With the 31st July deadline for filing tax returns just around the corner, everyone’s talking tax. If you are an individual having taxable income in India exceeding exemption limits, you need to file your tax return by 31st July. But what if you are a non-resident Indian (NRI)? Will the 31st of July deadline still be applicable?
Here is a look at the taxation obligations of NRIs in India and some tax filing tips.
Check Your Tax Residency Status
Before you start making plans to file or not file your Income Tax return, it is imperative you check your tax residency status. Just because you qualified as an NRI in the last financial year, it does not mean you will be bracketed as one this financial year as well.
As per the definition of the Income Tax Act of 1961 and the Foreign Exchange Management Act, 1999 (FEMA), you are categorised as an NRI only if you have stayed outside India for more than 182 or more days in the relevant tax assessment year. Additionally, you are also bracketed as an NRI if you have not been physically present in India for 60 days or more during the previous year, and 365 days or more in the past four financial years preceding the previous year.
So, ascertain your residency tax status for each financial year to check if you qualify to be bracketed as a non-resident Indian for that assessment year.
Incomes Which Are Taxable in India
If you qualify to be an NRI for the assessment year and have any income that has its origin in India, you are liable to file your Income Tax return and pay the associated tax, if applicable.
So, income from your salary, any rental income from property, income from the sale of assets and financial securities, etc. are all liable for Income Tax. The interest you get for money parked in NRO accounts, along with any deposits or debentures in India, are also liable for Income Tax. The rate of tax on NRO interest earned is 30% plus surcharge and cess. In case the customer has a valid Tax Residency Certificate (TRC), Form 10F and PAN, the benefit of Double Taxation Avoidance Agreement (DTAA) can be extended and a lower rate of tax will be applicable. Note that if the interest on your NRO account exceeds Rs. 1 million in a financial year, you need to add an extra surcharge of 10%.
Deductions That You Can Avail:
Like resident Indians, there is a host of deductions that you can avail as a non-resident Indian. The popularly known deductions like Chapter VIA of the Income Tax Act are applicable for both resident and non-resident Indians. The deductions that can’t be availed by non-resident Indians are Section 80DD for maintenance, including treatment of disabled dependant; Section 80DDB for medical treatment of specified diseases for self of dependants; Section 80U for person(s) with disability; Section 80C for the specific investments that NRIs are not eligible for like PPF, NSC, 5-year post office deposit, Senior Citizen Savings Scheme and Section 80CCG for investment in Rajiv Gandhi Equity Savings Scheme.
Is Filing ITR Mandatory For NRIs?
Many non-resident Indians assume that since they are not physically present in India, it is not mandatory for them to file their Income Tax return. The fact is that if you have any income originating from India, you need to file your ITR irrespective of your physical location.
As an NRI, if your total income does not exceed the taxable limit of Rs 2.5 lakhs, you are not mandated to file an ITR. However, if you are claiming any sort of tax benefit through any tax treaty with another country either under the Double Taxation Avoidance Agreement (DTAA) or otherwise, then it is mandatory for you to file your tax return.
If your income exceeds the minimum taxable limit of Rs. 2.5 lakhs, you, as an NRI, need to file your ITR mandatorily. Any sale of securities that you may be holding for more than 12 months should also be added to calculate your total taxable income.
Overview & Benefits of DTAA
Many NRIs often worry about double taxation. To make sure NRIs do not end up paying taxes both in India and the country of their location, DTAA comes to the rescue.
India has signed a DTAA with over 90 countries so that you do not end up paying double taxes. As an NRI, all you need to do is first check whether your income is taxable in India or not. If yes, then you pay the tax you are liable for in India and can then claim credit for the tax paid against any tax liability in your country of residence.
Before you file your IT return as an NRI, keep these things in mind:
- You are liable to pay Income Tax for any income you generate or receive in India as an NRI.
- Any interest earned by you on your Non-Residential External (NRE) bank account is fully exempted from any Income Tax.
- The same is true for your Foreign Currency Non-Resident (FCNR) Account. You will, however, need to pay tax on earnings realised on your NRO account.
- Selling any immovable property is taxed as per the Indian laws for all non-resident Indians.
- You can furnish any tax residency certificate (TRC), Tax Identification Number (TIN), or name and address proof to claim a lower tax rate under DTAA.
- If your total taxable income exceeds Rs. 50 lakhs, you will have to disclose details of your assets, including land, cash, vehicles, etc.
- If taxable income is more than Rs. 5 lakhs, you will have to file your ITR using the e-filing mode.
It is easy to sort out your taxes and file your return when you know how. Hurry! You only have a couple of days left.
Great article!! Thank you for sharing your knowledge…This article was very fascinating and useful to me..
Thanks for your valuable feedback. Keep reading our blog for more on personal finance.
Hello, I am NRI and i think my income in india will be more than 2.5 lacs. Also my income was more than 2.5 lacs last year, In such cases what should i do. Do i have to file my IT returns for last year if yes whats the procedure. Kindly advise.
Hi Khu Kha,
Yes, you will be required to file your taxes for last year and this year too. The procedure for filing taxes is the same. Here is a quick guide –