NRIs (Non-resident Indians) are confused when it comes to filing of income tax returns in India. In this post we tell you who is considered as NRI as per income tax act and cases where they should file their tax returns.
Who is NRI as per Income Tax Laws?
A person is considered to be NRI if he fulfills the following condition
- Is present in India for less than 182 days in a financial year or
- Present for less than 60 days in a year or cumulatively less than 365 days in the preceding 4 years
When should NRIs file Income Tax Return?
NRIs should file income tax returns in India under the following conditions:
1. To Claim Tax Refund
There are several investments where TDS (Tax deduction on Source) happens in India. One instance as NRI you may have NRO fixed deposit, where TDS is deducted. For e.g. if you have Rs 10 Lakh deposited at 7% interest the annual interest earned would be Rs 70,000. Depending of country of residence the TDS may be up to 30% of 70,000 = Rs 21,000. If there is NO other income in India you are eligible for tax refund. To claim refund you’ll need to file income tax return (ITR).
2. Income in India exceeds Income Tax threshold limit
Any income generated in India is taxable here. This may be income from salary, business, rental or interest to name a few. You need to compulsorily file income tax return if your income in India (before any tax exemption) exceeds income tax threshold limit of Rs 2.5 lakhs (for FY 01-17). This limit is also applicable for senior citizens NRIs.
As per Budget 2016, to determine the total income you must also include tax exempted long term capital gains on shares/equity based mutual funds.
3. To claim tax benefit under a tax treaty
Its mandatory for NRIs to file income tax return in India if they want to claim tax benefit under tax treaty even though their income in India is below income tax threshold.
Also Read: 9 key changes in the ITR forms 2017
Situations where NRIs have to file Income Tax Return:
Below are some common situations for NRIs where they have to file tax returns in India.
Moved abroad in mid or financial year: There might be case where you moved abroad in mid of financial year – say in May. So you would be NRI as per income tax perspective as per income tax law as the stay in India is less than 60 days. But if you were employed or had income for months of April & May in India and it exceeds Rs 2.5 Lakhs, you have to file income tax return in India.
Have NRO savings and Fixed Deposit Account with banks in India: As you become NRI you have to convert all your normal savings account with banks to NRO. You can also have NRO fixed deposit. The interest received on NRO accounts are taxable as per tax slab applicable. However interest received on FCNR and NRE deposits are tax free in India. In case the interest income exceeds Rs 2.5 lakhs, you should file income tax returns. However if TDS have been deducted and No extra tax is payable, its not mandatory to file tax returns.
Rental income from house in India: Suppose you have annual income of Rs 3 lakhs from rent from house in India. In this case you can deduct 30% as deduction available & municipal taxes paid. So your taxable rental income would be Rs 2.1 lakhs (3,00,000 – 30% of 3,00,000). In this case its NOT mandatory to file tax returns if you have NO other income in India.
Own two or more house in India: In case you have two or more houses in India and both are vacant. As per income tax laws you can show only one house as self-occupied while all other houses have to considered as deemed let-out, which means you have to pay taxes on notional rental income from other house. If these notional rent (after 30% deduction) exceeds Rs 2.5 lakhs you have to pay taxes and file income tax return.
Sell assets like gold/property etc: In case you sell your house in India, you would incur capital gains (short or long term). This is taxable and hence you need to file income tax return.
Also Read: Best NRE Fixed Deposit Interest Rates
Gift you resident parents Rs 10 Lakh: As gifts from relatives are non-taxable in India, there in No tax liability for anyone in this case. So NO Tax returns need to be filed.
Long Term Capital Gains from sale of Share/Equity Mutual Funds: Long term capital gains from sale of Share/Equity Mutual Funds are tax free. But with chages in Budget 2016, you must consider this income to determine your total income, even though NO tax is payable. For e.g. You have long term capital gains of Rs 3 lakhs due to sale of share, you have to file income tax return but pay NO taxes!
Tax Exemptions Available for NRIs:
The rules and tax exemptions are almost similar to residents with certain exceptions:
NRIs can claim tax exemption up to Rs 1.5 Lakhs u/s 80C but they cannot invest in certain instruments like PPF, NSC, 5-year post office deposit, Sukanya Samriddhi Scheme and senior citizen savings scheme.
NRIs also cannot calim tax exemption for investment in Rajiv Gandhi Equity Savings Scheme u/s 80CCG
Also NRIs are not eligible for tax exemption u/s 80DD for maintenance, including treatment, of disabled dependent
NRIs who may NOT file Income Tax Returns:
It’s NOT mandatory for following categories of NRIs to file income tax returns in India:
If income in India does not exceed tax threshold limits – Rs 2.5 Lakhs for FY 2016-17
NRI who has chosen to be covered by the special provisions of Chapter XII-A and has only capital gains as income
NRIs with only interest income (covered in Section 115A) where the tax has been deducted at source may choose NOT to file tax returns in India.
The last date for filing income tax return for FY 2016-17 (AY 2017-18) is July 31, 2017. NRIs should calculate their income in India and check if they should be filing income tax return in India.