An NRI may generate income in India through salary, wages, rent, investment, and other sources. This income is taxable in the same way as the income of a resident Indian. Additionally, the NRI is also required to file tax returns to declare his income. The process may be complicated and requires an understanding of the steps, which we have explained in this blog.
But first, let’s understand who is an NRI and what are his tax liabilities. The status of an NRI is determined based on his stay duration in India. To be classified as NRI the stay duration in the previous year must be 182 days or less. There are other additional criteria which we will further explore.
Who is an NRI Individual?
Section 6 (1) of the Income Tax Act 1961 defines a “resident” person for tax purposes. Any person who does not fit into this definition will be considered an NRI or Non-Resident Indian. So, to understand who is an NRI, it is essential first to understand who is a resident Individual.
Ordinarily, a Resident Indian is one who resided in India for at least 182 days in the last financial year. Another criteria for being a resident Indian is to reside in India for at least 365 days in the 4 years preceding the last financial year, and at least 60 days in the last financial year. The 60 days-period gets replaced by 120 days if the resident’s income from Indian sources exceeds Rs.15 lakhs in a financial year.
However, if an Indian citizen has left India for foreign employment or as a crew member of an Indian ship, he would be considered a resident only if he has resided in India for at least 182 days in the last financial year. This applies to Persons of Indian origin who have previously visited India as well.
Other Categories of NRI
The above definition applies to individual NRIs only. Let’s explore a few other categories of non-individual NRI entities like HUF and companies. Also, besides residents and NRIs, the Government has identified two new categories of residents, that are deemed residents and RNORs. Let’s understand what they mean.
Hindu Undivided Family (HUF)
A non-resident HUF is one whose place of effective control and management during a particular year is situated wholly outside India. In this context, a place of effective control and management refers to a place where all the major business-related decisions are made.
Companies
A company is considered to be non-resident if it is incorporated in India but its effective place of control and management in a particular year resides outside India.
Resident But Not Ordinarily Resident (RNOR)
Besides, Resident and Non-Resident, there is a third category of resident status for Indian persons – Resident But Not Ordinary Residents or RNOR. RNOR citizens are also taxed like NRIs, as long as they maintain their status. To keep the RNOR status, an Indian citizen must be a non-resident in nine out of the ten previous years or must live in India for 729 days or less in the preceding 7 years. In the case of a HUF, this criteria applies to the head or manager of the family.
Deemed to be Residents
The Finance Act 2020 has introduced “deemed to be residents” as a new category of Resident Indians. They are Indian citizens whose total income generated in India exceeds Rs.15 lakhs and are not liable to pay taxes in any other country. They are treated as RNORs by the Income Tax Department.
How to Calculate Total Income for NRI ITR Filing?
Calculating the total income of the NRI taxpayer can help determine his tax liability. According to section 5 of the IT Act, the total income of NRI includes the income generated and received in India only. For Residents but Not Ordinarily Residents, the total income can include foreign income if it is generated by a business or profession established in India. On the contrary, a resident Indian’s taxable income includes all income earned from India and abroad
Types of Taxable Income for NRI ITR
The category of taxable income is similar for both Resident and Non-Resident Indians. Common ones include income from salary, wages, rent, business, profession, capital gains, interests, and so on. The rates applicable are also the same as those in the tax slabs prescribed for Resident Indians. Let’s break it down for you.
Salary Income
Salary earned and received in India is taxable for an NRI. For this, the NRI must render his services in India only, whether to an Indian or a foreign employer. The tax slabs for the NRI employee are the same as those applicable to a resident employee.
Income from Rented House Property
Rental income from property situated in India is taxable for NRIs. It is calculated in the same way as that for an ordinary resident Indian.
Income from Capital Gains
NRIs have to pay taxes on the income earned from the sale of property, shares, and other assets.
Income from Interest
Interest earned from bank deposits, fixed deposits, bonds, debentures, etc. in India, is taxable for NRIs, provided it is received in resident or NRO accounts only. Income received in NRE and FCNR accounts is non-taxable..
Business Income
Income earned from businesses operational in India is taxable. The tax rates and laws applicable are similar to resident businesses.
Other Sources
Other types of income such as lottery winnings, dividends from Indian companies, royalties, etc., are also taxable for NRIs in the same way it is for Resident Indians.
How to File ITR Return for NRI?: NRI ITR Filing Process
Income Tax Return Filing for NRI is a simple, online process, provided every step is carefully completed. However, most taxpayers struggle through it due to their lack of expertise and immediate knowledge of India’s tax laws. It is for this reason that consultation and assistance from tax experts like ourselves is suggested for both, an Indian resident and an NRI taxpayer. Here’s a breakdown of the procedural assistance we provide in NRI Income Tax Return E filing:
Analysing Residency Status
The first step or rather the prerequisite for an NRI filing ITR is analyzing whether the assessee is an NRI in the first place. For this, section 6 of the Income Tax Act may be referred to, where a detailed explanation of who is an NRI, a resident, a resident but not ordinarily resident, and a deemed resident is given.
Choosing the Right ITR Type for NRI
Income Tax Return Filing form for NRI is the same as that for a Resident Indian. So, to choose the right ITR form, the assessee must know the type of income that’s being taxed. For example, the ITR 2 filing for NRI is required for income generated from sources other than business or profession. Another ITR form for NRI is ITR-3. It is used to file tax returns on income generated from business or profession only.
Calculating the Total Taxable Income
After choosing the right income tax return form for NRI, calculate his total income. The scope of total income is mentioned in Section 5 of the Act. For a Non-Resident person, the total income will include all income earned and received in India, excluding the ones earned and received outside India.
Claim Deductions and Exemptions
To reduce the taxable income, an ITR filing NRI can claim a few deductions under sections 80C, 80G, 80E, 80D, 80I and so on. These deductions optimize the taxpayer’s tax liability and minimizes the tax burden.
Analyse DTAA to Avoid Double Taxation
As an NRI, the income you earn in India may be taxable in your country of residence, if you’re repatriating it. To avoid double taxation on the same income, analyze the Double Taxation Avoidance Treaty (DTAA) signed between India and your native country. Check if its provisions apply to the category of income you’re repatriating. If eligible, prove your residency in the concerned country by submitting a Tax Residency Certificate issued by the tax authorities of that country during the ITR filing process. Also, mention the DTAA exemption
File NRI IT Return Form Online
Finally, get ready to file the NRI ITR Return form. Go to the income tax e-filing portal. Login and access the correct form. Finally, fill in details of the taxpayer, his income, and bank account. Also clarify any deductions, exemptions and ITC claims. Specify DTAA benefits to avoid double tax.
Attach Necessary Documents
Form ITR 2 for NRI may require certain documents for completion. These may include form 16, form 26 AS, taxpayer’s PAN, proof of Tax Residency, and other supporting documents based on the type of Income like investment proofs, dividend certificates, donation receipts, sale receipts, insurance premium payment receipts, loan certificates, rental agreements, property documents, etc.
ITR Form Verification
Submitting the ITR for NRI requires verification. This can be done online via Adhar OTP or EVC. For offline verification, the taxpayer can file ITR-V form within 120 days of ITR form submission.
Due Date for NRI Filing ITR
The due date for filing ITR of NRI individuals and non-individuals is 31st July, if no audit is needed. However, if an audit is needed, this due date gets extended to October 31st. If you miss this deadline, the last date to file belated returns is 31st December.
For Example: If the ITR is being filed for the FY 2023-24, the due date for audit cases will be 31st July 2024 and for non-audit cases will be 31st October 2024. Belated returns can be filed by 31st December 2024.
Income Tax Rates for NRI ITR Filing
NRIs are taxed at the same rates as Resident Indians. The existing and the new tax regimes apply to both. However, the new regime is applicable by default and taxpayers need to opt out of it and return to the old regime. Here’s a breakup of the tax structure of both regimes.
Income Tax Rates for Individuals and HUFs below 60 years
| Income Slab | Existing Regime (With Exemptions and Deductions) | Income Slab | New Regime (Without Exemptions and Deductions) |
|---|---|---|---|
|
Up to ₹ 2,50,000 |
Nil |
Up to ₹ 3,00,000 |
Nil |
|
₹ 2,50,001 - ₹ 5,00,000 |
5% above ₹ 2,50,000 |
₹ 3,00,001 - ₹ 6,00,000 |
5% above ₹ 3,00,000 |
|
₹ 5,00,001 - ₹ 10,00,000 |
₹ 12,500 + 20% above ₹ 5,00,000 |
₹ 6,00,001 - ₹ 9,00,000 |
₹ 15,000 + 10% above ₹ 6,00,000 |
|
Above ₹ 10,00,000 |
₹ 1,12,500 + 30% above ₹ 10,00,000 |
₹ 9,00,001 - ₹ 12,00,000 |
₹ 45,000 + 15% above ₹ 9,00,000 |
|
|
|
₹ 12,00,001 - ₹ 15,00,000 |
₹ 90,000 + 20% above ₹ 12,00,000 |
Surcharges: Above the income tax, taxpayers also have to pay a surcharge if their income exceeds certain limits. Here are the surcharge rates.
| Income Slab | Surcharge |
|---|---|
|
up to Rs.50 Lakhs |
Nil |
|
Rs.50 lakhs to 1 cr |
10% |
|
Rs.1 cr to 2 cr |
15% |
|
Above Rs.2 cr |
25% |
|
Above Rs. 5 cr |
37% (Only in Old Tax Regime) |
NRIs are Indian citizens who do not stay or carry out their profession in India. However, if they do, the income they earn out of it is taxed under the Income Tax Act 1961. The rates applicable are the same as resident Indians. Also, the tax liability in terms of the types of taxable income are similar. The only difference is that an NRI’s foreign income is not taxed.
FAQs
Q1: Do I have to pay Income tax in India as an NRI?
Yes. As an NRI you have to pay income tax on the income generated and received in India.
Q2: How can I determine my resident status for filing ITR NRI?
You need to analyse the duration of your stay in India during the previous financial year. If it exceeds or is equal to 182 days, you are a resident Indian, else an NRI.
Q3: What is ITR verification?
Before submitting ITR online, the form must be verified using Adhar OTP, EVC, or by filing ITR-V form within 120 days of ITR submission.
Q4: Is Advance Tax applicable to NRI?
Yes. Advance tax is compulsory if the NRI’s taxable income exceeds Rs.10,000 during a financial year.
Q5: What is DTAA?
Double Tax Avoidance Agreement or DTAA is a contract signed between a foreign nation and India through which any foreign or NRI taxpayer avoids double taxation on income generated in India.