Income Tax for NRI

A Non-Resident Indian (NRI) is an individual of Indian origin who resides in a foreign country. This status is determined based on the provisions outlined in the Indian Income Tax Act of 1961.

An individual’s residential status is particularly crucial in determining whether they qualify as an NRI. According to Section 6 of the Income Tax Act, an individual is considered a resident in India for a particular previous year if they fulfil either of the following two conditions:

If the individual is in India for 182 days or more during the previous year

OR

If the individual is in India for 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.

Individuals who do not meet either of the above conditions are classified as Non-Resident Indians for Tax purposes.

Moreover, the Finance Act of 2020 introduced amendments to these conditions, particularly for Indian citizens and people of Indian origin. It states that the 60 days mentioned above would be substituted with 120 days if the individual’s total Income, excluding Income from foreign sources, exceeds ₹15 Lakh during the previous year.

NRI ITR filing involves understanding their tax obligations in India, primarily depending on their income earned or accrued in India. NRIs must file an income tax return if their taxable Indian income exceeds the basic exemption limit.

The NRI tax filing process includes:

Determine Residential Status: NRIs must ascertain their residential status as per the Income Tax Act, which affects their taxability in India. As discussed above, individuals residing outside India for 182 days or more during a financial year are considered NRIs.

Understand Taxable Income: Income earned or accrued in India, including salaries received in India, income from house property located in India, capital gains on transfer of assets in India and income from fixed deposits or savings accounts in Indian banks, is taxable for NRIs.

Understand the Tax Regimes: NRIs should be aware of the two tax regimes in India - the old regime with deductions and exemptions and the new simplified regime with lower tax rates but fewer exemptions. Choosing the right regime can significantly impact the tax liability.

Avail of the Permissible Deductions and Exemptions: Even as NRIs, there are several deductions and exemptions available under the Income Tax Act, such as investments in specified instruments under Section 80C, housing loan interest under Section 24 and more. NRIs should leverage these to minimise their tax liability.

Collect Documents: Essential documents include PAN card, bank statements, salary slips (if employed in India), property income documents and details of investments.

File Returns Online: NRIs can file their income tax returns online through the Income Tax Department's e-filing portal. They need to choose the appropriate ITR form based on their income sources and fill in the necessary details.

Verify ITR: After submitting the ITR, NRIs must verify it electronically using Aadhaar OTP, EVC through net banking or by sending a signed ITR-V to the CPC, Bangalore.

We have discussed the NRI income sources, applicable tax deductions and benefits, and NRI ITR filing forms in detail in the upcoming sections.

NRI taxation in India follows the ‘source rule’, where Income arising from or through a source within India is subject to Taxation. Hence, identifying the source of Income becomes crucial for the process. The Taxable sources of Income include the following:

• Any salary received in India.

• Any salary received for services rendered in India.

• Rental Income (if any) received from a property situated in India.

• Capital gain (if any) arising on account of transfer of property or asset in India.

• Any Income from deposits in India, such as interest on fixed deposits.

• Any interest received on the savings bank account, etc.

• The taxability of non-residents in India will depend not only on their Income. Income tax return filing for NRI is obligatory if the annual short-term or long-term capital gain for NRI surpasses the basic exemption limit of ₹ 2.5 Lakh.

• Generally, returns must be filed by July 31 of the relevant assessment year.

NRIs have the option to choose either the New or Old Tax Regime for their ITR filing. There is a surcharge levied on individuals earning more than the specified limits. The surcharge is charged on the amount of Income Tax calculated by the following rates:

• 10% - Taxable Income above ₹50 lakh – Up to ₹1 Crore

• 15% - Taxable Income above ₹1 Crore - Up to ₹2 Crore

• 25% - Taxable Income above ₹2 Crore - Up to ₹5 Crore

• 37% - Taxable Income above ₹5 Crore

• Maximum surcharge on Income by way of dividend or Income under the provisions of 111A, 112A and 115AD is 15%.

• The amount payable as a surcharge shall not exceed the amount of Income earned exceeding ₹50 Lakhs, 1 Crore, 2 Crore or 5 Crore, respectively.

• Health and Education cess @ 4% shall also be paid on the amount of Income Tax plus surcharge (if any)

The following are tax benefits that an individual can get on an ITR filing for NRI. However, these deductions are not available for those choosing the New Tax Regime.

The following are the forms required for the income tax return filing for NRI.

Income tax return filing for NRI is a process full of complexities. However, with the right knowledge and guidance, it becomes a manageable task. Moreover, being well versed with the tax benefits and deductions can help you maximise the profits of the previous year.

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