NRIs: Are you filing income tax returns of 2023 in India? Know this!

Dubai: For Non-Resident Indians (NRIs) paying tax on any income earned in India, it’s that time in the year again to check whether you fall in the category of mandatorily filing for monetary returns on the income taxes you paid the Indian government this past year, and see if you are eligible for them.

For the financial year of 2023, which commences from April 1, 2023 to March 31, 2024, as per regulations, NRIs also need to pay tax on income which arises in India. And while this means that income tax filing is not mandatory for all NRIs, it is widely recommended by tax advisors to do so.

“The filing of Income Tax Returns (ITRs) have become almost mandatory as we now see the government sending notices to many NRIs for not filing,” said Dixit Jain, managing director at The Tax Experts DMCC, a Dubai-based tax advisory.

(What are Income Tax Returns (ITRs)? Income Tax Return or ITR is a form used to show your taxable income for the given fiscal year. The form is used by taxpayers to formally declare their income, deductions claimed, exemptions and taxes paid.)

“This is why we highly recommend to utilise this year and start filing returns if not filing already. In case you wish to file for the year ended 2022-23, please arrange for following documents in the last financial year and prepare the return for filing purposes,” Jain added.

What documents do you need to file your ITRs for 2023-2024?

1. Non-resident bank account (NRO, NRE, explained below) statements from April 1, 2023 to March 31, 2024 from all the banks

2. Rental agreements for all the properties on the rent from April 1, 2023 to March 31, 2024, if any.

3. Interest certificates for all the fixed deposits (FDs) and Foreign Currency Non-Resident Accounts (FCNRs) held with any bank from April 1, 2023 to March 31, 2024.

4. Details of properties with address and nature held in India from April 1, 2023 to March 31, 2024.

5. Have you sold any property during the year? If yes, provide the purchase and sale deed for calculation of capital gains (i.e. profit earned on the sale of property which has increased in value over the holding period).

6. Capital gains report for sale of stock market shares and mutual funds made from April 1, 2023 to March 31, 2024, if any.

7. Details of any other income or investment in India from April 1, 2023 to March 31, 2024

8. Housing loan interest certificate from April 1, 2023 to March 31, 2024, if any.

9. Copy of Aadhar card, if you have it and Passport copy with visa.

10. Number of days of stay in India from April 1, 2023 to March 31, 2024, and previous four years.

11. In case you are holding shares or are the director of an unlisted company in India, please provide information about the investment in unlisted shares and the movement in such investment throughout the year.

Commonly mistaken myth on ITRs among NRIs

Recent studies revealed investment pattern among NRIs, wherein only 2 per cent of the respondents have never invested in India. Out of those who invested in India, 87 per cent had invested in real estate, 39 per cent in equities or mutual funds.

Almost half of the NRIs (48 per cent), who had not filed the ITR, mistakenly believed that tax (TDS or Tax Deducted at Source, which is tax deducted at source of income before paying the balance to the payee), which was deducted on investments or income generated in India was same as tax paid.

This is commonly mistaken among NRIs, tax experts agree, as the reason why many think they are not required to file tax returns in India. Moreover, around 90 per cent of the study respondents who had their tax deducted but did not file taxes, could have easily got most of their claimed tax back.

What types of NRI incomes are taxable in India?

Tax on an individual's income depends on the source of such income and the residential status in India. The residential status of an Indian citizen needs to be determined individually for every financial year, which may vary from year to year.

Here are the incomes that are liable to tax in India.

Salary income: Income from salary received in India or income for services rendered in India shall be subject to Indian tax laws. Hence if an NRI receives a salary towards services rendered in India, the income shall become taxable irrespective of the place of receipt. The rate of tax will be as per the slab rate applicable in the particular financial year.

In case the government of India remits any salary or income to a citizen of India towards services rendered outside India, it will still be considered as income accrued in India and will be chargeable to tax even if the status of the individual is 'non-resident' as per residency rules.

House property income: Rental income from the house located in India is taxable for an NRI owner of the house property. The determination of the taxable house property income shall be in similar lines as the resident.

The benefit of standard deduction of 30 per cent, deduction of property tax paid, and interest on a home loan is also allowed to the NRI.

Section 80C deduction for principal repayment, stamp duty and registration charges paid on the purchase can also be claimed. House property income will also be taxable at individual slab rates applicable.

Here it is to be noted that the person making rental payment to an NRI is responsible for tax (TDS) deduction at 30 per cent under Section 195. Also, the tenant is required to fill the form 15CA and submit it online to the income tax department.

Income from other sources: Other sources of income like interest received in saving account and fixed deposits held in Indian banks shall be taxable in the hands of NRI.

Interest on NRE and FCNR account is not liable for tax in India. However, interest earned in the NRO account is fully taxable. NRO account is opened in the name of NRI to manage income earned in India.

Income from business or profession: Any income earned by a Non-resident Indian from a business set up or controlled in India will be considered income accrued and therefore taxable in India.

Capital gains income: Capital assets like house property, shares and securities, gold etc. which are of Indian origin, shall be taxable in India. If an NRI transfers any capital asset situated in India, he shall be liable to pay capital gain tax; the rules are the same as a resident.

If NRI sells a house property having more than 2 years of holding period, then the buyer is responsible for deducting tax (TDS) at the rate of 20 per cent, and if the holding period is less than 2 years, then the TDS deducted will be at 30 per cent. However, NRI can claim capital gains exemption under Section 54 by investing in house property or under section 54EC by investing in capital gain bonds.

In the case of capital gains arising on the sale of listed Indian stock and securities, the taxation rules are also the same for NRIs as for resident Indians. If the holding is more than 12 months, it will be considered long term capital gains taxable at 10 per cent exceeding INR100,000 (Dh9,990) gains; for a holding period of less than 12 months, 15 per cent tax will be payable.

For debt mutual funds, the holding will be considered to be 36 months for treatment as long term capital gains and taxed at 20 per cent after indexation whereas gains with less than 36 months of holding period will be taxed as short term capital gains at individual slab rate applicable.

NRIs cannot adjust their capital gains income from the basic exemption limit of INR250,000 (Dh12,488), as can be done by the resident citizens for tax purposes.

First steps for NRIs filing income tax returns (ITRs)

We will next look at steps on how to file income tax return for NRI.

1. Determine your residential status

The first step is to be sure of your residential status. This has to be determined with respect to a financial year. However, it is slightly complex if you have moved abroad recently. The same thing happens if you have just moved back to India.

The residential status is determined under section 6 of the Income Tax Act 1961. The number of days you reside in India is important. An NRI needs to stay outside India for 182 days or more. Otherwise, one is a resident.

2. Calculate your taxable income

How NRI can file income tax return? You must calculate your taxable income. We need to understand the meaning of total gross income. It refers to total income before tax deductions.

Does your total gross income exceed INR250,000 (Dh12,488)? In that case, you have to pay taxes in India. This income could be from several sources. It could be in the form of your salary. It could be capital gains on the sale of shares and mutual funds.

Interest from deposits in NRO accounts and rental income is also a part of the bracket. However, NRIs can claim benefits under tax treaties. NRIs can also claim refunds if tax is deducted on their income.

However, for both of the above, it is mandatory to file returns. The gross income is not relevant. NRIs can also claim deduction up to INR150,000 (Dh7493.17) under section 80c of the Income Tax Act.

However, they cannot invest in certain instruments such as the Public Provident Fund (PFF). If your income in India exceeds INR5 million (Dh249,772), you are required to report your assets and liabilities in India.

3. Claim double taxation treaty benefit and verify returns

To understand how to file income tax return for NRI better, let us now look at the Double Tax Avoidance Agreement (DTAA).

DTAA enables an NRI to avoid paying tax twice on the same income. As per DTAA, an income may either be exempted from tax deduction in one country or taxed at a lower rate in the home country.

Let us say you have already paid tax in India. You can then get a tax credit in the country of residence. The credit is available on the tax paid on the same income.

Once you have filed income tax returns, you need to verify them within 120 days. Otherwise, they are not valid. We have seen the steps of how to file tax return for NRI.

Bottom line: File your ITR early! Know these key benefits of filing return on time

According to Jain, here are some of the benefits of filing returns on time:

• Claiming refund: There could be a possibility that there has been tax deducted at source (TDS) on some investment made in the name of the individual. If TDS has been cut, one will have to file the ITR to claim the refund. Further it will reduce chances of receiving tax notices.

• Processing of documents: While applying for loans, the eligibility and quantum of loan would depend on one's income, which can be established through filed ITRs. Income tax return gives you a detailed picture of your total income earned during a year and taxes paid on it. Moreover, these documents are accepted by various agencies for easier loan and visa processing.

• Carry-forward of losses: There are possibilities that you may have incurred losses for a year. Income tax rules allows carry-forward losses to set them off against capital gains only to those who file ITR in the relevant assessment year. In such a scenario, you cannot stay away from filing of your return saying you have an income below the exemption limit. In fact, you must ideally file your return so that you can carry forward the losses you have incurred to set it off against.

• Establishing income proof in accident-related compensation cases: Although, Indian norms do not make it compulsory to provide the ITR while applying for compensation in case of accidental death or disability, procedures approved by Delhi High Court mentions the need for ITR in case of self-employed persons. There are many more benefits of filing, which you can avail by timely filing of returns.

Remember, the due date to file the return in time is July 31, 2024. So file your ITRs early if you fall under the above eligibility criteria! This will help you stay clear of financial headaches like getting tax notices or any relating penalties for avoiding to do so!