Though non-resident Indians (NRIs) earn their living abroad, their obligation to file tax returns in India doesn't finish. With the July 31 deadline for filing returns approaching nearer, NRIs are obligated to file their return if they have income in India that exceeds the basic exemption limit.
Filing an income tax return in India becomes mandatory for an NRI as soon as the sum total of his taxable income from all sources (before claiming any deduction) exceeds the basic exemption limit of Rs 2.5 lakh.
Any income of an NRI that originates in India or is received in India is taxable, which usually includes salary income, rental income from property owned in India and income from sale of securities and assets held in India. Also if an NRI worked abroad but received his wages in India, this is included in his taxable income. According to an announcement made in Budget 2016 and applicable from 2016-17, even gain on sale of securities held for over 12 months and sold on a stock exchange, which is non-taxable, has to be included when calculating total taxable income. Filing of income tax return also becomes mandatory for an NRI even if his total taxable income does not cross Rs 2.5 lakh, if he claims benefit under a tax treaty.
An NRI is also required to determine his tax residency status, on whether one is in the category of resident or non-resident in India for tax purposes, especially for those who have moved abroad recently or have returned to India after a long stay abroad. Residency status for tax purposes is decided by the number of days of physical stay in India during a financial year. According to tax laws, an individual is considered to be a non-resident if he meets the following criteria: He should have been present in India for less than 182 days in a year; or, he should have been present in India for less than 60 days in a year or cumulatively for less than 365 days in the preceding four years.
Income tax return can also be filled for free if the NRI knows how to file it online. To facilitate the process, NRI can also take CA assisted service or paid e-filling service based on his or her requirements. Importantly, the NRIs are also entitled to tax deductions. However, the various sections that cover this are complex, so one is advised to speak to an accountant or specialist. This is also advised in the case of the double taxation avoidance agreement Double Taxation Avoidance Agreements (DTAA), which exists with some 90 countries. This is a sort of bilateral economic agreement between two countries, aims to avoid or eliminate double taxation of the same income in two countries.
However, to facilitate the tax filing process, the Indian Central Board of Direct Taxes, has recently introduced rule 37BC, which allows NRIs to furnish alternative documents and information instead of one’s PAN number, to avoid paying the higher withholding tax. These include name, email ID, and contact number, address, TRC and Tax Identification Number.