Filing ITR as an NRI? Know These Important Tax Rules Before Filing Your Return

If you are an NRI (Non-Resident Indian) and are about to file your Income Tax Return (ITR), it is essential that you know the important tax provisions and compliance requirements applicable to your residential status.

Knowing these important points before filing can help to avoid any incorrect reporting, unintended tax liabilities and notices from the Income Tax Department.

Let’s take a look at it in detail:

Who Is A Resident?

A person is deemed to be resident in India if he satisfies the conditions specified under section 6 of the Income-tax Act, 1961.

Here’s what section 6 says: As per Section 6, a person shall be considered to be resident in India if he fulfils any of the following conditions:

they stay in India for 182 days or more in the relevant financial year, or they stay in India for 60 days or more during the relevant financial year and for 365 days or more during the 4 financial years immediately preceding that year.

Who is a Non-Resident?

A non-resident is a person who does not meet the conditions required to qualify as a resident in India. This category also includes individuals who are classified as Not Ordinarily Resident (NOR) under the Income-tax Act.

What Does “Not Ordinarily Resident” Mean?

A person may be classified as a “Not Ordinarily Resident” (NOR) in India if they have not lived in the country regularly over the years, even though they may currently qualify as a resident under tax laws.

An individual is considered a Not Ordinarily Resident if they were a non-resident in India for at least nine out of the ten financial years preceding the relevant year. The same status also applies if the person stayed in India for 729 days or less during the seven financial years immediately before the relevant year.

In the case of a Hindu Undivided Family (HUF), the family can be treated as Not Ordinarily Resident if its manager (Karta) meets the above non-resident or stay-period conditions.

The Income-tax Act also classifies certain Indian citizens and persons of Indian origin as Not Ordinarily Residents. This applies when their income earned in India (excluding foreign income) exceeds Rs 15 lakh in a financial year and they stay in India for 120 days or more but less than 182 days during that year.

Further, an Indian citizen who is treated as a deemed resident under Section 6(1A) of the Income-tax Act is also regarded as a Not Ordinarily Resident.

What is Income from Foreign Sources?

Income from foreign sources refers to income that is earned or arises outside India and is not considered taxable in India under the Income-tax Act. However, income from a business controlled from India or a profession set up in India is not treated as foreign-source income, even if it is earned abroad.

Are Non-Residents Taxed on Their Global Income in India?

No. Non-residents are not required to pay tax in India on their worldwide income. They are taxed only on income earned, received, accrued or deemed to accrue in India. Income wholly earned outside India generally remains outside the Indian tax net.

Is ITR Filing Mandatory for Non-Residents?

A non-resident is required to file an Income Tax Return in India if his/her taxable income from Indian sources exceeds the basic exemption limit prescribed under the Income-tax Act. If his / her Indian income is below the limit, filing may not be mandatory, subject to certain conditions.

Are Interest on NRE and FCNR Account Taxable?

Interest earned on Non-Resident External (NRE) accounts and Foreign Currency Non-Resident (FCNR) accounts is not taxable in India. As per Section 10(4) of the Income-tax Act, non-residents are not required to pay tax on the interest income earned from these accounts.

What about the taxability of interest on a Non-Resident Ordinary (NRO) account?

Yes. Interest earned on an NRO account is taxable in India. Banks normally debit TDS (tax deducted at source) at 30%, plus surcharge and cess, before crediting interest.

Can a non-resident claim deductions under Section 80C?

Yes. Non-residents are entitled to claim deductions under section 80C for specified investments and expenses like payment of LIC premium, contribution to Public Provident Fund (PPF) (if permissible), payment of tuition fees and other specified investments.

What is the last date for filing Income Tax Return (ITR) for Non-Residents?

For individuals, the usual due date is generally 31 July of the assessment year. A late return can normally be filed up to 31 December of the year if the return is missed.

What are the ITR forms for non-residents?

These are the forms usually used by non-residents:

ITR-2: For income from salary, house property, capital gains and other sources where there is no income from business or profession.

ITR-3: Income from a business or profession in India.

How can a non-resident file an ITR?

Non-residents can file their ITR online through the Income Tax Department’s e-filing portal or through authorized tax-filing platforms. After submitting the return, it can be verified electronically (for example, through Aadhaar OTP or digital signature) or by sending a signed physical copy of ITR-V to CPC, Bengaluru by speed post or registered post.

How to get Income Tax Department Refunds Faster?

Ensure that bank account details mentioned in ITR are correct and complete for fast refunds. Provide necessary details such as bank name, account number, IFSC code and make sure that your account is active and pre-validated on the e-filing portal.

What are the benefits of filing ITR for Non Residents?

The following are the advantages of filing an ITR:

• You can claim refund of excess TDS deducted.
• Losses can be carried forward and offset against future gains.
• You can avail Double Taxation Avoidance Agreements (DTAA) and not pay tax twice on the same income.
• The financial stability of the country is important for loans, visas and investments.

Steps for Filing ITR by a Non-Resident

A person’s non-resident status is decided based on the number of days he or she stays in India during a financial year (April 1 to March 31).

Step 1: Confirm you are a non-resident

The first step is to determine whether an individual is a non-resident under the Income Tax Act. This is on the basis of period of stay in India during the financial year.

Step 2: Calculate Taxable Income

Tax liability of non-residents is only on the income which is earned, received or accrued in India. Make sure you find all of that income before you file the return.

Step 3: Get Your Documents Ready

Collect all the documents that you need like your PAN, passport information, bank statements, Form 16, TDS certificates and details of your investments or capital gains.

Step 4: Choose the Right ITR Form

Selecting the appropriate ITR form is important. The form depends on the nature and source of income earned.

Step 5: File the Return Electronically

The income tax return can be filed by keying in the income details, tax payments and other necessary information on the Income Tax Department’s e-filing portal.

Step 6: Submit and confirm the return

Once you have filed the return, it has to be verified online or by any other permitted method. Filing is considered complete only after successful verification.

Step 7: Monitor Return Status

After filing and verification of the return, taxpayers can check the status of their return and refund on the e-filing portal.

Common Mistakes to Avoid While Filing ITR

Tax experts say that taxpayers should avoid common mistakes such as filing the wrong ITR form, missing the deadline, ignoring TDS mismatches, not reporting exempt income, errors in reporting capital gains and not verifying the return after filing.