By Dheeraj Agrawal, Communication Professional
The question that often arises in the minds of many of our NRIs friends is, do they need to file their income tax returns in India too? And this confusion is more with those NRIs who went out of India in the recent past. No doubt, it is important for NRIs to know that under which circumstances they must file income tax returns in India.
First of all, remember that in India, filing a tax return in a particular financial year is necessary only when you are a citizen of India in that financial year. Broadly, if you have spent more than 182 days in India in a financial year, you will be considered Indian citizen for income tax purposes. And, therefore, you have to pay tax on your income earned and accrued in India, and also have to file an income tax return, whether you are NRI, Indian citizen or foreign citizen.
Income Earned & Accrued in India is Taxable for NRIs
If you are an NRI, but the source of your income is outside India, and that income gets deposited in your bank account outside India, you do not have to pay tax on this income. But if your income is from any source in India, and it is more than 2.5 lakh rupees per annum, then you will have to file an income tax return in India.
Here a question arises that even if an NRI’s annual income in India is less than 2.5 lakh rupees, does he need to file a tax return? The answer to this question will be yes if the tax has was deducted on the income made in India, i.e. that income which comes under the purview of TDS or tax deducted at source. It is important to note that since the annual income of less than Rs 2.5 lakh is also tax-free for NRIs, the tax return will have to be filed to claim the tax deducted under TDS rules.
People who have gone out of India due to any work or business and have been living abroad for a long time but they have some investments or assets in India, the returns on these investments or assets will be considered their income. Since the investment is in India, the income will also be taxable in India. What may be the sources of such income for NRIs? Let me tell you a few examples:
- Rental income from a house or commercial property in India,
- Capital gains in India after the sale of any property, or
- Interest on bank FD or savings accounts in India.
NRIs Can Also Claim Deduction of u/s 80C of the Income Tax Act
Let me remind you that NRIs do not have to pay tax in India on any income earned or accrued outside India. Also, if a non-resident Indian has an NRE account or FCNR account in Indian banks, then the interest earned on it is also tax-free, but interest on NRO account has to be taxed. However, NRIs can claim benefits under tax treaties. They can also claim refunds if TDS is deducted on their income. However, for both of the above, it is necessary to file income tax returns. NRIs can also claim deduction up to Rs 1.5 lakhs u/s 80c of the Income Tax Act. If income in India exceeds Rs 50 lakhs for an NRI, he is required to report his assets and liabilities in India.
To claim benefits under tax treaties, NRIs should 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 a tax deduction in one country or taxed at a lower rate in the home country. If you have already paid tax in India on certain income, you can get a tax credit in the country of your residence, i.e., a foreign country. The credit is available on the tax paid on the same income.
Let us consider a case study
Rahul has been living and working in the US for the last two years. When he checked his Form 26AS online, he came to know that there is a TDS of Rs 22,500 at the rate of 30 per cent on the interest of Rs 75,000 on his NRO account. Rahul has no other income in India, so does he need to pay tax in India or file a tax return?
To answer this question, we have to first find the residential status of the Rahul. Since Rahul has been living and working in the US for two years, he is an NRI in India for income tax. His only taxable income in India is the interest received on NRO account. But as his total income in India is 75,000, which is less than the minimum exemption amount of Rs 2.5 lakh, he bears no tax liability in India. But as the bank has deducted TDS of Rs. 22,500 on the interest paid, to claim a refund of this amount, Rahul needs to file income tax return here.
One more thing, even if senior citizens are NRIs, the minimum exemption income for them in India is Rs. 2.5 lakhs only. At the same time, this limit is Rs 3 lakhs for Indian senior citizen and Rs 5 lakhs for Indian super senior citizens. By now, all of you must have understood that NRIs must file income tax returns in India only if the annual income from here is more than 2.5 lakh rupees. And, if the refund of the tax deducted is to be claimed, then the return will have to be filed despite having less than 2.5 lakh income.
