We are well aware that taxes from citizens are the groundwork of the Indian economy. Not only Indian residents but also the income tax applies to NRI, a native of India but not living in India.
However, it is necessary to file an income tax return primarily, which is nothing but submitting data based on income from various sources and reimbursing taxes to the Income Tax Department. It comprises the entire tax-saving investment and revenues during the financial year.
In this blog, we will discuss about income tax filing for NRI in India. The income tax rules are different for resident Indians. The question for filing of ITR for Non-Resident Indians depends on the taxable income.
Should NRIs do ITR filing in India?
Of course. NRIs must do ITR filing in India if they have valid taxable income. For instance, an NRI holding a house property in India, and producing rental income, must file an income tax return if the lease income surpasses the exemption amount.
Tax is pertinent to NRIs for the following kinds of income:
- Any income which increases or crops up in India
- A payment that is estimated to arise or accrue in India
- Any income acquired in India
- An income that is anticipated to be received in India
- Moreover, losses of a specific financial year are permissible to be continued for being set off against wages of potential financial years, provided the return of income for the loss year is filed.
- Ultimately, postponed ITR for NRI draws a penal interest at a 1% rate every month on the balance tax payable. Additionally, a penalty of 5000 INR must be levied if the filing of a return is not done within a year from the end of the financial year. Therefore, it is important to file an income tax return for NRI.
What are the advantages of income tax filing for NRI?
The Income Tax Act enables exemption from assets tax for NRIs on bank deposits within the country.
Gifts through FCNR and NRE accounts are excused from any gift tax in India.
Procedure to file ITR for NRI:
Step 1: Getting to know the right of residence in India
It is significant for the NRI to decide the right of residence in each financial year. Thus, you can check your residency from the following criteria:
You are an Indian native for a financial year if you fall into any of the below-stated conditions:
1. When you are in India for 182 days or six months during the financial year.
2. You were in India for two months in the former year and stayed for one whole year in the last four years.
Remember: If you are a crew member on an Indian ship or working overseas, only the first condition applies to you, which indicates you were only a resident when you engaged for six months in India.
The same fact is pertinent to a Person of Indian Origin (PIO) who visits India. Also, the second condition does not pertain to these people. A PIO is a person whose grandparents or parents were born in an undivided India.
If you do not fulfil the conditions mentioned above, you are a Non-resident of India.
Step 2: Conciliation of Taxes and Income with Form 26AS
The next step in income tax filing for NRI is to evaluate the TDS offset paid on your tax return or input tax paid on your tax return against the input tax/TDS offset stated in form 26AS.
Step 3: Assessment of the Taxable Income
Income tax imposed by NRI in India comprises capital gains on shares or interest on bank accounts in India and residential property rentals. Additionally, accessible deductions, like the Section 80C deduction, decrease income.
Step 4: Evaluation of the Tax Liability
Tax liabilities are calculated on the tax rate pertinent to the individual. The exemption limit for all NRIs is 2.5 lakh INR, approval or pending cutback for ITR for NRI.
Step 5: Reimbursement of rights under double taxation agreements
If NRI income has taxes from abroad and India, exemptions are valid under the Double Taxation Treaty (DTAA). DTAA discounts are there according to the kind of income( which can be wholly tax-exempt or taxed at a low rate).
Also, NRIs should pay taxes in India if income is taxed under the DTAA and, under a few conditions, should assert a deduction for taxes paid on tax liabilities in the resident country. For income tax returns for NRI, you will require a Tax payment certificate (KKR) from the NRI's country of residence for tax requirements to apply for tax exemption.
Step 6: Choosing a tight ITR form for NRI
Income tax filing for NRI necessitates ITR 2 in every case, excluding business income from the financial year 2017 to 2018. For business income, NRIs must file a return in ITR 3. This aspect indicates that ITR 1 is not in existence for non-residents.
Step 7: Filing of Non-Liable Income details in ITR for Non-Resident Indian
Statement of non-liable income such as interest on FCNR/NRE deposit, dividends, interest on tax-free bonds, long-term capital gains on securities, allowed gifts when filing ITR for NRI.
Step 8: Exposure of the Bank Account particulars
NRIs who did not apply for a refund or NRIs who applied but have a bank account in India should not give offshore bank account information when returning income. Nevertheless, the income tax return for NRI who do not hold a bank account in India can offer foreign bank account particulars for reimbursement.
Step 9: Addition of comprehensive information on Assets and Liabilities in the ITRs
NRIs with total earnings exceeding 50 lakhs INR must report real estate and personal property info and liabilities in India under the ITR Property and Liability Plan (AL List).
Step 10: Legalization of ITR for NRI
After the ITR upload, you will get confirmation within 120 days. If the returns are left unchecked, then they are invalid. Verification is done manually by sending authorized ITR to Income Tax, CPC, Bengaluru, or online.
Final thoughts
It is obligatory to do income tax filing for NRI, otherwise, the penalty would be charged.
Also, Non-Resident Indians ( NRI) are answerable for paying tax in India on the incomes received in India on any rent bases, mutual funds, etc.
Ensure you follow the above process to file an income tax return for NRI.
If you find any difficulty somewhere, you can reach out to Lawgical India, which has a huge team of experts. Our services are smooth, and all the paperwork is conducted correctly to ensure your filing for ITR for Non-Resident Indians.
