Income Tax for NRI has always been a puzzling subject. We receive numerous queries every day where the doubts of NRIs concerning NRI Tax are evident. Understanding the fundamentals of Income Tax for NRI: When to file the Income Tax Returns (ITR), How to file it? What are the requirements? What are the common mistakes one should avoid? and much more is essential for a seamless ITR filing experience for an NRI. Addressing the fundamentals is necessary to eliminate complexities. In this article, we will take a look at the top 10 mistakes made by NRIs while filing their ITR in India.
NRI Tax: Top 10 Mistakes made by NRIs while Filing ITR in India:
Here are the top 10 mistakes NRIs make while filing ITR. Let’s take a look and try to avoid these in the future. Also, at the end of the article, there’s a button that you can use to drop in your queries directly to our experts on WhatsApp. LET’S BEGIN!
- Not Filing ITR: Many NRIs having a source of income in India above threshold limit avoid filing ITRs in India which is wrong. Also, NRIs are subject to TDS (Tax Deducted at Source) in India and in many cases they are liable for certain refunds as TDS is deducted at a higher rate which can be compensated on the basis of the income rate slab of the individual. Therefore, NRIs must file their ITR in India if they have a source of Income in India and are subject to TDS in any manner.
- Selecting the wrong ITR Form: NRIs who are filing their ITR in India sometimes end up selecting the wrong ITR Form. There are multiple ITR Forms in India and selection of the right form is essential depending on the types of incomes and other relevant factors.
- Non-Reporting of Share-Holdings or Director Details: While filing the ITR there are certain elements that need to be reported. If the NRI has invested in any unlisted equity or is holding a position of Director in any public or private company, these are to be reported while filing the ITR.
- Not claiming Tax Credit abroad for taxes paid in India or vice-versa: This point in essence is a bit away from the ITR Filing aspect in India but is essential to understand. Many NRIs ended up paying double taxes on the same source of income. For example, if you have already paid a certain tax in India then you are liable to get a tax credit or exemption for the same in your resident country under the provisions of DTAA (Double Tax Avoidance Agreement). The same can be applied in the case of an NRI Returning to India and becoming a Resident. You can seek advice on the same from our taxation expert on WhatsApp using the button at the end of the article.
- Failing to do e-verification: E-verification is a mandatory step while filing your ITR and failing to do so can affect the tax-refunds that are liable in your case. Missing a small step can sometimes land you in a big problem. So NRIs must take care that they go through e-verification.
- Determination of Residential Status: Residential Status is a very complex thing. Every year you need to calculate the number of days you have stayed in India and abroad and on the basis of the conclusions your Residential Status is determined. Given the effects of the pandemic, there had been certain relaxations in 2020 for NRIs who overstayed in India. Therefore, it becomes essential that your calculation is accurate and you file your returns based on that. There are layers too! Between a Resident and Non-Resident, there are other terms like Resident but Not Ordinarily Resident (RNOR), Resident and Ordinarily Resident (ROR) etc. Learn about the basics of Residential Status first and then you can easily go ahead with the proper filing of ITR every year selecting the right form for yourself.
- Tax Identification Number of Resident Country/ Passport Details: While filing the ITR, NRIs must also take care that they input the Tax Identification Number of their Resident Country or Passport Details as this information is essential.
- Non Reporting of Exempt Incomes: Now, this is one of the most asked queries concerning NRI Income Tax. Many NRIs have asked us that if they have an NRE or FCNR FD and since the interest earned on these deposits are exempt from tax in India then why should they mention it in their ITRs? Well, there is a separate section for reporting the same. You have to report all your incomes irrespective of whether it is tax exempt or TDS has already been deducted.
- Wrong Calculations of Deductions under 80C: The deductions under section 80C is different for NRIs and Residents. While there are various asset classes where Residents can utilize the section 80C for tax benefits, NRIs are restricted to a few of them. The section 80C provides a deduction of Rs. 1.5 Lakhs on certain specified investments but all these investments are not applicable for NRIs. So better double check or just WhatsApp our expert for assistance using the button at the end of the article.
- Other Common Errors: Other common errors include providing wrong information or spelling mistakes, filling the wrong assessment year etc. Sometimes silly mistakes take away a lot of credit, we are sure Maths must have taught you the same. Take care and avoid these common mistakes; for other complexities, our experts are there to help you out.
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NRIs usually file their tax under ITR-2
An NRI is eligible to subscribe to corporate deposits, NCDs and PSU bonds issued in India. However the issuer should specifically enable the ‘NRI Window’ in an offer. Tax free bonds Public issue is open for NRIs to subscribe on both repatriable and non-repatriable basis.
An NRI or Non Resident Indian is an Indian Citizen living outside India for a minimum of 183 days in 1 financial year for the purpose of employment, business or vocation (occupation for which an individual is trained).
NRO Account operates on TDS for an NRI. However, you can later file for a refund based on your tax slab in India.
Tax on money received from abroad depends on various factors. If it is a gift to a relative then it’s not taxable. Other cases might need more details. You can get on a call with our expert for a clearer understanding.