NRI tax filing
India, just like several other countries across the globe, relies on the taxes paid by its citizens heavily. If you are a citizen of the country and earn more than the minimum income threshold, you are expected to file your taxes and returns. However, taxes are not restricted only to citizens. Non-resident Indians might also end up paying taxes on their income.
Determining Residential Status
As per the tax laws, an individual qualifies to be a resident if he/she meets the following conditions.
- Was in India for a minimum of 182 days or 6 months during the current financial year.
- Has stayed in India for at least 60 days or two months during the current financial year and at least 365 days or a year in the previous four years together.
If you do not meet the above conditions, you qualify as an NRI or non-resident Indian. And understanding the NRI taxation system will help you plan for any taxes in a much more efficient manner. Or at least stay out of trouble for not paying your taxes.
The FEMA or Foreign Exchange Management Act oversees such transactions. According to the ACT, an individual would qualify as an NRI if they spend a certain number of days away from India and there is a period of absence from India.
On a usual basis, the income of an NRI is not taxed in India. However, their certain other financial interests in the country can come under the scanner. For example, earnings in the form of term deposits, mutual funds, capital gains from shares or buying or selling of properties etc. If income from these measures exceeds the minimum threshold of INR 2,50,000, then you must pay taxes.
Some primary sources of income that attract taxes for NRIs include income from salary, any sort of income from a house property that you own, rents received, capital gains etc.
Applicable Tax Rules
Here is a quick list of some rules related to taxes that you must be aware of.
- There is no separate tax slab for NRIs. Their source of income is the primary condition required for the calculation of taxes.
- If your income comes under the clause u/s 115G of the Income Tax Act of 1961, you are not liable to pay any taxes.
- For TDS, the entire income of an NRI is considered and not the ones above the threshold value.
- Deductions based on certain investment is not applicable for NRIs, apart from some exceptional cases.
Deductions and Exemptions
As is the case with residents, NRIs can also claim certain deductions and avail exemptions. The following are some of them.
- NRIs can benefit from tax deductions under Section 80C. Some of the most common investment modes for Section 80C include life insurance premium, equity-linked savings schemes or ELSS, ULIPs, term deposits, etc.
- However, NRIs cannot claim for tax deductions under National Saving Certificate (NSC), Public Provident Fund (PPF), any schemes related to senior citizens and so on.
- Section 80C is not the only deduction available for NRIs. They can make use of deductions available under Section 80D, Section 80E, Section 80G, Section 80U and Section 54.
- Any dividend that you earn from company shares is exempt from taxes.
- Earnings from government bonds and savings certificates are non-taxable.
- If you earn any interest from Foreign Currency Non-Resident (FCNR) or Non-Resident External (NRE) type accounts, they are non-taxable as well.
- For long term capital gains, you can seek exemptions under Sections 54, 54EC and 54F.
Avoid Paying Double Taxes
There is a possibility of you paying taxes twice on a single income. To avoid such occurrences, India has signed DTAA or Double Tax Avoidance Agreement with several countries. There are two primary ways by which you can avoid paying taxes twice, exemption or tax credit.
Should you follow the exemption road, you only need to pay taxes in one country and you won’t be taxed in the other country. However, if you opt for the tax credit system, you will be taxed twice for the same income. But you can claim for tax credits in your country of residence.
- PAN card
- Form 16 or 16A from your deductor.
- Form 26AS Tax Credit Statement.
- Bank a/c -NRE/NRO A/C statement(if any).
- Details of any income earned in India.
- Demat account statement (In case of Capital Gain/loss).
- Medical Expense Receipts and Records.
- Charitable Donations receipt.
- It is mandatory to file ITR for NRIs?
If your annual income for a specific year exceeds the minimum threshold value of INR 2,50,000 as set by the Indian government, you will have to pay relevant taxes and file your tax returns.
- How do I determine if I have to pay advance tax or not?
The idea of advance tax comes into the picture if the liable taxes exceed INR 10,000 for a specific financial year. If you fail to pay the advance tax, you are liable to pay the necessary penalties as per Section 234B and Section 234C.
- By when should I file my ITR?
The deadline to file your income tax return remains the same, irrespective of your residential status. The 31st of July serves as the standard deadline unless specified otherwise by the income tax department. If your return needs to be audited, the deadline is extended to the 30th of September.
- Can I save TDS on income generated out of interest?
NRIs do not have the option to file Form 15G or Form 15H to save TDS that is usually charged on interest-based income. In the event that the TDS exceeds the net tax liability of an individual, they need to file the taxes and returns along with relevant supporting documents. You can then claim for a tax refund for the additional taxes that you have paid. You can also apply for Income Tax Exemption Certificate from the income tax department.
- How long does it take to get the tax exemption certificate and what is its validity?
The tax exemption certificate usually takes anywhere between 10-25 days to be issued. Once issued, the certificate holds good for a period of 1 to 3 years.