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NRIs are required to file income tax return in India if they have income arising in India during a particular financial year. But Income tax for NRIs come with certain regulations which differs from that of Indian residents.
NRIs need to manage dual responsibilities. Though they earn their living abroad, their tax obligation in India doesn’t end. NRIs are required to file their income tax return if they have income in India that exceeds the basic exemption limit.
As an NRI, first, you need to determine your tax residency status, whether you fall in the category of Resident of India or NRI (Non-resident Indian).
There may be no ambiguity regarding the resident status of an NRI who has lived abroad for a long time. Those who have returned to India after an extended stay abroad or have moved abroad recently need to ascertain their residency status for taxation purpose.
If you have moved out but stayed more than 182 days in India in the last financial year, you need to be concerned about tax implications on income earned in India. The number of days of stay in India decides residency status for taxation purpose during a financial year. According to Indian taxation law, an individual is considered to be an NRI if he/she meets the below-mentioned criteria.
Hence, to calculate the exact time as required above, check your passport and immigration stamps date. It is important to note that the date of departure and arrival is also included in the calculation for a stay in India.
It is important to note that NRIs do not get tax benefits of differential exemption limits based on gender or age that is available to residents of India. Moreover, with respect to income tax for NRIs, certain long term and short-term capital gains from the sale of assets and investments are taxed, even if their total income is below the exempted limit.
Any income earned by NRI that originated or received in India is taxable in India. Such income includes, but is not limited to
Different types of accounts NRIs can open in India and tax implications on such accounts.
NRIs can open different types of accounts in banks in India. These accounts include
The taxability in India from accounts held by NRIs depend on two factors:
The FCNR and NRE accounts are tax-free accounts in India. Interest amount earned on these two bank accounts is tax-free. However, if you become an Indian resident, then the interest earned on these accounts is taxable in India.
Income tax for NRIs comes in the picture when you earn interest on your NRO account. 30.9% of TDS on such income is charged, irrespective of the amount you earn. The TDS gets reflected in your Form 26AS.
Income tax for NRIs are subject to certain tax deductions, these are
Any interest credited to NRI individuals, irrespective of the amount, is the net amount (post TDS deducted amount). This means that an NRI earning interest income from NRO account as the only source of income, can avail income tax refund for income up to Rs. 10,000 earned in India.
It is also important to note that some of the tax-saving instruments are prohibited for NRIs. These are
The minimum requirement for ITR filing in India is set to Rs. 2.5 lakhs in the financial year. NRIs having income earned in India above this limit are required to file an income tax return in India. Rs. 2.5 lakh is known as the basic exempted limit. Income tax for NRIs deducted till this limit shall be refunded back to the NRI taxpayer. Thus, NRIs earning up to this limit in India should file an income tax return to get TDS refund amount.
In case an NRI individual is not willing to get the TDS refund, and has income earned in India below Rs. 2.5 lakhs, no consequences have been prescribed in the tax law. For NRIs who do not earn income India, there is no such liability to file an income tax return for the relevant financial year.