1. INTRODUCTION

India has the largest Diaspora population in the world with 18 million people from country living outside their homeland. Many NRI who resides outside India earns income from India. The income mainly includes interest income, capital gains on sale of property, rental income, gains on sale of shares, mutual funds and bonds. NRI’s are required to file income tax return if income exceeds the basic exemption limit of 2.5 lacs but TDS is required to be deducted even if income does not exceeds 2.5 lacs i.e TDS is required to be deducted u/s 195 on payments made to NRI. Therefore, NRI are required to file return of income to claim refund of TDS deducted.

2. NON-RESIDENTIAL STATUS

The residential and non-residential status of taxpayer is required to be computed every year while filing return of income. The person is said to be resident if he fulfills the following basic conditions-

a. He is in India for 182 days or more or

b. He is in India for 60 days or more in financial year or 365 days or more in last 4 years

If the person fulfills any of two conditions, then he shall be treated as resident person otherwise he shall be treated as non-resident. If person is resident than he has to fulfill both the additional conditions as follows-

a. He is resident for 2 years or more in last 10 years AND

b. He is in India for 730 days or more in last 7 years

If the person fulfills both the additional conditions along with one basic condition than he shall be treated as Resident but Ordinarily Resident and if he does not fulfills the above additional conditions the he shall be treated as Resident but Not Ordinarily Resident.

3. RETURN FILING REQUIREMENT FOR NRI

NRI are required to file return in two cases-

a. If income exceeds 2.5 lacs

b. To claim refund of TDS deducted

4. WHICH INCOME TAX RETURN IS REQUIRED TO BE FILED?

From F.Y.2017-18 NRI are not required to file ITR-1. They can file ITR-2 or 3. If NRI has income from business in India, then ITR-3 would be applicable and in case NRI does not have business income ITR-2 will be applicable.

5. DEDUCTION OF TDS

Income tax Act provides to deduct TDS u/s 195 on any payment made to NRI. The rate of TDS is as per Finance Act as increased by applicable surcharge and cess. NRI can apply for certificate of lower deduction of TDS to Assessing officer for obtaining NIL or lower deduction certificate. The rates of TDS as specified in Finance Act 2022 is as follows-

Particulars Rate of Tax
Income in respect of investment made by an NRI 20%
Income by the way of long term capital gains in Section 115E in case of an NRI 10%
Income by way of long-term capital gains 10%
Short Term Capital gains under section 111A 15%
Any other income by way of long-term capital gains 20%
Interest payable on money borrowed in Foreign Currency 20%
Income by way of royalty payable by Government or an Indian concern 10%
Income by way of royalty, not being royalty of nature referred to be payable by Government or an Indian concern 10%
Income by way of fees for technical services payable by Government or an Indian concern 10%
Any other income 30%

6. TDS RETURN AND CERTIFICATE

The deductor is required to obtain TAN Number and deposit TDS with Government and file quarterly return of TDS within applicable due dates. He is also required to issue TDS certificate in Form-16A to the non-resident. The payer is required to provide information of payments made to NRI in Form No.15CA/CB to the Assessing officer. Such information is to be provided even if amount paid is not taxable. If payer fails to do such compliance then he shall attract penalty of Rs.1 lakh u/s 271-I of Income Tax Act. Practically, while making payments to NRI, a bank does not remit money outside India without Form 15CA/CB. So the provisions of section 271-I are not attracted.

7. BANK ACCOUNT IN WHICH NRI CAN GET REFUND

NRI can open three types of bank account in India-

a. NRO Account

b. NRE Account

c. Foreign Currency Non-Resident Account(Fixed Deposit)

Following credits are only permitted in NRE Account-

a. Inward remittance from outside India

b. Interest earned on money deposited in NRE Account

c. Interest on investments made through NRE Account

d. Transfer from other NRE/FCNR Accounts

e. Maturity gains from investments made through NRE Account

So you can take credit in NRO Account and then transfer the same to NRE Account.

The CBDT vide press release dated 24th July 2017 has clarified that-

Non-residents who do not have bank account in India and are claiming income tax refund have an option. From F.Y.2016-17, non-residents can get refund on their foreign bank account if they do not have bank account in India. It is not mandatory to disclose details of overseas bank accounts while filing return of income.

8. TIME LIMIT TO GET REFUND

The normal processing time to get income tax refund is 20-45 days but in case of NRI the refund is processed within 6 months. If refund of NRI gets failed, it can raise refund reissue request by rectifying the reason of failure.

9. OUR COMMENTS

Income tax provisions are harsh on NRI. Government wants to collect tax from very source of its origin, therefore all payments made to NRI are liable for deduction of TDS u/s 195. The filing of forms and other related compliances are also increased in case of NRI. NRI’s are also issued refund late i.e. within 6 months. It is therefore very important to make correct and timely compliance. Financial Tree Company helps in making such compliance.

The above comments do not constitute professional advice. The Author can be reached at companyfinancialtree@gmail.com or call us on 9111872247 or visit website www.financialtreecompany.com. My name is CA Divya Agrawal and I am Practising Chartered Accountant, CEO and Founder of FINANCIAL TREE COMPANY (An online return filing and Tax Consultancy Company). We also upload educational videos in You tube and name of our channel is FINANCIAL TREE COMPANY. Our aim is to help people in improving their financial health by spreading knowledge and love. Stay Financially Fit and Healthy.

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Author Bio

Qualification: CA in Practice
Company: www.financialtreecompany.com
Location: Bhilai, Chhattisgarh, India
Member Since: 30 May 2019 | Total Posts: 63
FINANCIAL TREE COMPANY PROVIDES BEST POSSIBLE TAX SOLUTIONS AT REASONABLE RESOURCES AND TIME TO MEET CLIENT SATISFACTION AND NEED. website-www.financialtreecompany.com Contact No. 9111872247 Email ID- companyfinancialtree@gmail.com (AN ONLINE RETURN FILING AND TAX CONSULTANCY COMPANY) View Full Profile

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3 Comments

  1. Nadim says:

    hi, nice information. as a nri i had forgotten to file last year returns (fy 21-22). and there is a lot of tds deducted, now ca says can file late returns but can’t claim refund after 31st dec, is there no way to claim the refund

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