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July 28, 2020

Are NRI’s required to File Income Tax Returns in India?

Are NRI’s required to File Income Tax Returns in India?

What do you mean by a NRI?

An Indian residing abroad is popularly known as Non-Resident Indian (NRI). Income Tax Act has not directly defined NRI. Section 6 contains detailed criteria of who is considered as Resident in India and provides that anyone who doesn’t meet these criteria is a Non-Resident.

According to the United Nations Department of Economic and Social Affairs, India remains the largest country of origin for expatriates and immigrant communities with a 28 million-strong diaspora across the world with top 15 countries as

CountryNon Resident Indians
  Saudi Arabia4,100,000
  United States3,852,293
  United Arab Emirates3,425,144
  Sri Lanka1,614,000
  South Africa1,560,000
  United Kingdom1,451,862

Who will be considered as a resident in India?

An individual will be treated as a Resident in India in any previous year if he/she is in India for:

  1. Atleast 182 days in that year, OR
  2. Atleast 365 days during 4 years preceding that year AND atleast 60 days in that year.

An individual who does not satisfy both the conditions as mentioned above will be treated as “non-resident” in that previous year.

Definition of Resident is relaxed by dropping Condition 2 given above (i.e. only Condition 1 is applicable), for the following cases:

  1. An Indian citizen who leaves India in any year for the purpose of employment outside India or as a crew member of an Indian ship,
  2. An Indian citizen or a person of Indian origin who resides outside India and who comes on a visit to India.

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What income of a non-resident will be taxable in India?

A person who is non-resident is liable to tax on that income only which is earned by him in India. . Income which is earned outside India is not taxable in India. Income is earned in India if –

  1. It is directly or indirectly received in India; or
  2. It accrues in India or the law construes it as having accrued in India.

For instance income from business arising through any business connection in India, income from any asset or source if such asset or source is in India, income from salaries if the services are rendered in India, Dividend paid by an Indian company even though this may have been paid outside India etc

Nature of incomeTaxability in the hands of NRI
Income which accrues or arises in IndiaTaxed
Income which is deemed to accrue or arise in IndiaTaxed
Income which is received in IndiaTaxed
Income which is deemed to be received in IndiaTaxed
Income accruing outside India from a business controlled from India or from a profession set up in IndiaNot Taxed
Income other than above (i.e.,income which has no relation with India)Not Taxed

Is an NRI required to file an Income Tax Return (ITR) in India?

The Income Tax Law provides for mandatory filing of returns in certain cases. Individuals or HUF who are less than 60 years of age and have gross total income of more than Rs 2.5 lakh i.e. above basic exemption limit, have to file income tax returns, according to the Income Tax Act.  For senior citizens, the basic exemption limit is Rs 3 lakh, and for those who are more than 80 years old, the basic exemption limit is Rs 5 lakh.

So, NRI’s will have to file ITR’s in India if their gross total income exceeds the basic exemption limit of Rs 2,50,000.

Amendments in Budget 2019-20

The government has amended the income tax law to introduce further conditions which provides for mandatory filing of returns by individual taxpayers whose gross total income is below the exemption limit. Individuals are required to file their returns mandatorily from 2019-20 onwards for the below mentioned cases (even when their gross total income is below the exemption limit)

  1. aggregate amount deposited in current account(s) maintained with a banking company or a co-operative bank is Rs 1 crore or more
  2. has spent Rs 2 lakh or more on foreign travel for himself or any other person
  3. incurred electricity bills of Rs 1 lakh or more in a year
  4. Claimed capital gains tax exemption on investment in house etc

Accordingly, if the NRI’s taxable income is below the maximum amount not chargeable to tax in India (Rs 2.5 lakh) and they are not covered under the specified circumstances mentioned above, they are not required to file tax returns.

When is the Last Date to File Income Tax Return in India?

July 31st is the last date to file income tax return in India for NRIs. With the ongoing COVID -19 pandemic a lot of income tax due dates were extended by The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 read with Notification No. 35 /2020, dated 24-06-2020. The government announced the extension of income tax return (ITR) filing deadline for FY 2019-20 to November 30, 2020 from July 31, 2020. The tax return can be filed online on the e-filing website of the Indian tax department.

Do NRIs Have to Pay Advance Tax?

If the NRI’s tax liability exceeds Rs 10,000 in a financial year, they are required to pay advance tax. Advance tax needs to be deposited in four instalments (15% by 15 June, 45% by 15 September, 75% by 15 December, and 100% by 15 March). Interest under Section 234B and Section 234C is applicable when they do not pay advance tax.

In case a non-resident had missed filing the tax return, can the same be still filed?

The income tax department notified the taxpayers for late filing of tax returns for A.Y. 2020-21, along with a penalty of Rs 5000 (on filing the return after the due date but on or before 31st December) and Rs 10000 (on the filing of return after 31st December to 31st March). The taxpayer has to file the late filing of tax returns for A.Y. 2020-21 before 31st March anyhow.

However, penalty is applicable even if the taxpayer files the returns before 31st March. If taxpayer’s total income does not exceed Rs 5 lakh, then the maximum penalty levied for delay will not exceed Rs 1000.

Over the last few years the Indian tax authorities have taken various initiatives to simplify the tax compliances and expand the taxpayer base. Most of the tax filings, processing of income-tax returns and issue of refunds are now online and e-assessments of tax returns has also been introduced. It is therefore imperative that Indian income and/ or investments are duly reported and compliances met with by the NRI’s.

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