Non Resident Indians are those who are living beyond the borders. There are circumstances where these Non Resident Indians will have to pay tax. This includes instances where the source of income is in India or expected to be received in India.
NRI Tax Returns in India
A non-resident Indian (NRI) is basically an Indian living beyond borders. However in detail it signifies people who are a non-resident but an Indian Citizen residing outside India as well as Foreign Citizens of Indian origin who reside outside the country. Such NRI’s are taxed under certain circumstances. These circumstances include if the income is accrued or expected to be accrued in India, income source is in India or income is received or expected to be received from India.
Eligibility for NRI Income Tax Returns
If the taxable income in India during the year was above the basic exemption limit for an NRI or he/she has made short-term or long-term capital gains through sale of any investments or assets in India despite the gains being lesser than the basic exemption limit the NRI is eligible for income tax return. He/she can also file a tax return for a claim refund under the conditions that tax deducted at source is higher than the actual tax liability. Also if the individual has a capital loss that can be set-off against capital gains he/she can claim a refund. It is important to note that the enhanced exemption limit for women and senior citizens is applicable only to residents and not NRIs.
Tax Rates for NRI in Indian Income
Here is the Tax Slab for NRI Individuals to give an idea about the tax rates for them in Indian income:
|Total Income (INR)||Rate of Income Tax|
0 < 2,50,000
2,50,001 < 5,00,000
10% of the amount by which the total income exceeds Rs.2,50,000
5,00,001 < 10,00,000
Rs.25,000 + 20% of amount by which the total income exceeds Rs.5,00,000
Total income more than 10,00,000
Rs.1,30,000 + 30% of amount by which the total income exceeds Rs.10,00,000
Who is an NRI for Indian Income Tax According to FEMA?
According to FEMA and the Income Tax Act, any person living outside India is an NRI. However, a person resident in India, is when he or she is in the country for more than 182 days of a fiscal year. An NRI on the other hand is referred to someone:
Has been out of India or who stays outside India for:
- Employment outside India
- Conducting a business or vocation outside India
- Circumstances indicating the individual’s intention to stay outside India for an uncertain period
Person who has come to or stays in India, in either case, otherwise than:
- Employment in India
- Conducting a business or vocation in India
- Circumstances indicating the individual’s intention to stay in India for an uncertain period
- Corporate individual or body incorporated or registered in India
- Office, agency or branch in India with ownership or control of a person who is residing outside India
- Office, agency or branch outside India with ownership or control of a person who is residing in India
- Person who has come to or stays in India, in either case, otherwise than
According to the ITA defines the period of absence for considering an NRI is 182 days and over but according to FEMA the period is defined any number of days over 182.
Income Tax Exemption for NRI
Against non-resident income tax rules under the Income Tax Act, 1961 the following do not require filing tax returns:
- If the taxable income only includes investment income (interest) and/or capital gains income and if tax has been deducted at source from such income
- If making long term capital gains from the sale of equity shares or equity mutual funds, the amount is not taxable, hence not accounted for tax returns.
- The Double Taxation Avoidance Agreement is a contract made between India and a certain foreign countries which allows NRIs to save on their taxes. However, NRIs are liable for payment of taxes if their income in India is higher than the exemption amount. Also, exemption of filling NRI income tax returns if the income is driven by long term investments. For NRI tax returns filing or payment, an NRI needs to hold a PAN (Permanent Account Number) card issued by the income tax department.
How to File Income Tax Return for NRIs
Here are the following steps necessary for filing income tax returns or ITR for NRIs:
- The NRI would first needs to apply for the procurement of a PAN card as required in the Form No. 49A, incase they already do not have an existing PAN no. PAN can be applied for, online and it is referred to, for any connection or transaction with the Income Tax that includes filing Return of Income.The PAN card is dispatchable to certain countries listed in the department website. If not, the department can be contacted for further procedure to collect the PAN card.
- The appropriate ITR form for filing NRI Return of Income are as follows:
- ITR 1 is meant for individuals with income source from Salary or Pension or family pension as well as Interest or source of income from agricultural activities.
- ITR 2 is meant for individuals whose Income source are not from any Business or Professional activity or business or a partner at firm with partnership.
- ITR 3 is to be filled by persons involved in a partnered firm and no other source of income.
- ITR 4 is to be filled by persons with sources of income from a profession or business that is prorietered.
- NRI can physically file income tax returns which may not be viable or can file it online.
- Online or Electronic Filing requires the NRI to get their tax return forms and documents uploaded at the online portal for Indian Income Tax website along with a Digital Signature. The return on income filing has to be done with a digital signature, if not then the income tax filing has to be done in person by printing out the ITR-V.
- Physical filing requires the individual to submit the ITR form as well as the Acknowledgment form to the Income Tax Officer. The return and filing needs to be attested and verified by the person or where he resides outside India, by another person who has been authorised.
NRI Income Tax Benefits
Tax benefits available to NRIs includes:
- Exemption from wealth tax in India on bank Deposits in India.
- NRE and FCNR interest earned on such accounts are exempted from Indian income tax upto March 31, 2005.
- Gifts are exempted from gift tax if made out of NRE and FCNR accounts are free from gift tax in India.
What is Advance Rulings for NRIs?
When calculating income tax liability, if an idea on the tax laws are not clear, NRIs can approach the Authority for Advance Rulings (AAR) to make decisions on the matters of tax. The rulings of the AAR are bind both the tax authorities as well as the applicant NRI. NRIs enjoy certain privileges under the Indian Income Tax Act, the Government may introduce tax saving schemes for non-residents and attracting foreign exchange inflow in India.