Tax Return Filing for NRI: A Complete Guide

When an Indian citizen spends fewer than 183 days of a fiscal year in India, they are called NRIs, or Non-Resident Indians. NRIs need help investing in India because even though similar taxation laws apply to them, there is a discrepancy depending upon their type of investment.In this article, we help you answer common questions pertaining to governing laws around income tax filing by NRIs.

If you are an NRI and want to invest in India, you must know the rules and alternatives that apply to NRI investments in India. There are several choices, including the following:

• IPO
• Mutual funds
• Bonds, Real Estate, Alternative Investment Funds, PMS, or Portfolio Management Services
• Trades or secondary market transactions in India's stock markets registered with SEBI

Before investing in India, you must have a savings bank account. Depending on your income, you may operate one of two types of bank accounts:

• Non-Resident External Bank Account (NRE Bank Account) for foreign income
• NRO Bank Account or Non-Resident Ordinary Bank Account for Income from India

Both accounts are savings accounts and transact in Indian rupees. Your NRE bank account allows you to withdraw all your international earnings outside India. Your NRO bank account revenue is partially refundable.

Filing income tax returns for you as an NRI depends on several variables. These are some instances when NRIs are liable to pay tax in India:

Residential Status:

The first step is identifying your residential status for tax reasons. Your income generated or accumulated outside of India is often not taxable in India if you meet the requirements to be an NRI. Income earned or salary received in India, however, is taxable.

Indian Assets:

Interest income from NRI investments, such as NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) bank accounts, is not subject to Indian taxation. However, NRO (Non-Resident Ordinary) account interest is taxed appropriately.

Dividend Income:

Regardless of your residency status, dividends received from Indian companies are tax-free in your hands.

Capital Gains:

Depending on the holding duration, NRI investments in India may result in capital gains that are either short-term or long-term.Short-term capital gains (STCG) are profits liable to taxation at the appropriate slab rates upon the sale or transfer of shares, mutual funds, or other investments held for less than 36 months. Long-term capital gains (LTCG) are taxed at a special rate of 20% with indexation benefits if shares, mutual funds, or other investments are sold or transferred after being held for 36 months or more. There is, however, a fundamental exemption cap for LTCG of INR 1,00,000 each fiscal year.

Rental Income:

It is taxable in India if you own property there and get rental income. Rent payments must have tax at source (TDS) subtracted from them and remitted to the government by the renter.

Other Income:

Any additional income made in India, including wages, business profits, and interest earned from a savings account, is subject to taxation at the appropriate income tax slab rates.Besides these, NRIs will also have to bear advance tax when tax obligations exceed a sum of ₹ 10,000 in a given financial year. In a scenario of standing dues, interest will be forfeited as per Section 234B and 234C.

Like regular Indian citizens, you have the advantage of reducing your tax liabilities, but with limitations. Under Section 80, annual income of up to ₹ 2.5 lakhs is exempt from tax for NRIs. Further deductions under 80C, 80D, 80E, 80G and 80TTA will also apply to you as a foreign Indian national.Some deductions which do not apply for you as an NRI are:

• PPFs
• Senior citizen schemes under 80C
• Investments in NSC and under RGES of Section 80CCG
• Deductions for specially-abled individuals under Section 80U, 80DDB, and 80DD

Also read: Understanding Section 80C: How to Maximize Your Tax Savings

As an NRI taxpayer, you can claim a refund of TDS on your income earned in India. The excess amount is directly refunded to your account after processing the income tax . Here are some payments subjected to TDS:

• Interest earned from savings and fixed deposits in India
• Sale proceeds earned from equity or mutual funds in India
• Rent payment made from an asset in India- file Form 15CA and 15CB
• Capital gains from selling an asset - 20% TDS deductions

To file a tax return online as an NRI, follow these steps:

• Compile the necessary paperwork.
• Select the proper ITR form (such as ITR-2 or ITR-3).
• Create an account on the IT Department website and log in.
• Enter your personal information and financial information on the ITR form online.
• Determine your tax obligation.
• Double-check the completed form before submitting it online.
• Use the Aadhaar OTP, net banking, or EVC to E-Verify the return.
• Save the generated acknowledgement ITR-V for future use.
• If necessary, send a hard copy of the ITR-V.

To file tax offline, NRIs must follow the below process:

1. Collect and fill the ITR form with required information
2. Submit the filled form with an acknowledgement from to an Income Tax officer.

The last day for filing income tax returns for NRIs is 31st July, for any financial year.

You will need the following documents handy before filing your taxes as an NRI:

• Passport
• Form 16 A
• Bank Account Statement
• Form 26AS
• Other Income-related documents, as required by the IT department

India allows its residents moving abroad to convert their existing accounts to an NRE/NRO account. A structured procedure to deduct TDS ensures that you earn no illicit income in India. Failing to comply with FEMA's (Foreign Exchange Management Act) guidelines leads to a hefty penalty of three times the amount in the account or ₹ 2 lakhs if the total sum is not quantifiable. An additional ₹ 5000 is charged each day till the penalty is paid. Also read: Everything You Need to Know About Form 16 Ready to make the most of your money? Start your tax planning journey now!