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The blog explains how NRIs must file income tax returns for their Indian earnings, detailing steps such as determining residential status, calculating taxable income, claiming benefits under double taxation treaties, and verifying returns within 120 days.
NRIs have to pay income tax on income earned in India. They have to pay tax on income that accrues or arises in India. NRIs also need to pay income tax, which is deemed to accrue or arise in India. Money received or deemed to be received in India is taxable.
In this article, we will look at steps on how to file an income tax return for NRI.
The first step is to be sure of your residential status. This has to be determined concerning a financial year. However, it is slightly complex if you have moved abroad recently. The same thing happens if you have just moved back to India. The residential status is determined u/s 6 of the Income Tax Act 1961. The number of days you reside in India is essential. An NRI needs to stay outside India for 182 days or more. Otherwise, one is a resident.
How can NRI file an income tax return? The answer is they must first calculate their taxable income.
Before we proceed, we need to understand the meaning of total gross income. It refers to total income before tax deductions. Does your total gross income exceed ₹2.5 lakh? In that case, you have to pay taxes in India. This income could be from several sources. It could be in the form of your salary. It could be capital gains on the sale of shares and mutual funds. Interest from deposits in NRO accounts and rental income is also a part of the bracket.
However, NRIs can claim benefits under tax treaties. NRIs can also claim refunds if TDS is deducted from their income. For this, you must reconcile the TDS credit and advance tax as reflected in Form 26AS.
However, for both of the above, it is mandatory to file returns. The gross income is not relevant. NRIs can also claim deductions up to ₹1.5 lakh u/s 80c of the Income Tax Act. However, they cannot invest in certain instruments, such as the Public Provident Fund (PFF). If your income in India exceeds ₹50 lakh, you are required to report your assets and liabilities in India.
To better understand how to file an income tax return for NRI, let us look at the Double Tax Avoidance Agreement (DTAA). DTAA enables an NRI to avoid paying tax twice on the same income. As per DTAA, an income may either be exempted from tax deduction in one country or taxed at a lower rate in the home country.
Let us say you have already paid tax in India. You can then get a tax credit in the country of residence. The credit is available on the tax paid on the same income.
Once you have filed IT returns, you must verify them within 120 days. Otherwise, they are not valid.