Many NRIs are unsure about income tax filing rules and go wrong with taxation. As an NRI, you need to file an income tax return in India for the income arising in India in a financial year. The taxation rules are different compared to Indian residents. Hence, if you had filed returns when you were an Indian resident, the same regulations cannot be applied when filing tax as an NRI.
Even though you are earning in a foreign land, your tax obligations in India do not end. You have to file IT returns if your Indian income exceeds the basic exemption limit. Let us look at everything you need to know about tax returns as NRI.
Know your residential status
The first thing you must be sure of is your residential status. It is determined for every financial year and depends on the number of days you have stayed outside India. As per the IT Act 1961, you are NRI if you meet one of the below two criteria:
- You are physically present in India for less than 182 days in a financial year.
- You have been present in India for more than 60 days in a year or cumulatively not more than 365 days in the last four years.
Calculate your taxable income
Once you have determined your taxable income, you should calculate your taxable income. You need to understand total gross income – it is your total income before tax deductions. If your total gross income is more than Rs 2.5 lakh in a financial year, you will have to pay taxes.
You could have earned this income from several sources – a monthly salary, capital gains on mutual funds, interest from deposits in an NRO account, or rental income. You should carefully sum up all the income. Using all the available data, file the income tax. If TDS is deducted from your income, you can claim refunds.
NRIs can also claim deductions up to Rs 1.5 lakh under Section 80C of the Income Tax Act. However, they cannot invest in a specific tax-savings investment option under Section 80C. You are prohibited from investing in Public Provident Fund, National Saving Certificate, Senior Citizen Saving Scheme, etc.
If your Indian income is above Rs 50 lakh in a financial year, you need to report your assets and liabilities in India. In case you need help in the process, it is always better to consult a tax consultant than to file incorrect numbers.
Claim Double Taxation Treaty Benefits
As an NRI, you must know the Double Tax Avoidance Agreement (DTAA). It will help you save on taxes. DTAA enables you to avoid paying tax twice on the same income. According to DTAA, your income will either be exempted from a tax deduction in one country or should be taxed at a lower rate in your home country.
Let us understand this with an example. You paid your taxes in India and can get a tax credit in the residing country where you earn. This credit is available on the tax paid on the same income.
Verify your IT returns
The last step is to verify your tax returns within 120 days of filing. If you fail to do it, the returns are not valid.
What are provisions related to long-term capital gains for NRIs?
For long-term capital gains made from sales of assets, you receive no benefit of indexation, and no deduction is allowed under Section 80C. However, you can avail exemption on the profit under Section 115G under specific scenarios. For example, if you reinvest the amount back into the shares of an Indian company, central government securities, etc.
Do NRIs have to pay advance tax?
If your tax liability in a financial year is more than Rs 10,000, you must pay advance tax. If advance tax is not paid, interest under Section 234B and Section 234C is applicable.
Do you need tax expert help in filing returns?
As an NRI, if you need help filing returns, you can get in touch with Right Horizons and we can help you file your returns by yourself or connect you to an auditor. We have years of experience in managing the end-to-end portfolio of our clients. Get in touch with us now and transfer all your taxation and personal finance worries to us.