Filing of Income Tax Return by Non-Resident Indian

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There has always been a question in mind of NRIs whether to file income tax return, is it mandatory to file, only income earned in India is to be disclosed and many other questions. With this article, a fair picture would be made available on filing status. Non-resident Indians (NRIs) earn their living abroad; their obligation to file tax returns in India doesn’t end with this fact. With the July 31 deadline for filing returns coming near, NRIs need to gear up to file their return if they have income in India that exceeds the basic exemption limit as specified every year by the government.

An NRI first needs to determine his tax residency status, that is, whether he falls in the category of Resident or Non-resident Indian (NRI) for tax purposes. While there may be no ambiguity regarding the status of an NRI who has lived abroad for a long time, those who have moved abroad recently or have returned to India after a long stay abroad need to ascertain their residency status properly.

If you have moved out however stayed more than 182 days in India during last financial year you need to be careful about tax implication on income earned outside India. Residency status for tax purposes is decided by the number of days of physical stay in India during a financial year. According to tax laws, an individual is considered to be a non-resident if he meets the following criteria:

  • He should have been present in India for less than 182 days in a year; or,
  • He should have been present in India for less than 60 days in a year or cumulatively for less than 365 days in the preceding 4 years.

Therefore to calculate above check your passport and note the immigration stamps dates. Remember date of departure and arrivals are included in calculation for stay in India.

Any income of an NRI that originates in India or is received in India is taxable here. Some examples are:

  • Rental income from property owned in India
  • Income from sale of securities and assets held in India.
  • Interest Income
  • Capital gains

If an NRI has performed his job in India, his salary income will be taxable here, irrespective of where the salary is credited to his account. On the other hand, if an NRI has worked abroad but received his salary in India, this will be included in his taxable income here. Interest income from an NRO account (but not from an NRE and a FCNR account), deposits and debentures is taxable in India. NRIs also have to pay tax on capital gain from sale of house property, shares etc.

Bigger question comes whether return filing is mandatory?

Filing an income tax return in India becomes mandatory for an NRI in following situations:

The sum total of his taxable income from all sources (before claiming any deduction) exceeds the basic exemption limit. Filing of income tax return also becomes mandatory for an NRI even if his total taxable income does not cross the basic exemption, if he claims benefit under a tax treaty. Only the income earned outside India will not be taxable in India. An important point to note is with respect to the interest earned on their NRE or FCNR accounts, because the same will be tax free, but the interest on NRO accounts will taxable.

Also, it is necessary to file tax return in India to claim back refund for the Tax Deducted at Source (TDS) or to carry forward a loss.

For Deductions,like resident Indians, NRIs are entitled to avail of tax deductions. Most of the commonly known deductions (under Chapter VIA of the IT Act) are available to both residents and non-residents.

For the benefits of DTAA, India has signed the double taxation avoidance agreement (DTAA) with around 90 countries. NRIs need to first determine whether a particular income of theirs is taxable in India. They must then furnish a tax residency certificate (TRC) issued by the tax authorities of the country where they currently reside. In addition, they may also be required to provide a self-declaration in form specified. Next, depending on the type of income, they may get relief under DTAA: the income may be entirely exempted or it may get taxed at a lower rate. If the income is taxable under DTAA, they have to pay tax in India and claim credit for the tax paid here against the tax liability in their home country.

For claiming a lower tax rate under DTAA, NRIs had to earlier provide their PAN number to avoid the higher withholding tax of 20 per cent under Section 206AA. The Central Board of Direct Taxes (CBDT) has through a notification introduced rule 37BC, which allows NRIs to furnish alternative documents and information instead of PAN to avoid paying the higher withholding tax. These include name, email ID, and contact number, address, TRC and Tax Identification Number (TIN).

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