31st of July is the final date for filing your ITR for the previous year, but rules are different for resident and nonresident individuals. Read on to know the exact rules applicable for the NRI’s tax filing requirements.
India is a country that has witnessed a lot of mobility of its citizens across the globe. Moving out of India leads to tax incidence in the new residing country and payment of tax obligations arising out of investments done in India. Every year, March 31st is the end of the financial year where every individual, resident or non-resident, is responsible to review their income and financial interest and pay their taxes accordingly and be tax compliant.
For resident individuals, reviewing their financial interest is a routine and mandatory process, while for Non-Residents Individuals, it becomes even more important to follow and fulfill the tax obligations in India and be tax compliant. Outlining liability of Income Tax for NRIs is a tedious task. So, here is a complete tax obligation guide and tips for all Non-Resident Indians.
Ascertain Residential Status
The first step towards understanding the tax obligation is by ascertaining the residential status of an individual in terms of Indian Tax Laws. Determining the residential status i.e. whether an individual is a resident or non-resident Indian is important for tax purpose, as tax obligations for both are different. While there might be no confusion for individuals staying abroad in understanding their residential status, those who are on a constant move need to calculate their residential status properly. The Indian Tax Law defines a Non-Resident Individual as a person who meets the following criteria:
Individual who is present in India for less than 60 days in a year; or
Individual (leaving India on account of employment) who is present in India for less than 182 days in a year; or
Cumulatively stayed in India for less than 365 days in the preceding last four years
Thus, counting the days of physical stay in India during a particular financial year will decide the residential status of an Individual. If an individual meets any of the above-mentioned criteria, then he/she will be considered as Non-Resident Indian as per Indian Tax Laws. Additionally, the Indian Tax Law also defines an individual as ‘resident but not ordinarily resident’ as an individual who has been in India for a period less than 729 days during the 7 financial years preceding the current tax year.
Kindly note that there is a difference between Non-Resident Indian and Resident but not Ordinarily Resident and their tax obligations also vary. Resident but not Ordinarily Resident will have to pay tax as per his/her global income, while Income Tax for NRIs is calculated on the amount that is earned from various sources in India or on the income received in India.
What is taxable income of Non-Resident Indian?
The next step in ascertaining the income tax for NRIs is by determining the taxable income of the Non-Resident India. In order to file tax, every Non-Resident Indian has to calculate the taxable income on which the tax is to be paid. Following is a complete list of what is considered as taxable income for Non-Resident Indian.
Salary received by a Non-Resident Indian from employment in India comes under the ambit of taxable income
Income received in form of Rent from any property situated in India
Income received from a business or profession carried out from India is subject to tax under the tax laws
Capital gains received on account of sale of property situated in India comes under the ambit of taxable income for NRIs. In this case, the amount of capital gain and the tax rate applicable to it is dependent on the type of capital asset and period of holding the capital asset.
Interest received from NRO account, deposits and debentures
Thus, if an individual who qualifies to be a Non-Resident Indian, then any income received from the above stated option is considered as taxable income in the hands of NRIs. So, if a Non-Resident Indian has a gross total income more than Rs. 2,50,000, then he/she is liable to pay tax in India.
Deductions from the total taxable income
The next step after calculating the taxable income is to avail tax deductions. Like every Indian Resident, even Non-Resident Indians can avail certain tax deductions from their total income. Following is the list of tax deductions that NRIs can avail:
Deductions under Section 80C: NRIs can enjoy most of the tax deductions available under Sec 80 C of the Income tax act, 1961. An NRI can avail tax deduction under Section 80C for life insurance premium payment, children’s tuition fee payment, principal repayment of housing loan, purchase or premium payment of ULIP plans, Investment in ELSS. A maximum tax deduction allowed under this section to NRI is Rs. 1,50,000.
NRIs can claim a tax deduction for Income from House Property, the property tax paid and deduction of interest on housing loan is also allowed
NRIs can claim a tax deduction for Premium paid of health insurance policy
Tax deduction is allowed for interest paid on education loan under Section 80E
Tax deductions can be claimed by NRIs for all the donations done for social cause under section 80G
Similar to resident Indians, NRIs can also claim tax deductions on the interest earned up to a maximum of Rs. 40,000 from saving and fixed deposit account
Thus, above is the list of tax deductions allowed to NRIs while filing their tax in India. Yet, the main question remains- whether all NRIs need to file tax before 31st July?
Yes, it is mandatory for every NRI to file tax before 31st July because they have earned income from India. So, irrespective of the physical location, NRI are obliged to file the ITR before 31st July. Income Tax states that if the total gross income of an NRI is not more than Rs. 2,50,000, then it is not mandatory to file tax. However, filing an ITR in India will be beneficial and is mandatory for NRIs who are availing tax benefit under the DTAA (Double Taxation Avoidance Agreement).
India has signed the DTAA with 90 countries. Hence, NRIs who are staying in these countries or elsewhere will have to file ITR in order to earn tax credits. The DTAA also gives an opportunity to NRIs to claim the earned tax credits while filing taxes in their resident country. So, if any NRI has a taxable income in India and wants to get relief under DTAA, then he/she needs to follow the given simple steps:
Furnish a Tax Residency Certificate issued by NRIs Resident country
Self-declaration in form 10F
Thus, depending on the type of income and after submitting the above stated documents, NRIs may enjoy the benefit of DTAA. So, in conclusion, it is mandatory for all NRIs to file ITR before July 31.