NRI Income Tax Planning & Filing

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NRI Income Tax Planning & Filing

Non-Resident Indians have their primary source of income in foreign territory. This covers them under that country’s taxation laws. One of the most asked questions is – Is NRI income taxable in India? This will arise in certain situations where they fall within the bracket of Indian taxation laws as well thereby requiring to pay taxes to the Indian government. What are the situations where the Indian government can charge tax from NRIs and how can tax planning for NRIs can be done? Here’s a complete guide to NRI income tax planning & filing of returns in India.

Who Is a Non-Resident Indian? 

In simple terms, a Non-Resident Indian is an Indian citizen who resides abroad. However, when it comes to taxation, there are specific guidelines as to who will be considered as an NRI. As per Section 115C(e), Non-Resident Indian means an individual who is a citizen of India or a person of Indian origin who is not a resident. A person is considered as a person of Indian origin if he or either of his parents or any of his grandparents were born in undivided India. 

For determining the residential status under the income tax, Section 6 is looked upon. From Section 6, it can be interpreted that a person is considered as a resident in India in the following scenarios: 

  1. He is in India for 182 days or more in that previous year or 

  1. He is in India for 60 days or more in that previous year and 365 days or more in 4 years immediately preceding such previous year. 

In the case of a person who is an Indian citizen or of Indian origin [as referred to in Section 115(e)] and comes for a visit to India, then instead of 60 days, a period of 182 days shall be considered. However, if such a person has an income of Rs. 15 lakhs or more during the previous year, excluding the income earned from foreign sources, then instead of 60 days, 120 days shall be considered. 

Further, as per Section 6(1A), in case of an individual who is a citizen of India having an income of Rs. 15 lakhs or more during the previous year, excluding income from foreign sources, but is not liable to tax in any other country or territory, then he shall be considered as a resident in India. 

However, in the following cases, the person shall be considered as Resident but Not Ordinarily Resident in India: 

  • An individual who has not been a resident for 9 years out of 10 preceding years or 

  • Was in India for 729 days or less in 7 years preceding that year or, 

  • Is a citizen of India or a person of Indian origin with total income, other than income from foreign sources, more than Rs. 15 lakhs during that previous year and was in India for 120 days or more but less than 182 days in that previous year or, 

  • A person who is a citizen in India and deemed resident as per Section 6(1A) [discussed above]. 

What is Taxable Income for NRI? 

If the NRI is considered as a resident in any previous year, then all his income shall be taxable in India. However, if he is considered as a non-resident, then only the income received or accrued in India shall be taxable in India. The following points are noteworthy in this regard: 

  • Interest earned on NRO accounts is taxable in India. 

  • Interest earned in NRE or FCNR accounts are considered as tax-free income. 

What is the Tax-Free Income of NRI? 

All the income other than the income received or accrued in India is tax free for NRIs. Following table will bring clarity as to the taxable and tax-free income of NRIs: 

Sr. No. 

Particulars 

Residential Status 

Resident & Ordinary Resident (ROR) 

Resident but Not Ordinary Resident 

Non Residents 

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 the business controlled in or a profession set up in India 

Yes 

Yes 

No 

Other Income 

Yes 

No 

No 

Foreign Asset Disclosure Requirement under the Income Tax Act, 1961 

Yes 

No 

No 

NRI Income Tax Planning 

Therefore, in certain situations, even an NRI can be considered as a resident of India in which case, all his income will become taxable in India. NRI income tax planning therefore becomes important in order to get relief from paying taxes in India. As an NRI, you can claim the benefits of the following provisions in order to reduce your tax liability: 

  1. House Property Income: Claim a standard deduction of 30% as well as any municipal taxes borne and paid by you. Further, you can claim the deduction of principal and interest payments on home loans under Section 80C and 24 respectively. 

  2. Salary Income: Salary received or deemed to be received as well as accrued or deemed to be accrued in India is liable to tax in India. Therefore, for projects undertaken abroad, ensure that salary is received abroad otherwise it will be liable to tax in India. In case your salary gets covered under the Indian Tax Laws, then there are various deductions provided for salaried individuals under the head ‘Salary’ in addition to a standard deduction of Rs. 50,000. However, if you opt for a new concessional tax regime under Section 115BAC (discussed below), then you shall not be eligible to claim the standard deduction of Rs. 50,000. Engage an expert to ensure that you benefit from all the provisions. 

  3. Other Deductions: Following are the brief insights into what deductions can be claimed by the NRIs: 

Applicable Section 

Deductions Allowed 

Deductions Disallowed 

Section 80C 

  • LIC Premium 

  • Tuition Fees 

  • Investment in Unit Linked Insurance Plans 

  • Investment in Equity Linked Savings Scheme 

  • Principal repayment of home loan 

  • Investment in Public Provident Fund by opening a new account as a non-resident. 

  • Investment in National Savings Certificate 

  • Investment in 5 year Post Office Deposit Scheme 

  • Investment in Senior Citizen Savings Scheme 

80D 

Payment of medical insurance premium. 

The upper limit of deduction (Rs. 50,000) for premiums paid for the senior citizen category is disallowed. 

80E 

Interest paid on education loan 

80G 

Donations to eligible institutions 

80TTA 

Interest earned on savings accounts with the bank, co-operative society, or a post office. 

NRI Income Tax Slab Rates 

For non-resident Indians, the following slab rate shall be applicable: 

Income Slabs (Rs.) 

Tax Rate (%) 

0 – 2,50,000 

NIL 

2,50,001 – 5,00,000 

5% on income exceeding Rs. 2,50,000.  

5,00,001 – 10,00,000 

Rs. 12,500 plus 20% on income exceeding Rs. 5,00,000 

Above Rs. 10,00,000 

Rs. 1,12,500 plus 30% on income exceeding Rs. 10,00,000. 

  • Senior citizen & Super senior citizen: As per Income Tax Act, only resident individuals are considered as senior citizens and super senior citizens. Therefore, the benefit of an enhanced basic exemption limit of Rs. 3 lakhs and 5 lakhs won’t be available to non-residents. 

  • Section 115BAC: An individual can avail the benefit of an optional new taxation regime whereby the concessional tax rates become applicable if such individuals do not avail of certain exemptions and deductions available under this act. In such a case, the following shall be the tax rates applicable: 

Income Slabs (Rs.) 

Tax Rate (%) 

0 – 2,50,000 

NIL 

2,50,000 – 5,00,000 

5% 

5,00,000 – 7,50,000 

10% 

7,50,000 – 10,00,000 

15% 

10,00,000 – 12,50,000 

20% 

12,50,000 – 15,00,000 

25% 

Above 15,00,000 

30% 

  • Surcharge & Cess: Apart from the above tax, a surcharge @ 10%-37%, as the case may be, and a Health and Education Cess @4% on income tax + surcharge shall be levied. 

  • Rebate: The benefit of rebate under section 87A, in case the income does not exceed Rs. 5,00,000, is available only for resident individuals. Therefore, non-resident NRIs cannot avail benefits of rebate under the income tax act. 

Does NRI Need to File ITR?

There are various provisions governing NRI income tax filing. As per section 115G, an NRI is not required to furnish his return of income if he is having only investment income or income by way of long-term capital gains or both provided the tax has been deducted at source on such income. Otherwise, as per Section 139(1), the NRI is required to file his return of income if his total income (i.e., the income after all the deductions) exceeds the basic exemption limit of Rs. 2,50,000 in the previous year. It shall be noted that exempt income does not form part of total income and thus shall not be included while evaluating the limit of Rs. 2,50,000. 

Step by Step Process to File NRI Income Tax Online

Most NRIs question how to file NRI income tax return? For NRI income tax return filing in India, follow the below mentioned steps: 

  • Evaluate the residential status: NRI shall foremost evaluate the residential status as per the above provisions. This will determine the NRI income taxability. 

  • Reconcile your income with Form 26AS and AIS / TIS: The NRI shall log in to the income tax portal and reconcile his total income with that reflected in Form 26AS and Annual Information Statement. This will give a clear idea of the total receipt of income as well as TDS deducted on the same. 

  • Furnish all the Details: Open the relevant Income Tax Form and start filling in the required details of all your income liable to tax in India. The NRI assessee should accurately fill in the details as any omission or error can be corrected only by filing a revised return. 

  • Submit the Form: After disclosing all the relevant income details, submit the form. You will need to e-verify your income tax return through your Digital Signature Certificate or Electronic Verification Code, as the case may be. 

Due Date and Applicable Form 

The due date for NRI income tax return filing is the same as for other individual assessees i.e., 31st July each year. However, if the accounts of the assessee are required to be audited or he is a partner in a firm whose accounts are required to be audited, then the due date of return shall be 31st October each year. The NRI income tax return form applicable is Form ITR-2. This form is applicable for NRI as well as individuals who are not ordinarily residents in India having income from salary, house property, and other sources. However, in case the NRI is a partner in a firm, then the NRI income tax form applicable is ITR-3. 

Frequently Asked Questions

Following key points that can be overlooked shall be kept in mind while furnishing the return of income as an NRI: Claim TDS refund. Check whether advance tax is applicable. If yes, pay it within due dates in order to avoid interest. Check for DTAA benefits in case of double taxation. It is wiser to take the help of an expert in taxation laws to help you file your return.

As per Section 90(2), even though there is DTAA, the provisions of the Income Tax Act, 1961 shall be applicable if they are more beneficial to the assessee. Therefore, if the domestic tax law is beneficial, then the NRI shall follow the domestic law as it will have an overriding effect over the DTAA.

Yes. If the tax liability of the NRI exceeds Rs. 10,000, then he shall be liable to pay advance tax. Non-payment of advance tax will attract interest under Sections 234B and 234C.

If you are unable to e-verify your return through DSC or EVC, then you can print and sign your ITR acknowledgment and send it to CPC-Bengaluru. You need to send the acknowledgment within 120 days after filing your return.

The interest earned from deposits in the NRE account is exempted from tax under Section 10(4)(ii). However, the exemption is available only to individuals who are non-resident as per Section 2(w) of the Foreign Exchange Management Act, 1999, or is a person who has been permitted by the RBI to maintain an NRE account.

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