Indian overseas population has acquired a large number and many Non-Resident Indians (NRIs) have bank accounts, properties, and various other assets in India. They have to pay tax returns for those assets. It is very important for all the NRIs to pay their residential tax depending on their period of stay for the financial year. Pursuant Indian tax rules, NRI has to pay taxes for their income which is rising from India or received from the properties in India. The rules and regulations applied for the Non-resident Indians are different from those taxes which levied from the Indian residents. Following are the steps which should be followed to file income tax for the NRIs,
Calculate your residential status
For every financial year, the NRIs have to examine their residential status. Under Section 6 of the Income Tax Act 1961, the number of days is prescribed.
A person is considered as an Indian resident for a financial year. If
i) The person who had stayed in India for at least 6 months in a financial year
ii) The person who had stayed in India for 2 months in the financial year and one whole year in the past 4 years.
iii) If an Indian citizen is working outside India, the first condition only applies to him/her, which means he/she is an Indian resident, as they had stayed 182 days in India.
iv) PIO means Person of Indian Origin. A person having his/her parents or grandparents, who are born in India is called as PIO. The third condition applies to the PIO, who is visiting India.
v) The person who is not meeting any of the above-said conditions is known as ‘NRI’.
vi) Indian citizen who left India for their employment purpose or another one who is visiting India can stay up to 181 days in India. The day of the arrival and departure is also included in those 181 days.
Types of Income that is liable for Tax
The income of NRI that is liable to the tax is the capital gains, shares in India, rent from the properties held in India, Interest on bank accounts held in India, income earned, income from fixed deposits. In case a company searches for further deductions, under Section 80C, will be deducted as eligible deductions from the income. The incomes which are earned outside India are tax-free. Interest gained on NRE and FCNR accounts is also tax-free. But interests on the NRO account for an NRI is taxable.
Liability to the Tax
Tax liability is based on the slab rates for the individuals. Whether he is NRI or not, for the persons, whose income exceeds Rs. 250000, have to file an income tax return in India.
Checking out the 26AS form
NRIs can reconcile the TDS or other advance taxes that are paid in the tax return, by checking through the 26AS form.
Deductions and Exemptions
Following are the deductions under section 80C, which are allowed to NRIs,
Life insurance premium payment, Children’s tuition fee payment, Repayment of loans for the purchase of property, Unit-linked Insurance Plans (ULIPS), Investments in ELSS. Besides the above-said deductions, the NRI is able to claim other deductions such as Deduction from House Property Income for NRIs Deduction under Section 80D, Deduction under Section 80E, Deduction under Section 80G, Deduction under Section 80TTA, Deductions not Allowed to NRIs, Investment under RGESS (Section 80CCG), Deduction for the Differently-abled under Section 80DD, Deduction for the Differently-abled under Section 80DDB, Deduction for the Differently-abled under Section 80U, Exemption on Sale of Property for an NRI, Income Tax Filing for Foreign Nationals.
Double Taxation Treaty Benefit (DTAA)
If it is supposed to be NRI is taxable both in India as well as in the other countries also, a claim can be made through the Double Taxation Avoidance Agreement (DTAA). Based on the type of income, subsequent actions will be taken which can lead to entirely exempt the income or taxable at some lower rates than before. If the income is not exempted from the taxes even after DTAA, NRI has to pay the tax in India and can claim the credit of taxes that are paid against the tax liability in their own country of residence, under some conditions.
From Financial Year 2017, NRIs has to file the returns in ITR 2, for all the cases, other than those who have income from a certain business. They must file returns in ITR 3. ITR 1 is not for non-residents.
Some of the exempt incomes such as interest and dividends on FCNR/NRE deposit, capital gains on selected securities, eligible gifts, interest on tax-free bonds, etc. even it has no tax under the schedule of Exempt Income.
Providing bank account information
Both the type of NRIs who are requesting and not requesting the refund, but having a bank account in India, has no need to provide their foreign bank account details for the return of income. But for the NRIs who want the income tax refund and don’t have a separate bank account in India should provide any one of the foreign bank account details.
The ITR should be verified within 120 days. Returns are called as invalid if they are not verified. E-verification services are available in the net banking accounts of India. Probably, verification actions are considered to be done only by physically by sending signed ITR.