As an NRI, we might have this question in our mind whenever it comes to incomes & taxes, whether ITR filing in India is required? This article aims to address this basic question.
To understand if a NRI is required to file ITR in India, one needs to understand some basics first which are explained below before we could answer- “If a NRI is required to file ITR in India?”
A. Understanding Residential Status for Income Tax
Residential status is important to understand the tax implications in India as it will determine, what kind of income will be taxable in India.
Income tax laws in India categorize the residential status under three categories: Residents, Non-Residents (NR), and Not Ordinarily Resident (NOR).
This categorization depends on one’s physical presence in India during the current & past years.
A non-resident, simply speaking is a person who spends most of the year outside India for work, residence, education or any other reasons. The following criteria defines an Individual status as a non-resident in India:
- If a person has stayed in India for less than 182 days during the financial year, or
- If a person has stayed in India for less than 60 days in the financial year and less than 365 days in the four preceding financial years
Any person meeting any of the above criteria, will be considered as Non-resident Indian as per Income tax laws in India.
One can easily check their residential status in India using this Residential Status calculator: https://incometaxindia.gov.in/Pages/tools/residential-status-calculator.aspx
B. Which income earned by NRI is taxable in India?
Once we have determined the residential status in Inda, the next step is to identify the incomes which might be taxable in India.
The following is the basic principle for determining the taxability of income for different residential categories:
- For Persons who have residential status of a “Resident in India”, their global income is taxable in India i.e. all income earned by Indian Residents, whether the income is earned in India or earned in abroad will be taxable in India
- For Persons who have residential status of a “Non-Resident”, only those income which are earned, accrued or deemed to be accrued in India, will be taxable in India. Income earned abroad by non-residents is not taxable in India
Following is the illustrative list of incomes that an NRI must consider while determining their tax liability in India:
- Salary Income- Salary Income received in India and Salary for services rendered within India, even if the salary is received outside India
- Rental Income: Rental Income from properties located in India must be considered
- Capital gains: Capital gains on assets & properties situated in India
- Income from deposits: Interest earned on any type of deposits held in India
- Income from savings accounts: Interest earned on any savings account held in India
Now, this might arise a very simple but important question that – Will the Income earned abroad by an NRI be taxable in India?
The answer to the above question is No as principally only the Indian sourced income would be subject to tax in India
Incomes earned or accrued outside of India shall not be taxable in India unless these incomes are either directly received in India or these are sourced from assets or business operations in India
C. Is it compulsory for NRI to file ITR in India?
This must be the next obvious question since there are incomes which are taxable in India for an NRI, so they might be naturally required to file ITR as well
The answer to this question is also simple-
ITR filing requirement is mostly similar for both Non-Residents & Residents and one of the most common & important criteria for filing ITR is the basic exemption limit. If the income taxable in India (before availing any deductions) is beyond the basic exemption limit of Rs 2.5 lakhs, then ITR filing is required in India, even if there is no tax liability to be settled.
Also, there are several other practical reasons or advantages for which one should consider filing ITR in India. Below are some of the most popular of them:
1. To claim a refund of TDS:
Often, TDS is deducted for some or other income by banks, financial institutions, employers, clients etc. However, there might not be any actual tax liability or tax liability could be less than the amount of TDS considering the income & computing tax on it. In such a case, one could file ITR and claim the refund of TDS
2. To report residential status
By filing ITR, one can easily report their Residential status as per income tax to the Income tax department. Without this information, the tax authorities might send notices to inquire about the unreported foreign transactions or remittances.
3. Serving as the legal proof of income
ITR acknowledgment is considered as the legal proof of income in India. So, filing ITR helps one establish the Income earned in India, even if there is no tax due on it.
4. To carry forward losses
One might have incurred some losses while selling assets, securities or properties in India. Such losses can be carried forward to future years which will help in reducing future tax liabilities. To carry forward losses to future years, ITR is required to be filed within due date.
5. To ease remittance of funds out of India
Filing regular ITR will enable easier remittance of funds out of India as it will simplify filing of forms such as form 15CA & 15CB
6. To be eligible for Loans & credit card
Banks & Financial institutions in India require ITR as proof of income in India to process loan & credit card applications. So, having regular ITR in India improves your chances of approval
7. Review by a tax expert
By filing ITR in India consistently, one can have an export review of their income & deductions in India. This can help in planning & strategizing tax liabilities in India, and it will also help in identifying errors or avoiding penalties.
8. ITR requirement for VISA purposes
Many VISA applications require ITR for past years. So, filing ITR regularly helps you be available with this document as & when it is required. Otherwise, it might be difficult & even sometimes not possible to file ITR for past years in India.
Also read: How to file past years ITR for VISA applications
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Disclaimer: The above post is only for the purpose of academic discussion and should not be construed as any legal opinion in any matter whatsoever.
The author is a CA in practice at Delhi and can be contacted at: E-mail: abhinandansethia90@gmail.com, Mobile: +91-9811741451
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