Reasons Why NRI Tax Filing is Important!

Reasons Why NRI Tax Filing is Important!

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NRI Tax Filing

 

Why should NRIs file their taxes?

The number of Indians living abroad for business or permanent settlement is rising at a greater pace.

These Indians work abroad and earn there but have some investments, deposits and properties that earn income back in India. Hence many of them need to file taxes in India. For the purpose of tax liability in India, it is essential to determine the residential status of a taxpayer. In case of resident taxpayer, all his income would be taxable in India irrespective of the fact that income is earned or has accrued to taxpayer outside India. However, in case of non-resident, income which accrues or arises outside India would not be taxable in India.

Like every other individual, NRIs too need to file Income Tax returns by 31st July every year.

Who is an NRI?

Non-Resident Indian (NRI) is an Indian living outside India. The term NRI generally means a non-resident who is either an Indian Citizen residing outside India or a Person of Indian origin.

Under the Income-tax law, an individual will be treated as a resident in India for a year if he satisfies any of the following conditions:

  1. He is in India for a period of 182 days or more in that year; or
  2. He is in India for a period of 60 days or more in the year and for a period of 365 days or more in 4 years immediately preceding the relevant year.

If an individual does not satisfy any of the above conditions he will be treated as non-resident in India.

An NRI’s income taxes in India will depend upon his residential status for the year. If a person’s status is ‘resident’, his global income is taxable in India. If his status is ‘NRI’, his income which is earned or accrued in India is taxable in India.

Tax incidence in case of Non-residents

Income which accrues or arises in India  Taxable
Income which is deemed to accrue or arise in India  Taxable
Income which is received in India  Taxable
Income which is deemed to be received in India  Taxable
Income accruing outside India from a business controlled from India or from a profession set up in India  Not Taxable
Income other than above (i.e. income which has no relation with India)  Not Taxable

An NRI will have to file income tax returns if he fulfills either of these conditions:

Taxable income in India during the financial year was above the basic exemption limit i.e. Rs. 2,50,000

OR

He has earned short-term or long-term capital gains from sale of any investments or assets, even if the gains are less than the basic exemption limit. These include short term capital gains on equity shares and equity mutual funds where tax rate is 15% and long term capital gains on securities and assets where tax rate is either 20% or 10% without indexation.

It is imperative to note that the enhanced exemption limit for senior citizens is applicable only to residents and not to non-residents.

An NRI may file income tax returns if –

He has to claim a refund – This may happen where the tax deducted at source is more than the actual tax liability. For Instance, if income for the year was below the exemption limits but the bank deducted tax at source on interest amount, a refund can be claimed by filing a tax return.

There is a capital loss that can be set-off against capital gains – Tax may have been deducted at source on the capital gains, but the capital loss can be set-off (or carried forward) against the gain and lower the actual tax liability. In such cases, a tax return would have to be filed.

Exceptions:

TDS already deducted – If the taxable income consists only of investment income (interest) and/or capital gains income and if tax has been deducted at source from such income, tax returns do not have to be filed by an NRI.

Tax free income – If an NRI has earned long term capital gains from the sale of equity shares or equity mutual funds, he does not have to pay any tax and therefore, does not have to include that in his tax return.

Tax saving tips:

NRIs can save their income from taxation by investing in mediclaims, life insurance policies, tax saving mutual funds, etc. Most of the tax saving deductions under section 80 are also available to NRIs. For FY 2016-17, a maximum deduction of up to Rs. 1,50,000 is allowed under section 80C from gross total income for an individual.

Allowable deductions to NRIs –

  • Life Insurance payment
  • Children’s tuition fee payment
  • Principal repayments on loan for purchase of house property
  • Investments in Equity-Linked Saving Scheme (ELSS)
  • ULIPS or Unit Linked Insurance Plan
  • Interest on house loan
  • Premium paid for health insurance
  • Interest paid on education loan
  • Donations under Section 80G
  • Income from interest on savings bank account up to a maximum of Rs. 10,000.

NRIs cannot invest in –

  • National Saving Certificate (NSC)
  • Post Office Time Deposit (POTD)
  • Senior Citizens Saving Scheme (SCSS)
  • Public Provident Fund (PPF) NRIs are not allowed to open a new PPF account. However, an existing PPF account can be continued till maturity.

With the help of above-mentioned tips, NRIs can simplify the whole process of filing their tax returns in India.

Vibha Surana
Vibha Surana
Vibha is a qualified Company Secretary pursuing LLB. She is responsible for compliance of various corporate laws at H&R Block. Her hobbies are – football, outdoor activities, reading books and travelling. Linkedin profile - https://www.linkedin.com/in/vibha-surana-320b1689?trk=hp-identity-name

5 Comments

  1. Rohan says:

    Hi
    I am NRI working in gulf from last three years and my only earning in india is through monthly rentals i.e. 14 k which I deposit in my NRO account. Now it’s been three years I have not filed any returns and before that also it was my company who was doing it for me. So technically I have no personnel experience of filling returns.
    So could you please help me if I want to keep my tax return or tax history file active… Please suggest in detail as I am totally confuse and unaware about the procedures.

  2. Moon says:

    If time is money you’ve made me a weaithler woman.

  3. Abhilasha Sharma says:

    Very nice and wise collection of words to describe the importance of topic.
    Very grateful for this clearly written information! Thanks..

  4. Himani Sharma says:

    Very nice and wise collection of words to describe the importance of topic.
    Very grateful for this clearly written information! Thanks..

  5. Sujith says:

    Hi Anand ,
    I need advice on my case .
    I am NRI and working in Netherlands and receiving part of my salary into my Indian account as I am still on Indian payroll. My company has revise my IT returns of last year and has applied for tax refund under DTAA. I have received the refund amount to my Indian bank account but my company is asking to put back the money(which includes the tax I paid as part of my salary and from my personal savings) into company’s account as they are paying my taxes in Netherlands. My question is should I put the refund money that I received as part of my personal savings too ?

    Thanks in advance

    Regards,
    Sujith

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