How NRIs Can File Taxes in India?

Filing income tax returns can be a daunting task for Non-Resident Indians (NRIs) who have income sources in India. Understanding the procedures, rules, and documentation required is crucial to ensure compliance with Indian income tax laws. In this blog post, we will guide you through the process of filing your income tax returns as an NRI, covering everything from determining your residential status to the steps involved in filing your returns.

Section 1: Determining Residential Status

The first step in filing your income tax returns as an NRI is to determine your residential status. Your residential status affects your tax liability and the taxable income in India. As per the Income Tax Act, there are three main categories:

1. Resident: If you have stayed in India for at least 182 days or more during the financial year, you qualify as a resident.
2. Non-Resident Indian (NRI): If your stay in India is less than 182 days during the financial year, you qualify as an NRI.
3. Resident but Not Ordinarily Resident (RNOR): An individual who is not a resident in the last nine out of ten financial years and has stayed in India for less than 729 days in the past seven financial years falls under this category.

It is essential to determine your residential status correctly and declare the same on the ITR portal.

Section 2: Determine Your Type of Income

As an NRI, you are liable to pay tax on specific types of income generated in India. These include:

1. Income from House Property: Rental income from properties in India is subject to tax.
2. Income from Capital Gains: Profits from the sale of assets like property, shares, or mutual funds are taxable.
3. Interest Income: Interest earned from bank deposits, fixed deposits, or bonds is also taxable.
4. Business Income: If you have a business in India, the income generated is taxable.

It is crucial to report and calculate the tax on these income sources accurately.

Section 3: Gather Documents Required for Tax Filing

Before you begin the tax filing process, gather the necessary documents using the following checklist:

1. PAN Card
2. Passport
3. Form 16: If you have worked in India, your employer should provide you with Form 16, which details your income and TDS deductions.
4. Bank Account Details: Tax refund, if any, is credited to the bank account held in India. This will be your NRE bank statement.
5. Bank Statements: Copies of bank statements for the financial year to track interest income.
6. Property Documents: If you own property in India, keep documents related to it.
7. Rent Receipts: If you have rented out your property in India, you need to possess the rent receipts.
8. Investment Statements: Statements of investments made in India, such as mutual funds or stocks.
9. Tax Paid Details: Proof of any taxes paid during the financial year.
10. Foreign Income Details: Documentation related to income earned outside India, such as interest earned in foreign bank accounts, investments made outside India, etc.
11. Other Details: You may be asked to provide specific details, based on your unique circumstances, such as the Tax Deducted at Source (TDS) certificate, agricultural income details, etc.

Having these documents ready will streamline the filing process.

Section 4: Steps to File ITR for NRIs

Once you have determined your residential status and gathered the required documents, you can proceed with filing your tax return. Here’s the process:

1. Log in to the IT Portal: You can proceed with income tax e-filing online through the Income Tax Department’s official website or seek an advisor’s assistance. Website: https://www.incometax.gov.in/iec/foportal/
2. Choose the Correct Form: ITR forms for NRIs differ based on their income sources. ITR-2 is applicable for all types of income except business income. For business income, NRIs can use ITR-3.
3. Fill in the Details: Provide accurate information regarding your income, deductions, and taxes paid. Double-check all the details before submitting.
4. Claim Deductions: NRIs can claim deductions under sections like 80C, 80D, and 80G, similar to residents. Refer to the list of applicable deductions for NRIs on the Income Tax Department’s website.
5. Mention the Exempt Income: Certain incomes and gains, such as LTCG from the sale of house property/listed securities, interest on FCNR or NRE accounts, etc., are exempt from taxation for NRIs.
6. Check and Include Income and Taxes with Form 26AS: Form 26AS provides details of the taxes deducted at source (TDS) and other income sources. Verify that the income and TDS details in your return match those in Form 26AS to avoid discrepancies.
7. Claim Double Taxation Treaty Relief, if any: If your income is taxable both in India and your home country, you may be eligible for relief under the Double Taxation Avoidance Agreement (DTAA) between the two countries. File the necessary forms to claim this relief and avoid double taxation. Refer to the Income Tax Department’s website for more information about DTAAs.
8. Finalize the Tax Liability: You will have to pay taxes if your tax liability is more than any Tax Deducted at Source (TDS) or taxes paid. The applicable tax amount is calculated based on the various tax slabs determined by the Government.
9. Online Tax Payment: You can pay any applicable tax online through various payment modes, such as internet banking, credit or debit cards, etc. A challan with a unique number is generated after online payment. Keep it safe as proof of payment.
10. Verify and Submit: Verify your income tax e-filing return using your Aadhaar OTP or Electronic Verification Code (EVC) and submit it. If the returns are not verified, your filing can be deemed invalid. If the electronic or online method does not work, you can opt for offline verification by sending a duly signed hard copy of ITR-V to the Central Processing Centre (CPC), Income Tax Department, Bengaluru, India.
11. Acknowledge Receipt: After submission, you will receive an acknowledgement receipt. Keep this for future reference.

Section 5: Deadline and Penalties

It’s crucial to file your tax return within the stipulated deadlines to avoid penalties. For NRIs, the deadline is typically the same as for residents, which is July 31st of the assessment year.

Penalties for late filing or non-filing of tax returns can include interest charges and even prosecution in some cases. Therefore, it’s essential to stick to the deadlines.

Conclusion-

Filing income tax returns as an NRI can be a complex process, but with the right guidance and preparation, it can be managed effectively. By determining your residential status, identifying your taxable income sources, gathering the necessary documents, and following the steps outlined in this blog post, you can ensure a smooth and compliant tax filing experience. Remember to adhere to the deadlines and seek professional assistance from tax consultants if needed to avoid penalties and ensure accurate tax filing.

Frequently Asked Questions (FAQs)

1. What is the difference between a resident and an NRI for tax purposes in India?

– A resident is an individual who has stayed in India for at least 182 days or more during the financial year, while an NRI is an individual whose stay in India is less than 182 days during the financial year.

2. What types of income are taxable for NRIs in India?

– NRIs are liable to pay tax on income from house property, capital gains, interest income, and business income generated in India.

3. What documents do NRIs need to gather before filing their tax returns in India?

– NRIs should gather documents such as PAN card, passport, Form 16, bank account details, bank statements, property documents, rent receipts, investment statements, tax paid details, foreign income details, and other specific details based on their unique circumstances.

4. Which ITR forms should NRIs use to file their tax returns in India?

– NRIs should use ITR-2 for all types of income except business income. For business income, NRIs can use ITR-3.

5. Can NRIs claim deductions while filing their tax returns in India?

– Yes, NRIs can claim deductions under sections like 80C, 80D, and 80G, similar to residents.

6. What is Form 26AS, and why is it important for NRIs filing tax returns in India?

– Form 26AS provides details of the taxes deducted at source (TDS) and other income sources. NRIs should verify that the income and TDS details in their return match those in Form 26AS to avoid discrepancies.

7. What is the deadline for NRIs to file their tax returns in India?

– The deadline for NRIs to file their tax returns in India is typically the same as for residents, which is July 31st of the assessment year.

8. What are the consequences of late filing or non-filing of tax returns for NRIs in India?

– Penalties for late filing or non-filing of tax returns can include interest charges and even prosecution in some cases.

9. Can NRIs claim relief under Double Taxation Avoidance Agreements (DTAAs)?

– Yes, if an NRI’s income is taxable both in India and their home country, they may be eligible for relief under the DTAA between the two countries. They should file the necessary forms to claim this relief and avoid double taxation.

10. Should NRIs seek professional assistance for filing their tax returns in India?

– It is recommended for NRIs to seek assistance from a Chartered Accountant who is well-versed with cross-border taxation to ensure accurate and compliant tax filing.

Disclaimer: The information provided here is for educational and informational purposes only and should not be construed as financial, legal, or tax advice. Consult with a qualified professional before making any investment decisions. We do not accept any liability for errors or omissions in this information nor any direct, indirect, or consequential losses arising from its use.