Income Tax For NRI | NRI Tax Filing - Complete Overview

Home Blog Income Tax For NRI | NRI Tax Filing - Complete Overview

Many Non-Resident Indians (NRIs) earn their income from India. However, they always wonder whether they are liable to Indian tax laws considering that they are residents of other countries that are already levying taxes on them. The answer is Yes! If any person, whether resident or non-resident is earning income from India, then he is liable to Indian tax laws and shall ensure e-filing of income tax returns. However, certain reliefs can be availed to avoid double taxation of income. Let’s understand the NRI tax filing and its implications along with how they can avoid double taxation on their income.

Which Income is Taxable in India for NRI?

The taxability of NRIs income depends upon their residential status.  Most NRIs are usually non-residents in India. The following chart will help depict the taxability of income of NRI:

Income

Residential Status

Resident and Ordinarily Resident

Resident but Not Ordinarily Resident

Non-Resident

Income Received or Deemed to be Received in India

Yes

Yes

Yes

Income that Accrues or Arises or Deemed to Accrue or Arise in India

Yes

Yes

Yes

Income that Accrues or Arises Outside India from Business Controlled in India or Profession Set up in India

Yes

Yes

No

Other Income

Yes

No

No

Foreign Asset Disclosure Requirement under Income Tax Act

Yes

No

No

As seen from the above table, NRI tax filing in India depends upon the residential status of the non-resident.

How to Determine the Residential Status of the NRI?
To determine whether a person is resident in India or not, we have to look at the provisions of Section 6 of the Income Tax Act, 1961.
Resident in India
As per section 6(1), a person is said to be ‘resident in India’ if he:

  • is in India in the current year for 182 days or more or,
  • is in India for 365 days or more in the 4 years preceding the current year and 60 days or more in the current year.

Further, if a person who is a citizen of India or a person of Indian origin comes on a visit to India in any previous year, then in clause (b) above, 60 days shall be substituted with 182 days. However, if such person is having total income exceeding Rs. 15 lakhs during the current year, excluding income from foreign sources, then the words 60 days shall be substituted with 120 days.

Also, if an individual who is a citizen of India has a total income exceeding Rs. 15 lakhs during the current year, excluding income from foreign sources, then he shall be deemed to be resident in India in the current year if he is not liable to tax in any other country due to residence or domicile or any other criteria.

Resident but not Ordinarily Resident in India

Section 6(6) determines whether a person is ‘resident but not ordinarily resident in India’ or not. A person should be considered as a ‘resident but not-ordinarily resident’ in the current year, if he is a non-resident in India in 9 out of 10 previous years, preceding the current year or has been in India for 729 days or less in the 7 previous years preceding the current year.

However, if a citizen of India or a person of Indian origin has a total income exceeding Rs. 15 lakhs during the current year, excluding income from foreign sources, then such person shall be considered a resident but not ordinarily resident if he is in India for 120 days or more but less than 182 days.

Further, an individual who is a citizen of India has a total income exceeding Rs. 15 lakhs, excluding income from foreign sources, during the current year, and has been deemed to be resident in India in the current year because of him being not liable to tax in any other country due to residence or domicile or any other criteria shall also be treated as resident but not ordinarily resident in India.

Here, income from foreign sources means income that accrues or arises outside India is not an income that is deemed to accrue or arise in India. However, it excludes the income derived from a business controlled or profession set up in India.

Taxability of NRI’s Income
The NRIs shall file their online income tax returns if they are taxable in India. Further, any loss in a financial year shall be allowed to be carried forward and set off against income in future years only if the NRI has filed the return of income. The due date of the income tax return for NRI shall be 31st July after the end of the financial year.
However, if the NRI is a person whose accounts are required to be audited or is a partner in a firm whose accounts are required to be audited, then the due date for filing a return of income of NRI shall be 31st October after the end of the financial year.
For NRIs, online income tax returns can be filed directly from the income tax portal. Firstly, you need to obtain a Permanent Account Number (PAN) by making an application to the income tax department by filing Form 49A. After obtaining PAN, you shall register yourself in the income tax portal by furnishing the requisite details. Thereafter, you can proceed with the filing of your income tax return within the due date.

Instances when NRIs are Exempted from Filing ITRs
There are certain situations whereby NRIs are exempted from filing income tax returns in India. This includes:

  • The total income of NRI received in India does not exceed Rs. 2.50 lakhs
  • If the total income of the NRI consists only of investment income or long-term capital gains or both and TDS as per the provisions of Chapter XVII-B has been deducted from such income.
     

Double Taxation of Income
Non-resident Indians are usually residents of other countries in which they currently reside. In case they earn income from India, then they are liable to be taxed in India in respect of such income. However, there is a high probability that such a person is also taxed in the country of which he is a resident. This can lead to double taxation of income.

Therefore, to tackle such instances, Double Taxation Avoidance Agreement (DTAA) is entered between the countries that lay down explicit provisions in relation to the taxability of incomes and the country that shall be charging tax on a specified income. In India, provisions of DTAA shall override the provisions of the Income Tax Act, 1961 unless the provisions of the income tax act are more beneficial to the assessee. Further, Indian taxation law also provides unilateral relief to the taxpayers in case there is no DTAA entered between India and the country where such taxpayer is resident. 
 


Author : Dipen

Date     : 12-Jul-2022


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