There is one myth or mis-information or mis-conception; widely circulating in the social media to the effect that from 1st April 2025, all NRIs will not be required to pay any Income Tax in India, if their India Income does not exceed Rs.12 Lacs. The fact of the matter is that “Zero Income Tax for Income upto Rs.12 Lacs” provisions introduced in the Budget 2025; is meant only for Resident Individuals who are Resident of India and not for NRIs.
As a result of recent amendment carried out in the Income Tax Act, with effect from 1st April 2025 Individuals who are Resident of India; having Income upto Rs.12 Lacs will not be required to pay any tax, if they have opted for the New Tax Regime. This is on account of Tax Rebate of Rs.60,000/- available under section 87A which will nullify the tax liability. However, the said Rebate under section 87A is available only to Individuals, who are Resident of India and not available to NRIs.
It is even not applicable to HUFs. All NRIs are currently required to file their Income Tax Return in India, if their Total Income in India for F.Y.2024-25 exceeds Rs.3 Lacs under the New Regime. From F.Y.2025-26, that is with effect from 1st April 2025, they will be required to file their Tax Return in India, once their Total Income in India crosses Rs.4 Lacs; during the period 1st April-31st March; i.e the Financial Year being followed in India. NRIs are required to pay Income Tax in India; as per the applicable slab rates. However, it has been observed that NRIs often shy away from complying with their tax filing obligation in India on account of different reasons; including lack of proper advice, unfamiliarity with the legal requirement of India, busy schedule, difficulty in compiling data, insignificant income in India, low TDS amount etc. This often results into facing tax enquiry in the form of scrutiny assessment, reopening of assessment and loss of tax refund of excess TDS cut on different sources of Income.
Most of the Income of NRIs are subject to TDS in India. Interest Income on NRO Bank Account, Dividend from Companies or Mutual Funds, Capital Gains, Rental Income etc. are subjected to TDS. Filing of Income Tax Return in India not only result into regularizing tax affairs of NRIs but also facilitate claiming of refund for the excess TDS cut on different sources of Income. Tax Return filed in India can also be used as a base document for reporting Overseas Income; while filing Tax Return in the Home Country by NRIs.
Many a times it has been observed that NRIs invest substantial amount in acquiring property in India by transferring money from overseas but fails to file tax return in India. This results into triggering a notice from the tax department asking source of funds; for purchase of the property and at times non-responding to such notices results into addition of substantial addition to the Income of NRIs and resultant tax litigation.
In order to avoid such untoward consequences; it is always advisable to file tax returns in India by NRIs, irrespective of the amount of Income. In nutshell, Filing of Tax Return in India has following advantages:
- It will enable claiming refund for the excess TDS cut on their Income in India.
- It will minimize substantially possibility of receiving tax notices at a future date.
- It will also help in filing of their tax return in the country of Residence
- It will facilitate claiming of credit for the taxes paid in India in their Home Country.
- It would help regularize; their tax affairs in India
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