Money Matters: Essential Things NRIs Should Keep In Mind While Filing Income Tax Returns

Filing income tax returns as a Non-Resident Indian (NRI) involves understanding specific rules and considerations that differ from resident taxpayers. Navigating through these intricacies ensures compliance with Indian tax laws while optimising tax liabilities. Getting aware of these necessary factors ensures NRIs file their returns accurately and efficiently. Here’s a comprehensive guide to help NRIs navigate through the process:

Things NRIs Should Keep In Mind While Filing Income Tax Returns:

1. Determine Residential Status

The first step for NRIs is to determine their residential status for the relevant financial year. According to Indian tax laws, an individual can be classified as a Resident, Non-Resident, or Not Ordinarily Resident (NOR) based on the number of days spent in India over the past few financial years. NRIs typically fall under the Non-Resident category, which has its own tax implications.

Ministry of External Affairs states that “The concepts and rules for determining the residential status income-tax laws and FEMA are quite different and it would be possible to be a resident under one law and non-resident under the other. For exemption of income tax in respect of NRE and FCNR deposits investors should be non-resident under FEMA.”

2. Income Sources To Be Declared

NRIs are required to declare income earned or accrued in India during the financial year. This includes but is not limited to:

i) Any salary received from an Indian employer or income from property situated in India.

ii) Interest earned from savings accounts, fixed deposits, bonds, etc., in India.

iii) Profit from the sale of assets in India, such as property, shares, mutual funds, etc.

iv) Income from house property rented out in India, interest, dividends from Indian companies, etc.

3. Eligibility for Benefits under Double Taxation Avoidance Agreements (DTAA)

NRIs residing in countries with which India has signed DTAA can avail of benefits to avoid double taxation. This involves claiming tax relief or exemption in their home country for taxes paid in India on certain types of income.

4. Choosing the Correct Income Tax Form

NRIs must select the appropriate ITR form based on their income sources. Generally, NRIs can file using Form ITR-2, ITR-3, or ITR-5, depending on their income sources and residential status. It’s crucial to use the correct form to avoid processing delays or penalties.

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5. Filing Process

The filling of income tax returns process includes the following (as per the Income Tax Department official website and Groww):

i) Online Filing: NRIs can file their tax returns online through the Income Tax Department’s official website or other authorised portals.

ii) Registration: If not registered, NRIs need to register on the e-filing portal.

iii) Form Submission: Fill out the chosen ITR form with accurate details of income, deductions, and taxes paid. Verify and submit the form electronically.

iv) Verification: As per ClearTax, after submission, verify the return using Aadhaar OTP (How You Can Update Your Aadhaar Details Online), or net banking, or send a signed physical copy (if applicable).

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6. Due Dates and Penalties

For NRIs, the due date for filing tax returns is typically July 31st of the assessment year. Failure to file returns on time may attract penalties and interest on outstanding tax liabilities.

7. Importance of Tax Planning

NRIs should engage in tax planning to optimise their tax liabilities in India and their resident country. Consulting tax advisors or financial experts can provide insights into available deductions, and strategies to minimise tax burden legally.

Note: NRIs are advised to seek professional advice from financial advisors before making any investment decisions who specialise in NRI investments and can provide valuable insights and guidance.

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