Everything you need to know about NRI Income Tax Return

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NRI Income Tax Return in India

Are you aware that non-resident Indians, or NRIs, must pay income tax in India? Not only do residential Indians pay taxes, but so do non-resident Indians. We are all aware that taxes collected from citizens form the basis of the Indian economy. The Income Tax Act, 1961 applies to anyone generating income outside their own country. The income tax regulations and benefits available to them differ significantly from those available to resident Indians. In this article we will discuss NRI Income Tax Return. 

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Key Abstract- NRI Income Tax Return in India

A non-resident Indian (NRI) is an Indian who lives outside of India. In particular, it refers to non-resident Indian citizens who live outside India, as well as foreign citizens of Indian descent who live outside the nation. Under specific conditions, such NRIs are taxed. These factors include whether the income is earned or expected to be earned in India, the source of the revenue is in India, or the money is received or expected to be received from India.

According to FEMA and the Income Tax Act, 1961, who is an NRI for Indian Income Tax purposes?

Any individual living outside India is considered an NRI under FEMA and the Income Tax Act, 1961. A person is considered a resident of India if he or she spends more than 182 days in the nation within a fiscal year. An NRI, on the other hand, is someone who:

    • Has been away from India or will be away from India for:
      • Work outside of India
      • Operating a company or pursuing a profession outside of India
      • Circumstances showing the individual’s desire to remain outside of India for an indefinite period of time
    • In any situation, a person who has come to or remains in India, other than:
      • Job Opportunities in India
      • Operating a company or profession in India
      • Factors showing the individual’s desire to remain in India for an indefinite period of time.
  • Individual or corporate body incorporated or registered in India.
  • Office, agency, or branch in India owned or controlled by a person resident outside of India.
  • Outside-of-India office, agency, or branch owned or controlled by a person resident in India.
  • In situation, a person who has come to or remains in India.

The Income Tax Act, 1961 defines the duration of absence for evaluating an NRI as 182 days or more; however FEMA defines the term as any number of days above 182.

NRI Income Tax Return Eligibility

If an NRI’s taxable income in India during the year exceeded the basic exemption limit, or he/she made short-term or long-term capital gains through the sale of any investments or assets in India, even if the gains were less than the basic exemption limit, the NRI is required to file an income tax return. He or she can also file a tax return for a refund if the tax deducted at source is greater than the actual tax liability. In addition, if the individual suffers a capital loss that may be offset against capital gains, he or she may be eligible for a refund. It should be noted that the increased exemption limit for women and older persons applies only to locals, not NRIs.

NRI Residency Status

Residency for tax purposes is determined by a person’s actual presence in India. There are three factors that might establish NRI tax residency:

  • First, when an individual’s stay in India is fewer than 60 days in a financial year.
  • Second, where the stay exceeds 60 days but is less than 182 days, and the total stay in the four years before the year in question is less than 365 days.
  • Finally, when an individual quits India for employment outside India for a period of less than 182 days in the year of departure.

The Income Tax authorities assess whether a specific individual is considered a resident of India for a certain fiscal year based on the aforementioned factors.

Why should NRIs submit Income Tax Returns in India?

If they have taxable income in India, NRIs must submit an income tax return in India. For example, an NRI with a residential property in India who earns rental income would be obliged to submit an income tax return if the rental income exceeded the exemption limit. NRIs must pay tax on the following forms of income:

  • Any money earned or derived in India
  • Further, any income judged to have accrued or arisen in India
  • Furthermore, any earnings received in India
  • Any income believed to have been obtained in India

Furthermore, losses from one fiscal year may be carried forward and set off against income from subsequent fiscal years only if a return of income for the year of loss is submitted. Finally, late submission of returns results in a penalty interest charge of 1% per month on the amount tax owed. In addition, if the return is not filed within one year after the end of the applicable fiscal year, a penalty of Rs 5,000 may be imposed. As a result, NRIs must file income tax returns on time.

The Advantages of Filing NRI Income Tax Return

Filing income taxes provides various advantages to NRIs. These are as follows:

  • The Income Tax Act exempts NRIs from paying wealth tax on domestic bank accounts.
  • In India, gifts made through NRE and FCNR accounts are exempt from gift tax.

Concerned persons can follow the step-by-step procedure outlined in the next part after learning about income tax deductions and exemptions for NRIs.

Procedure for filing NRI Income Tax Return

Procedure for filing Income Tax Return for NRI’s is as follows:

Step- 1:

Determine your residency status: The first step is to determine your residency status. This must be decided in relation to a fiscal year. However, if you have recently relocated overseas, it is a little more complicated. The same thing happens if you have just returned to India. The residence status is decided in accordance with Section 6 of the Income Tax Act, 1961. The amount of days you spend in India is critical. An NRI must spend at least 182 days outside of India. Otherwise, one is considered a resident.

Step- 2:

Determine your taxable income: How may an NRI file an income tax return? You must determine your taxable income. We must comprehend the concept of total gross revenue. It refers to total earnings before taxes. 

Is your entire gross income more than Rs 2.5 lakhs? In that situation, you will be required to pay taxes in India. This revenue might come from a variety of sources. It might be in the shape of a raise in your pay. Capital gains from the selling of stocks and mutual funds might qualify.

The bracket also includes interest on NRO deposits and rental revenue. NRIs, on the other hand, can profit from tax treaties. If TDS is deducted from their income, NRIs can also claim a refund. To do so, you must balance the TDS credit and advance tax as shown on Form 26AS.

However, filing returns is required for both of the aforementioned. The gross revenue is unimportant. NRIs can also deduct up to Rs 1.5 lakhs under Section 80c of the Income Tax Act. They cannot, however, invest in some securities, such as the Public Provident Fund (PFF). You must register your assets and liabilities in India if your income in India exceeds Rs 50 lakhs.

Step- 3:

Claim the advantage of a double taxation treaty: To better understand how to submit an income tax return for an NRI, let us now look at the Double Taxation Avoidance Agreement (DTAA). The DTAA allows an NRI to avoid paying tax on the same income twice. According to the DTAA, income may be free from tax deduction in one nation or taxed at a reduced rate in the home country. Assume you have already paid taxes in India. You can then claim a tax credit in your own country. The credit is available on the same income tax paid.

Step 4: 

Confirm IT returns: After filing IT returns, you must verify them within 120 days. They are not valid otherwise.

File your NRI Taxation through Legal Window. Our Experts will guide you through the every point of considerations and will assists in all formalities.

Deadline of filing NRI Return 

Individuals must file their NRI income tax returns on or before the 31st of July following the fiscal year. However, if the NRI is a working partner of a business whose finances must be audited, the due date is September 30. However, if the taxpayer has missed the deadline, he or she may file a late return.

Income Tax Deductions for Non-Resident Indians in India

Income tax deductions for NRIs are specified under the Income Tax Act are as follows:

  • Section 80C: According to this clause, NRIs can claim an income tax deduction in the following situations:
    • ULIPs \LESS
    • Home loan principal repayments
    • Payment of a life insurance policy premium
    • Payment of children’s tuition costs
  • 80E Section:  If an NRI earns interest on an education loan, a deduction is permitted under Section 80E.
  • Section 80TTA: NRIs can claim a deduction of Rs.10, 000 on interest generated on a savings bank account under Section 80TTA.
  • Section 80D: Section 80D allows for an income tax deduction. Non-Resident Indians can claim a deduction for the premium paid for a health insurance coverage in this state.
  • Section 80G: NRIs can claim deductions for donations linked to social service activities under this clause.

NRI Income Tax Exemptions in India

NRIs can claim tax exemptions on the following forms of income:

  • Savings certificates and bonds issued by the government yield interest.
  • Gains in capital (exempted as per Sections 54, 54F, and 54EC).
  • Capital gains from listed equities shares and equity mutual funds over the long run.
  • The interest earned on NRE or FCNR accounts.
  • Dividends were paid on the shares of an Indian corporation.

NRI Taxation Starting from ₹ 4000/-

Sum Up

Many NRIs have made investments in India in the form of mutual funds, shares, securities, life insurance policies, unit-linked insurance plans (ULIPs), and FCNR fixed deposits, ownership of NRO & NRE accounts, and so on. As a result, Non-Resident Indians may still have income in India and must obtain a PAN card and submit an income tax return in India. Non-filing of an income tax return in India may result in penalties such as interest, late fees, fines, prosecution, and seizure of invested assets.

If you want to file your Income Tax Returns, GST Returns, TDS Returns, kindly connect to our professionals. Further, if you are facing any issue regarding Corporate Compliance or want to register your Trademark, then we would be happy to help you!

CA Pulkit Goyal, is a fellow member of the Institute of Chartered Accountants of India (ICAI) having 10 years of experience in the profession of Chartered Accountancy and thorough understanding of the corporate as well as non-corporate entities taxation system. His core area of practice is foreign company taxation which has given him an edge in analytical thinking & executing assignments with a unique perspective. He has worked as a consultant with professionally managed corporates. He has experience of writing in different areas and keep at pace with the latest changes and analyze the different implications of various provisions of the act.

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