Income Tax Return (ITR) filing is a crucial aspect of financial responsibility for individuals, regardless of their residency status. However, a common question that arises among Non-Resident Indians (NRIs) is whether they should file ITR for meagre income earned from resources in India. In this blog, we will answer the question “Should NRIs file ITR for meagre income?” We will also explore the legal obligations, potential benefits, and the long-term implications of filing ITR as an NRI with a meagre income.
Should NRIs File ITR for Meagre Income?
NRIs need to file an income tax return if an NRI’s income exceeds Rs 2,50,000. However, if the total income is below the taxable limit of Rs. 2.5 lakh, there is no need to file an ITR in India.
Let us understand this with the help of an example:
Ram lives and works in the UAE and qualifies as an NRI for income tax purposes. As an NRI, his income earned or accrued in India is taxable. To determine his taxable income in India, Ram should consider all the income he has earned within the country. In his case, the only income he has earned in India is the interest of Rs 80,000 on his NRO account.
Since Ram’s total income in India is below this minimum exempt amount that is Rs. 2.5 lakh, he will not pay any tax on it. However, for the TDS deducted from his interest income, he should claim a refund for that amount.
And to claim the refund, Ram must file an income tax return for the respective financial year. Filing the return is the only way to initiate the process of claiming the TDS refund.
Income Tax for NRIs: New Rules for NRIs in India
The Financial Bill of 2020 introduced several amendments to the criteria for determining residential status. Previously, for the fiscal year 2019-20, individuals of Indian origin settled abroad were classified as NRIs if their visits to India were less than 182 days in a financial year.
However under the new rules for NRI taxation in India, this time period has reduced to 120 days. This amendment applies only when these individuals have an Indian income exceeding Rs. 15 lakh during the financial year. As a result, NRIs who visit India and have a total taxable income in India up to 15 lakh during the financial year will still be considered NRIs.
How to File Income Tax Return for NRI
Given below are the steps to file income tax return for NRIs AY 2023-24:
- Determine your Residential Status
The first step in filing income tax returns for NRIs involves determining their tax residency status, which is based on the provisions of Section 6 of the Income Tax Act, 1961. NRIs are individuals who do not reside in India for more than 182 days in a financial year or do not reside in India for 60 days or more during the previous year and 365 days or more during the four preceding years.
- Reconciliation of Income and Taxes with Form 26AS
NRIs, under tax treaties, are eligible for certain benefits and can claim refunds if TDS (Tax Deducted at Source) is deducted from their income. To facilitate this, it is crucial to ensure that NRIs report TDS credit and advance tax in Form 26AS.
- Calculate your Taxable Income
NRIs are liable to pay taxes in India on various types of income, such as interest earned on NRO accounts, capital gains or dividends from Indian shares, and rental income from property. Additionally, eligible deductions under section 80C can be applied to reduce the taxable income.
- Determining Tax Liability
Tax liability for NRIs is determined based on the applicable NRI tax slab rates, with a basic exemption limit of Rs 2.5 lakh applicable to all NRIs before considering deductions or exemptions.
- Claim DTAA Benefit
Under the Double Tax Avoidance Agreement (DTAA), NRIs can avoid double taxation on the same income. The DTAA allows income to be exempt from tax deduction in one country or taxed at a reduced rate in the home country. For instance, if tax has already been paid in India, NRIs may be eligible for a tax credit in their country of residence based on the tax paid on the same income.
- Verify IT Returns
After filing the income tax return form, it is essential that you verify the income tax return within a period of 30 days. NRIs can now easily e-verify IT returns from abroad via netbanking, which does not require an OTP.
Taxable Incomes of NRIs
Here is the list of taxable incomes of NRIs in India:
- Income earned as salary in India.
- Income received for providing services in India.
- Rental income derived from a property situated in India.
- Capital gains arising from the transfer of property or assets in India.
- Income generated from deposits held in India.
- Interest received on savings bank accounts in India, and so on.
Due Date for NRI Return Filing
For NRIs, 31st July of the assessment year is the last date to file Income Tax Return in India.
Due to a complicated tax system, understanding tax slab for NRIs and other tax laws can be confusing and NRIs may miss claiming deductions and other benefits. At SBNRI, we understand this struggle. You can download SBNRI App to connect with our NRI Tax Experts and get end-to-end assistance related to NRI tax filing. SBNRI will also help you get a lower TDS Certificate.
You can also click on the button below to ask any questions. Visit our blog and YouTube Channel for more details.
NRIs can benefit from the provisions of the DTAA, which is a treaty signed between India and other countries to avoid double taxation. Under the DTAA, NRIs can claim relief in terms of exemption or reduced tax rates on income that is taxed both in India and their country of residence. This helps prevent the same income from being taxed twice.
NRIs should file an income tax return in India if their total income exceeds the basic exemption limit of Rs 2.5 lakh in a financial year. Even if the income is below the threshold, NRIs may still need to file a return if they want to claim a refund of excess taxes paid.