How to file an NRI Income Tax Return in India?

Are you a Non-Resident Indian (NRI) with income sources back home in India? Whether you’re receiving rental income from a property, interest on investments, or capital gains, understanding your tax obligations is crucial. This blog is your one-stop guide to navigating the process of filing NRI Income Tax Returns in India.

In this blog, we’ll break down everything you need to know, from determining your residential status for tax purposes to identifying the appropriate Income Tax Return (ITR) form to filing procedures and claiming deductions.

Who is a Non-Resident?

An individual is classified as a non-resident (NR) in India if they don’t meet the criteria for being a resident. The Income Tax Act outlines two main conditions for residency:

  • Physical Presence:
    • You must have stayed in India for 182 days or more in the relevant financial year (April 1st to March 31st of the next year).
  • Previous Year Stay:
    • You stayed in India for at least 60 days in the relevant financial year AND for a total of 365 days or more during the four preceding financial years.

Exceptions for Indian Citizens and PIO

There’s a special rule for Indian citizens and Persons of Indian Origins (PIOs). Even if they stay less than 182 days in a year, they might still be considered resident if:

  • Their total income from Indian sources (excluding foreign income) exceeds INR 15 lakh in the relevant previous year, and
  • They do not have tax obligations in any other nation.

What are the regulations governing NRI status?

The following are the two primary laws that control and specify the guidelines for NRIs in India:

  • The Income Tax Act regulates NRIs’ tax obligations.
  • The Foreign Exchange and Management Act (FEMA) regulates all of the NRIs’ investments, transactions, and bank account openings.

Does NRI have to file income tax returns in India?

Not all NRIs are required to file income tax returns in India. It depends on their income in India and their tax filing goals. Here’s a breakdown:

NRIs are generally mandated to file an income tax return in India if their total income in India exceeds a specific threshold. This threshold can change, so it’s advisable to check with the latest government guidelines or consult a tax professional. As of April 2024:

  • You must file if your total income in India exceeds INR 2.5 lakh under the existing tax regime.
  • You must file if your total income in India exceeds INR 3 lakh under the new tax regime.

How is the income considered for NRIs?

NRIs are only taxed on income earned or accrued in India. This includes income from:

  • Rental properties
  • Interest on investments like Fixed Deposits (FDs)
  • Capital gains from selling assets in India
  • Pension income from Indian sources

Filing even below threshold:

Even if your income in India is below the mandatory filing threshold, you might still want to consider filing a return. Here’s why:

  • To claim tax refunds for any Tax Deducted at Source (TDS) on your income.
  • To carry forward capital losses for future adjustments.
  • To establish a filing history for future loan applications or visa purposes.

Also read, how income tax return is calculated?

What are the deductions available to NRIs?

As an NRI, you can claim deductions on various investments and expenses in India. Here are the deductions available to NRIs:

  • Section 80C:
    • The maximum deduction allowed under this section is INR 1,50,000. NRIs can claim deductions for life insurance premiums, tuition fees, principal repayment of home loans, and investments in ULIPs.
  • Section 80D:
    • NRIs can claim a deduction for premiums paid for health insurance for themselves, their family, or their parents in India.
  • Section 80E:
    • NRIs can claim a deduction for interest paid on an education loan taken for higher education for themselves, their spouse, or their children.
  • Section 80G:
    • NRIs can claim a deduction for eligible donations made as per the provisions of Section 80G of the Income Tax Act.
  • Section 80TTA:
    • NRIs can claim a deduction on the interest earned on a savings bank account.
  • Section 80CCG:
    • NRIs can claim a deduction for investments in the Rajiv Gandhi Equity Saving Scheme (RGESS).
  • Section 80DDB:
    • NRIs can claim a deduction for medical treatment of dependant handicapped as certified by a prescribed specialist.
  • Section 80U:
    • NRIs can claim a deduction if they are suffering from a disability.
  • Section 87A:
    • NRIs can claim a rebate up to INR 5 lakh (old regime) and INR 7 lakh (new regime).

Some deductions available to resident individuals are not available to non-resident individuals. For example, deductions under Section 80C for investments like mutual funds, PPF, and NPS are not available to NRIs.

How to file an NRI Income Tax Return?

To file an NRI Income Tax Return in India, follow these steps:

  • Determining your status:
    • To determine your residential status, carefully assess the number of days you physically stayed in India during the relevant financial year and the preceding four years.
    • If you don’t meet either of the main conditions (or the exception for Indian citizens/PIOs), you’ll be considered a non-resident for tax purposes.
  • Gather necessary documents:
    • Before filing your tax return, ensure you have all the required documents, including your PAN card, passport, Form 16, bank account details, bank statements, property documents, rent receipts, investment statements, and tax-paid details.
  • Choose the appropriate ITR form:
    • NRIs can file their income tax returns using ITR-2 for all types of income except business income, or ITR-3 for business income.
  • Reconcile income and taxes:
    • Compare the TDS offset paid on your income tax return (ITR) or input tax paid on your income with the details in Form 26AS.
  • Calculate taxable income to determine tax liability:
    • Calculate your taxable income and determine your tax liability based on the income tax slab rates applicable to individuals.
  • Claim double taxation treaty relief:
    • If applicable, claim relief under the Double Taxation Avoidance Agreement (DTAA) to avoid paying tax twice on the same income.
  • File your ITR:
    • File your income tax return using the appropriate ITR form and provide details about exempt income, bank account details, assets and liabilities, and other necessary information.
  • Verify your ITR:
    • Once you have filed your tax return, verify it within 120 days to ensure its validity.

Conclusion

In conclusion, filing NRI income tax returns in India might seem complex, but with proper planning and this comprehensive guide, you can navigate the process smoothly. Remember, the key is to determine your residential status, understand your filing obligations based on your income sources, and choose the appropriate ITR form.

By claiming applicable deductions and filing your return electronically, you can ensure tax compliance and potentially maximize your tax benefits.

If you have any further questions or require personalized guidance, consulting 24efiling is always recommended.

FAQs
1. Who is considered NRI for tax purposes in India?

An NRI is someone who doesn’t meet the criteria for being a resident in India. This is typically determined by the number of days you physically stay in India during a financial year.

2. Are NRIs required to submit income tax returns in India?

Not all NRIs need to file returns. It depends on your total income in India. If your income exceeds INR 2.5 lakh under the existing tax regime or INR 3 lakh under the new tax regime, you must file. Even below this threshold, filing might be beneficial to claim tax refunds or establish a filing history.

3. What kind of income is taxable for NRIs in India?

NRIs are only taxed on income earned or accrued in India. This includes income from rental properties, interest on investments, capital gains from selling assets in India, and pension income from Indian sources.

4. Are there any deductions available for NRIs filing tax returns in India?

Yes, NRIs can claim deductions under various sections like 80C (principal repayment of home loan, interest on education loan), 80D (health insurance premiums), and 80G (donations). However, some deductions available to residents, like those for specific investments in India, might not apply to NRIs.

5. How can NRIs file income tax returns in India?

NRIs can file electronically using the Income Tax Department e-filing portal. You’ll need to choose the appropriate ITR form (typically ITR-2 or ITR-3), gather the necessary documents, and follow the steps for filing and verification.

6. What are the things to remember while filing NRI income tax returns?

While filing NRI income tax returns, it is crucial to determine your residential status, understand the filing threshold based on your income, and choose the correct ITR form. Filing electronically is encouraged, and claiming applicable deductions can help minimize your tax liability.

7. Where can I find more information about NRI income tax in India?

You can visit the official website of the Income Tax Department of India for detailed information and resources.

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