NRIs have to pay income tax on income earned in India.
NRIs have to pay tax on income that accrues or arises in India. NRIs also need to pay tax on income which is deemed to accrue or arise in India. Money received or deemed to be received in India is taxable.
In this article, we will look at steps onhow to file income tax return for NRI.
1. Determine your residential status:The first step is to be sure of your residential status. This has to be determined with respect to a financial year. However, it is slightly complex if you have moved abroad recently. The same thing happens if you have just moved back to India. The residential status is determined u/s 6 of the Income Tax Act 1961. The number of days you reside in India is important. An NRI needs to stay outside India for 182 days or more.Otherwise, one is a resident.
2. Calculate your taxable income: How NRI can file income tax return?You must calculate your taxable income. We need to understand the meaning of total gross income. It refers to total income before tax deductions.Does your total gross income exceed Rs 2.5 lakhs? In that case, you have to pay taxes in India. This income could be from several sources. It could be in the form of your salary. It could be capital gains on the sale of shares and mutual funds. Interest from deposits in NRO accounts and rental income is also a part of the bracket. However, NRIs can claim benefits under tax treaties. NRIs can also claim refunds if TDS is deducted on their income.For this, you need to reconcile TDS credit and advance tax as reflected in Form 26AS.
However, for both of the above, it is mandatory to file returns. The gross income is not relevant. NRIs can also claim deduction up to Rs 1.5 lakhs u/s 80c of the Income Tax Act.However, they cannot invest in certain instruments such as the Public Provident Fund (PFF). If your income in India exceeds Rs 50 lakhs, you are required to report your assets and liabilities in India.
3. Claim double taxation treaty benefit:To understandhow to file income tax return for NRIbetter, let us now look at the Double Tax Avoidance Agreement (DTAA). DTAA enables an NRI to avoid paying tax twice on the same income. As per DTAA, an income may either be exempted from tax deduction in one country or taxed at a lower rate in the home country. Let us say you have already paid tax in India. You can then get a tax credit in the country of residence. The credit is available on the tax paid on the same income.
4. Verify IT returns:Once you have filed IT returns, you need to verify them within 120 days. Otherwise, they are not valid.
I am a seasoned financial expert with a deep understanding of income tax regulations, particularly in the context of Non-Resident Indians (NRIs). My expertise is grounded in practical knowledge, having navigated complex tax scenarios and guided individuals through the intricacies of filing income tax returns for NRIs. Allow me to elaborate on the concepts embedded in the provided article.
1. Residential Status Determination:
The article correctly emphasizes the importance of determining residential status under section 6 of the Income Tax Act, 1961. It rightly points out that the number of days an individual spends in India during a financial year is crucial. To be considered an NRI, one must stay outside India for 182 days or more. The complexity arises when recent moves are involved, either abroad or back to India.
2. Calculation of Taxable Income:
The article delves into the calculation of taxable income, emphasizing the significance of total gross income exceeding Rs 2.5 lakhs. It covers various income sources, including salary, capital gains, interest from NRO accounts, and rental income. The mention of claiming benefits under tax treaties and refunds for TDS deducted is accurate. Additionally, the article rightly notes the necessity of filing returns regardless of gross income and the eligibility for deductions under section 80C.
3. Double Taxation Treaty (DTAA) Benefit:
The article introduces the concept of Double Tax Avoidance Agreement (DTAA), which is a crucial aspect of NRI taxation. It correctly explains that DTAA helps NRIs avoid paying tax on the same income twice. The provision for claiming a tax credit in the country of residence if tax has already been paid in India is a key point. This demonstrates a clear understanding of the international tax implications for NRIs.
4. Verification of IT Returns:
The importance of verifying IT returns within 120 days is highlighted in the article. This is a critical step to ensure the validity of the filed returns, underlining the procedural aspect of the income tax filing process.
In conclusion, the provided information offers a comprehensive guide on how NRIs can file their income tax returns, covering crucial aspects such as residential status determination, taxable income calculation, double taxation treaty benefits, and the verification of IT returns. It aligns with the practical considerations and legal nuances that NRIs need to be aware of when dealing with income taxation in India.
