 26 January 1950, or at any time thereafter.
An individual who belonged to a territory that became part of India after 15 August 1947, or eligible to become an Indian citizen on 26 January 1950.
A person who is a child, grandchild, or great-grandchild of such a citizen.
An individual who is a minor child of such persons mentioned above.
An individual who is a minor child whose parents are citizens of India or one of the parents is a citizen of India.
A person who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of an Overseas Citizen of India Cardholder registered under section 7A of the Citizenship Act, 1955 and whose marriage has been registered and subsisted for continuously at least 2 years immediately before applying for OCI.
An individual who or either of whose parents or grandparents or great-grandparents is or had been a citizen of Pakistan or Bangladesh is not eligible for registration as an OCI. Persons who served as foreign military members are also ineligible for it.
Benefits of the OCI Status in India
An OCI cardholder is eligible for a ‘U’ visa in India, which allows them to visit India at any time and for any duration or purpose without getting a separate work visa.
Their status is the same as NRIs for educational, economic, and financial purposes.
They can stay in India for any amount of time without registering with the concerned authorities.
They can practise as doctors, lawyers, architects, and CAs in India, like resident Indians.
The Aadhar card and PAN of an OIC cardholder continue to be valid.
Taxation Rules for an OCI on Indian Income
As an OCI, your foreign income and interest earnings from a non-resident rupee bank account are exempted from tax in India. However, your income from Indian sources will be taxed under the Income Tax Act.
Your duration of stay in India helps establish your residential status. It helps determine if you will be eligible to pay tax in India for the given financial year or not.
Income Tax Exemptions for OCI
The amount deposited by an OCI cardholder in an NRE (Non-resident External) or FCNR (Non-resident Ordinary) account.
Equity-based mutual fund schemes.
Long-term capital gains from equity share transfer of a company.
How to File ITR as an OCI?
The income tax return can now be filed only through the online portal by all taxpayers, including OCI cardholders. The steps for it are as follows:
Register on the official web portal for filing an income tax online and create a login ID.
You can log in on the portal with some essential details such as your PAN, mobile number, and email address.
Next, get your ITR prepared as per the provisions for an OCI cardholder.
Submit the prepared ITR file on the portal.
Once the file is uploaded, an acknowledgment of ITR V is generated.
You can e-verify the ITR V on the portal itself or sign its hard copy and send it to the income tax processing centre.
The processing department will process your ITR and issue any refunds.
Income Tax Slabs for OCI in India
OCI tax slabs in India:
Taxable Income | Tax Rate (%) |
Less than ₹ 2,50,000 | Nil |
Between ₹ 2,50,000 and ₹ 5,00,000 | 5 |
Between ₹ 5,00,000 and Between ₹ 10,00,000 | 20 |
Above ₹ 10,00,000 | 30 |
Cess: Additionally, there is a 4% cess chargeable on the tax calculated as per the table given above.
Surcharge: There is also an additional surcharge if the OCI cardholder’s income exceeds a certain threshold. The surcharge rates are as follows:
Exceeding Income | Surcharge Rate (%) |
If taxable income exceeds ₹ 50,00,000 | 10 |
If taxable income exceeds ₹ 1 crore | 15 |
If taxable income exceeds ₹ 2 crore | 25 |
If taxable income exceeds ₹ 5 crore | 37 |
Relief From Double Taxation for OCI
India has a Double Taxation Avoidance Agreement (DTAA) with several other countries that provides relief to OCI cardholders from paying double tax on their income.
If the country has a DTAA agreement with India, an OCI will be taxed either under the provisions of the DTAA or the Income Tax Act, whichever is more beneficial.
To reduce your tax burden as an OCI cardholder, you can invest in an NRI insurance plan in India. OurTata AIALife Insurance Plans provide you with a sum assured to ensure that your loved ones are not left financially helpless even when you are not around. Moreover, they offer you tax benefits as per the provisions of the Income Tax Act.
However, it is advisable to consult a tax advisor or professional to stay updated about the latest tax provisions applicable to your circ*mstances and country of residence.
Wrapping Up
The OCI is an immigration status that was introduced to meet the demand for dual citizenship in India. Eligible OCI cardholders have to pay income tax in India on the income generated in the country. You can file your ITR online as an OCI on Indian income.
