Checklist for NRIs before Filing Returns in India

With almost 16 million people, the foreign population of India is the largest. Interestingly, the maximum number of these Non-Resident Indians (NRIs) have their own Bank Accounts, they invest good amounts in various sectors, such as Bank Deposits, Shares, House Property. They are free to increase their assets. But at the same time, it brings them under the circumference of ‘Income Tax’, making them subject to file Income Tax Returns in the right way and format on or before the Due Date.

Following are 7 crucial check points from an NRI’s perspective, which need to be considered strictly before and while filing their Income Tax Returns.

Check Point#1: Determination of Residential Status

It is necessary for Non-Residential Indians to verify their residential tax status in India depending upon their period of stay in a particular Financial Year (i.e. Between 1st April to 31st March). This is an adequate check point as the global income of an individual who is a resident of India is taxable but in the case of non-residents, merely the income from sources is taxable.

Here at this point, it may be pointed out that under the Foreign Exchange Management Act (FEMA), the residency test parameter differs from the test provisions prescribed under Income Tax Act which is also completely irrelevant for tax purpose.

As per the current Income Tax Act, an Indian citizen who leaves India for employment, or an NRI who visits India, can stay for up to 181 days without losing his/her Non-Residential status in India. The actual day of arrival and the actual day of departure is counted as stay in India.

Check Point#2: Choosing the Appropriate Online Income Tax Return Form

The Central Board of Direct Taxes (CBDT), in order to make Tax compliance burden and filing complications easier, has made lots of changes in filing procedures. Various new Income-Tax Forms have been introduced to classify taxpayers adequately.

And choosing the correct Return Form is very important to avoid further complications and unnecessary penalty.

Thus, here in reference with NRIs, it is good to note that those NRIs who have taxable capital gains or income from more than one house property shall be required to file their return of income in ITR-2. And, Rest all NRIs are subject to file ITR-1 which is known as ‘Sahaj’.

ITR 1 – (SAHAJ) is applicable to individuals having income from salary, one house property, and other sources income, like, interest. One of the new conditions for using this form is that the total income should be not more than ₹ 50 Lakhs.

Check Point#3: Irrelevance of Aadhar Card

Taking reference from section 139AA of the Income Tax Act, the Central Board of Direct Taxes (CBDT) has clearly mentioned that the Aadhar Act 2016, the requirement to quote Aadhar Number shall not be applied to an individual who is not an Indian resident.

Check Point#4: Details of Assets and Liabilities

NRIs, whose total income is above ₹ 50 Lakhs are subjected to report the cost of certain assets (movable as well as immovable) located in India and the corresponding liabilities under the schedule of assets and liabilities (Schedule AL). This schedule is contained in Income Tax Returns 2, 3 and 4.

Check Point#5: A valid foreign bank account by the Non-residents in refund cases

The Central Board of Direct Taxes (CBDT) on July 24th, 2017 clearly announced that non-residents who do not claim refunds or claim refunds and have a bank account in India are not required to furnish details of their foreign bank account while filing their Income Tax Returns.

But on the other hand, such non-residents who claim Income Tax refund without having a valid bank account in India are subject to furnish the details of at least one foreign bank account in the return of income for the issuance of a refund. Furthermore, Non-resident Indians need not furnish their foreign assets and financial interests.

Check Point#6: Compulsion of filing ITR in case of exempt long-term capital gain

In case the taxable income of an NRI is less than the basic exemption limit, but the exempt income is more than the basic exemption limit (i.e. ₹ 250,000), then also he/she is required to file his/her Income Tax Return.

For instance, if an NRI has only exempt long-term capital gains income of ₹ 585,000 and has no income from other sources, he/she is still required to file his/her ITR as the long term capital gains (without considering the exemption) exceeds ₹ 250,000.

Check Point#7: Availing Benefits under the Double Tax Avoidance Agreement (DTAA)

To claim DTAA benefit, first of all, it needs to be ascertained that as per the ‘Indian domestic tax law’ whether a particular income, in India, can be considered as taxable or not. Once it gets determined as taxable, it has now to be checked whether India has signed a comprehensive DTAA with the country of residence (India has signed around 90 such DTAAs, including USA, UK, UAE, Singapore) of the NRI and the NRI now needs to provide a copy of the Tax Residency Certificate (TRC) issued by tax authorities of his/her own country (in certain cases a self-declaration in Form 10F is required too).

Depending upon the type of income, relief under DTAA can be claimed (income may be entirely exempt, or may be taxable at a lower rate). If income is taxable even under the DTAA, the NRIs shall have to pay their taxes and they are eligible to claim the credit of such taxes paid against the tax liability in their own country of residence. (But, it is subjected to certain conditions).

Some additional things that need to be taken care of while filing ITR:

A. Passive Income Declaration

While filing ITR, it is very important to furnish all the Bank interest (Savings and/or FD), Post Office interest. Central Board of Direct Taxes has clarified that the interest credited/received on deposits is taxable unless exempt under section 10 of the Income-tax Act.

B. Reconciling Income and Taxes with Form 26 AS

As per CBDT instructions, reconciliations of TDS credit or advance taxes paid, which the taxpayer is claiming in the Tax Return with TDS credit /advance tax paid should be clearly reflected in Form 26AS.

C. Filing of Exempt Income details

According to CBDT instructions, the details of exempt income, such as dividends, interest on NRE/FCNR deposit, long-term capital gains on listed securities, interest on tax-free bonds, eligible received gifts, should also be declared in the Return. Although, the exempt income has no vital impact, yet should not be left/hidden.

Conclusion

Complying with the latest Income Tax rules and provisions is mandatory to abstain from further complications and unnecessary penalty. Non-Residential Indians (NRIs) are required to furnish all the details adequately in the most appropriate IT Return Form. They should also be very sincere towards the Due dates. A little awareness may help you enjoy the best experiences in all regards.