A good majority of the Indian Population is working abroad, so it is very important to know the taxability of the Income of these groups. Filing Income Tax Returns ( ITR ) for Non-Resident Indians (NRIs) involves understanding specific rules and regulations that apply to them.
An NRI is an Indian citizen who lives abroad for more than 182 days during a financial year for employment, carrying on a business or vocation, or any other purpose that requires them to stay outside India for an uncertain period. NRIs have specific taxation rules, and their income earned in India is taxable, while income earned abroad is generally not taxable in India.
It is important to ensure that the appropriate TDS has been deducted from income earned in India. Utilize the benefits of DTAA to avoid double taxation on income earned in India and the country of residence. Also, remember to report any foreign assets and income in the ITR if you qualify as a resident.
Determining Residential Status
NRIs need to determine their residential status for tax purposes, which is based on their physical presence in India during the financial year (April 1 to March 31).
- Basic Conditions: An individual is considered a resident of India if they satisfy any one of the following conditions:
- They are in India for 182 days or more in the financial year, or
- They are in India for 60 days or more in the financial year and for 365 days or more during the preceding four financial years.
- Exceptions to Basic Conditions:
- For Indian citizens or PIOs who leave India for employment or as crew members of an Indian ship, the 60-day condition is extended to 182 days.
- For Indian citizens or PIOs who visit India, the 60-day condition is extended to 182 days if the total income (excluding foreign income) does not exceed ₹15 lakh in the financial year.
Types of NRIs
- NRI (Non-Resident Indian): An individual who meets the criteria of residence as mentioned above.
- RNOR (Resident but Not Ordinarily Resident): An individual who has been a non-resident in India for 9 out of 10 previous years, or has been in India for 729 days or less during the last 7 financial years.
Income Tax Liability for NRIs
NRIs are taxed only on income that is earned or accrued in India. Foreign income is not taxable in India for NRIs. Following are the taxable sources of Income;
- Salary received in India or for services rendered in India.
- Income from house property situated in India.
- Capital gains on transfer of assets situated in India.
- Income from fixed deposits or savings accounts in Indian banks.
- Income from business or profession established in India.
- Interest earned on NRO (Non-Resident Ordinary) accounts.
Deductions and Exemptions
NRIs are eligible for several deductions under the Income Tax Act, 1961:
- Section 80C: This section allows to claim deductions from their taxable income for certain specified investments, savings, and expenditures. Deductions are available up to ₹1,50,000 for investments in life insurance premiums, PPF, ELSS, etc.
- Section 80D: This section provides deductions for premiums paid for health insurance and expenses on preventive health check-ups.
- Section 80G: This sectionprovides deductions for donations made to certain funds, charitable institutions, and relief funds.
- Section 80TTA: Deductions up to ₹10,000 on interest earned from savings accounts.
- Section 80E: Deductions on interest paid on education loans.
Filing ITR for NRIs
NRIs must file ITR if their total income in India exceeds ₹2,50,000 in a financial year.
Types of ITR Forms for NRIs:
- ITR-2: For individuals and HUFs not having income from business or profession.
- ITR-3: For individuals and HUFs having income from business or profession.
- ITR-1 (Sahaj): For individuals (only for residents) with income up to ₹50 lakh, having income from salaries, one house property, other sources (interest, etc.), and agricultural income up to ₹5,000.
- ITR-4 (Sugam): For individuals, HUFs, and firms (other than LLP) being a resident having total income up to ₹50 lakh and having income from business and profession which is computed under sections 44AD, 44ADA, or 44AE.
Steps to File ITR for NRIs:
- Collect Documents: Gather all necessary documents, including Form 16A, TDS certificates, bank statements, investment proofs, etc.
- Choose the Correct ITR Form: Based on the type of income earned, select the appropriate ITR form.
- Fill in the Details: Provide accurate details of income, deductions, and tax payments.
- Claim DTAA Benefits: If applicable, claim benefits under the Double Taxation Avoidance Agreement (DTAA) by filling Schedule FSI and TR.
- E-File the Return: File the ITR online on the Income Tax Department’s e-filing portal.
- Verification: Verify the ITR using Aadhaar OTP, EVC through bank account/Demat account, or send the signed ITR-V to CPC, Bangalore.
Penalty for Non-Filing
If the ITR is not filed by the due date (generally July 31 for non-audit cases), a penalty of ₹5,000 may be levied, which can go up to ₹10,000 if filed after December 31. No penalty is levied if the total income does not exceed ₹2,50,000.
NRIs are liable to pay tax on income earned or accrued in India, including salaries, rental income, capital gains, and income from other sources. It is essential to stay compliant with tax regulations to avoid penalties and ensure proper reporting of income and investments.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
