Why should NRIs file their taxes?
The number of Indians living abroad for business or permanent settlement is rising at a greater pace.
These Indians work abroad and earn there but have some investments, deposits and properties that earn income back in India. Hence many of them need to file taxes in India. For the purpose of tax liability in India, it is essential to determine the residential status of a taxpayer. In case of resident taxpayer, all his income would be taxable in India irrespective of the fact that income is earned or has accrued to taxpayer outside India. However, in case of non-resident, income which accrues or arises outside India would not be taxable in India.
Like every other individual, NRIs too need to file Income Tax returns by 31st July every year.
Who is an NRI?
Non-Resident Indian (NRI) is an Indian living outside India. The term NRI generally means a non-resident who is either an Indian Citizen residing outside India or a Person of Indian origin.
Under the Income-tax law, an individual will be treated as a resident in India for a year if he satisfies any of the following conditions:
He is in India for a period of 182 days or more in that year; or
He is in India for a period of 60 days or more in the year and for a period of 365 days or more in 4 years immediately preceding the relevant year.
If an individual does not satisfy any of the above conditions he will be treated as non-resident in India.
An NRI’s income taxes in India will depend upon his residential status for the year. If a person’s status is ‘resident’, his global income is taxable in India. If his status is ‘NRI’, his income which is earned or accrued in India is taxable in India.
Tax incidence in case of Non-residents
Income which accrues or arises in India Taxable
Income which is deemed to accrue or arise in India Taxable
Income which is received in India Taxable
Income which is deemed to be received in India Taxable
Income accruing outside India from a business controlled from India or from a profession set up in India Not Taxable
Income other than above (i.e. income which has no relation with India) Not Taxable
An NRI will have to file income tax returns if he fulfills either of these conditions:
Taxable income in India during the financial year was above the basic exemption limit i.e. Rs. 2,50,000
He has earned short-term or long-term capital gains from the sale of any investments or assets, even if the gains are less than the basic exemption limit. These include short-term capital gains on equity shares and equity mutual funds where the tax rate is 15% and long-term capital gains on securities and assets where the tax rate is either 20% or 10% without indexation.
It is imperative to note that the enhanced exemption limit for senior citizens is applicable only to residents and not to non-residents.
An NRI may file income tax returns if –
He has to claim a refund – This may happen where the tax deducted at source is more than the actual tax liability. For Instance, if income for the year was below the exemption limits but the bank deducted tax at source on interest amount, a refund can be claimed by filing a tax return.
There is a capital loss that can be set-off against capital gains – Tax may have been deducted at source on the capital gains, but the capital loss can be set-off (or carried forward) against the gain and lower the actual tax liability. In such cases, a tax return would have to be filed.
TDS already deducted – If the taxable income consists only of investment income (interest) and/or capital gains income and if the tax has been deducted at source from such income, tax returns do not have to be filed by an NRI.
Tax-free income – If an NRI has earned long-term capital gains from the sale of equity shares or equity mutual funds, he does not have to pay any tax and therefore, does not have to include that in his tax return.
Tax saving tips:
NRIs can save their income from taxation by investing in mediclaims, life insurance policies, tax saving mutual funds, etc. Most of the tax saving deductions under section 80 are also available to NRIs. For FY 2016-17, a maximum deduction of up to Rs. 1,50,000 is allowed under section 80C from gross total income for an individual.
Allowable deductions to NRIs –
Life Insurance payment
Children’s tuition fee payment
Principal repayments on loan for purchase of house property
Investments in Equity-Linked Saving Scheme (ELSS)
ULIPS or Unit Linked Insurance Plan
Interest on house loan
Premium paid for health insurance
Interest paid on education loan
Donations under Section 80G
Income from interest on savings bank accounts up to a maximum of Rs. 10,000.
NRIs cannot invest in –
National Saving Certificate (NSC)
Post Office Time Deposit (POTD)
Senior Citizens Saving Scheme (SCSS)
Public Provident Fund (PPF) NRIs are not allowed to open a new PPF account. However, an existing PPF account can be continued till maturity.
With the help of above-mentioned tips, NRIs can simplify the whole process of filing their tax returns in India.