Are you an NRI ? How is ITR for NRIs different from resident taxpayers ?
All these questions are answered in this post. NRIs should file their ITR on time like residents to avoid income tax notice.
Although, NRIs need not pay taxes on interest income from NRE/FCNR Deposits , they should file ITR timely.
>> It is essential to determine residential status of taxpayer to determine taxability of income earned.
- In case of resident taxpayer all his income would be taxable in India, irrespective of the fact that income is earned or has accrued to taxpayer outside India.
- However, in case of non-resident all income which accrues or arises outside India would not be taxable in India.
- Income Tax Return must be filed by an NRI when their total income (before any deductions) is more than Rs 2,50,000 (for AY 2015-16 / FY 2014-15)
Income Tax Return must be compulsorily filed in the following cases:
- NRI has short term or long term capital gains from any investments or assets .
- To get a tax refund.
- To carry forward losses so they can be adjusted later.
- A return need not be filed if income from short term or long term capital gains is the only income the NRI has and TDS has been deducted on it.
- An NRI’s income taxes in India will depend upon your his/her residential status for the year.
How do I determine my residential status?
To determine the residential status of an individual, the first step is to ascertain whether he/she is resident or non-resident.
If he/she turns out to be a resident, then the next step is to ascertain whether he is resident and ordinarily resident or is a resident but not ordinarily resident.
Step 1 given below will ascertain whether the individual is resident or non-resident and step 2 will ascertain whether he/she is ordinarily resident or not ordinarily resident.
Step 2 is to be performed only if the individual turns to be a resident.
Step 1: Determining whether resident or non-resident
Under the Income-tax Law, an individual will be treated as a resident in India for a year if he satisfies any of the following conditions (i.e.may satisfy any one or may satisfy both the conditions):
(1) He is in India for a period of 182 days or more in that year; or
(2) He is in India for a period of 60 days or more in the year and for a period of 365 days or more in 4 years immediately preceding the relevant year.
If an individual does not satisfy any of the above conditions he will be treated as non-resident in India.
- Step 2: Determining whether resident and ordinarily resident or resident but not ordinarily residentA resident individual will be treated as resident and ordinarily resident in India during the year if he satisfies following conditions:(1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.(2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as resident but not ordinarily resident.In short, following test will determine the residential status of an individual:
- If the individual satisfies any one or both the conditions specified at step 1 and satisfies both the conditions specified at step 2, then he/she will become resident and ordinarily resident in India.
- If the individual satisfy any one or both the conditions specified at step 1 and satisfies none or one condition specified at step 2, then he/she will become resident but not ordinarily resident in India.
- If the individual satisfies no conditions satisfied at step one, then he/she will become non-resident.
If your status is ‘resident’ , your global income is taxable in India.
If your status is ‘NRI’, your income which is earned or accrued in India is taxable in India.
> > Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from Fixed Deposits or interest on savings bank account are all examples of income earned or accrued in India.
- These incomes are taxable for an NRI.
- Income which is earned outside India is not taxable in India.
- Interest earned on a NRE account, NRE Deposits and FCNR deposits is tax free.
- Interest on NRO account is taxable for an NRI.
CAN NRIs claim deductions in ITR ?
Deductions under section 80C:
- Life insurance premium paid in India, ULIPs and ELSS purchased in India eligible for deduction for NRIs.
- Purchase of NSCs or investments in new PPF accounts are not allowed for deduction for NRIs
- NRIs can claim all the deductions available to a Resident from Income from house property for a house purchased in India.
- Deduction towards property tax paid and interest on home loan deduction is also allowed.
- NRIs can also claim DTAA benefit to avoid paying taxes in both countries
How to File ITR ?
- Collect your Form 16s, TDS certificates and Interest certificates from banks.
- Collect capital gains/losses statement from AMCs, broking companies etc.
- There are many option to file the ITR via third party websites that specialize in ITR Filing.
- A few websites are listed below for your reference:
- You can also get the ITR filed with the help of your chartered accountant.
Hope this helps you file your ITRs timely!