Income tax return filing is a mandatory annual return for residents as well as non-residents (NRIs). ITR 2 filing for NRI is required to be filed by those NRIs whose Indian income exceeds the maximum tax-free limit. This guide on ‘Income tax return filing for NRI’ helps you in NRI filing ITR to set yourself free from tax liabilities and associated penalties for late or non-filings!
Filing income tax returns as an NRI is crucial compliance and is far more complicated than for Indian residents. Income tax returns filing for NRI becomes complicated as it involves determining residential status, getting an accurate taxable income calculation, and being well aware of the applicable tax laws and provisions. In this guide on ‘how to file ITR for NRI’, you will get to know about income tax return filing for NRI comprehensively and simply.
Income tax for NRI
NRI taxation under the Indian Income Tax Act, 1961 applies to those earning income outside the home country. According to the Indian tax laws, any person whose income exceeds the maximum tax-free amount limit (Rs. 3 lakh under the new tax regime) during the financial year, is required to go for ITR 2 filing for NRI in India. However, you are not liable to file returns if you do not have any income in India. There are significant differences in income tax rules and benefits given to Indian residents and Non-Indian residents.
Types of Income Taxable for NRIs
An NRI needs to pay tax on some specific types of income made in India during the assessment year. Those types of income include;
- Income from Salary: If you have been working in India during the financial year, your earned salary will be taxable.
- Income from House Property: Income earned in the form of rent from properties in India is subject to tax.
- Income from Capital Gains: Profits made on selling any assets like property, shares, or mutual funds in India are taxable.
- Income from Business or Profession: If you are running a business in India, you are required to pay tax on the profit or income generated by the business. For tax on income earned from business, NRIs can use Form ITR-3 for filing income tax returns form for NRI.
- Income from Interest: If you receive interest on bank deposits, FDs, or bonds, it is also taxable.
- Income from other sources: Interest on NRE and FCNR Accounts is free from tax. However, the interest on NRO accounts is completely taxable.
An NRI needs to report these sources of Income in India accurately and calculate the tax on these sources of income accurately so that he can accurately and promptly opt for ITR 2 filing for NRI.
Documents Required for NRI ITR Filing
Documentation is an indispensable part of ITR filing NRI as it helps the IT department verify and validate your income as well as tax levied on the same.
If you want to initiate the NRI filing ITR process, make sure to collect the necessary documents including;
- PAN Card
- Passport
- Bank Account Details & Statements
- Property Documents
- Rent Receipts
- Investment Statements
- Form 16
- Tax Paid Details
- Foreign Income Details
- Other details
Filing the ITR for NRIs
The process of income tax return filing form for NRI requires several steps to follow. The process is a little lengthier than that of ITR filing for Indian residents, however following the below steps can help you get it completed easily;
Step 1: Determine residential status in India
ITR Filing as an NRI begins with determining your residential status for the financial year to evaluate tax liability in India. NRIs need to pay taxes only on the income earned or accrued in India. There are different tax implications defined for Residents, Non-resident, and ‘Resident but not ordinarily resident’ as per the Income Tax Act. No penalty is levied for not declaring your NRI status.
Step 2: Combining of Income and Taxes with Form 26AS
It is a consolidated tax statement that shows the deduction of taxes on your behalf or already paid taxes. It’s necessary to check that all your tax credits are accurately reported through this form. Make sure to check the form thoroughly to determine any discrepancies between your actual transactions and the details of transactions given in Form 26AS.
Step 3: Determine your taxable income and tax liability
Calculate your overall income earned in India from different sources including salaries, interest from savings account, income from property on rent, capital gains from the sale of property or shares, and other sources. Understanding income categories and tax rates applicable on them meticulously is important.
Step 4: Claim for double taxation relief
In case you are living in a country having a Double Tax Avoidance Agreement (DTAA) with India, you are not required to pay tax twice for the same income. Do go through each provision of the treaty to check if you can claim relief under the DTAA and have the availability of required supporting documentation for your claim.
Step 5: Select ITR and file details about income-exempted
It’s important to choose the right ITR form as per the nature and amount of your income. Commonly, NRIs file ITR-2 or ITR-3 Form and also report income that is exempt from tax under the Income Tax Act.
Step 6: Disclosure of bank account details
While filing a return filing, it’s necessary to provide details of your NRI bank accounts. It is a mandatory disclosure under the income tax rules.
Step 7: Disclose assets and liabilities details in ITR
In the condition where your total income exceeds Rs. 50 lakhs, it is necessary for you to disclose details of your assets and liabilities in your income tax return.
Step 8: Verify ITR
After filing your income tax return, the ultimate step is to verify it. It can be done either electronically through the e-verification process or by sending a signed copy of the ITR-V to the Income Tax department.
Deadline & Penalties
Similar to ITR filing for residents, NRIs should also file their income tax return within stipulated deadlines to ensure compliance as well as avoid penalties. However, the deadline for filing ITR for NRI is typically similar to the residents; 31st of the Assessment Year.
Penalties for late filing or non-filing of tax returns may include interest charges and even prosecution in some cases. Therefore, it’s essential to keep all the deadlines in mind not only keeping penalties away but also for a worry-free life!
As an NRI, you may need to file tax returns in India within the due date if your Indian income exceeds the tax-free limit or if you want to claim refunds of excess tax deductions. Failing to file ITR for NRI before the due date, it may not only attract financial penalties but also prosecution in some cases. Being an NRI, it's important for you to ensure that you pay off all your tax liabilities and that too, within a predefined time frame or before the deadline.
If you follow the step-by-step process mentioned above, you can get your NRI income tax return e-filing done properly.
FAQs
Q1: What is the due date of ITR filing for NRIs?
As we all know, how important it is to file returns before the deadline or 31st July of a particular assessment year.
Q2: Is an NRI eligible for claiming tax deductions?
Yes, as an NRI, you are eligible to claim a deduction of 30% on your house property income. Moreover, you can also claim a deduction on the interest that you already paid towards a home loan by properly filing ITR for NRI.
Q3: Which ITR form should an NRI file?
Form ITR 2 filing for NRI and Form ITR 3 are applicable to NRIs for NRI ITR filing.
Q4: What is the proof of NRI status?
The further documents can be the proof of status Visa, PIO Card, Continuous Discharge Certificate with Valid contract for seafarers, Foreign Passport with PIO declaration, Resident Permit and also Resident Card, etc.
Q5: Who qualifies as an NRI?
NRI as we all know expands as Non-Resident India. Any person of Indian origin who is living abroad (permanently or temporarily) is referred to as a Non-Resident Indian (NRI). For such people, it may be required to file an income tax return form for NRI for their tax liability if their Indian income exceeds the tax-free threshold amount.