How NRIs can file tax returns from the UAE

While most Indians living in the UAE may have some form of investments in India, whether through rent on property, or returns on mutual funds, it is important to check if the income is ‘taxable’, according to Jain.

“There are certain criteria that need to be met for the income to be taxable. For example, if you have interest accrued from a Non-Resident External (NRE) account, it is tax exempt. However, if you have a Non-Resident Ordinary (NRO) account, the interest accrued is part of taxable income,” Jain said.

“Similarly, there are multiple streams of income that may be taxable or tax exempt,” he added.

The 1961 Income Tax Act in India, which defines taxable income in very specific ways, also provides a ‘basic exemption limit’ for tax, which is set at Rs250,000 (Dh 11,506).

This means that any NRI who has taxable income in India amounting to over Rs250,000 has to file income tax returns.

Also, it is important to note that there are some incomes that will be taxed, even if they are lower than Rs250,000, the most common of which is income from share trading.

There are certain criteria that need to be met for the income to be taxable. For example, if you have interest accrued from a Non-Resident External (NRE) account, it is tax exempt. However, if you have a Non-Resident Ordinary (NRO) account, the interest accrued is part of taxable income. Similarly, there are multiple streams of income that may be taxable or tax exempt.

- Dixit Jain, founder of The Tax Experts, a Dubai-based tax consultancy

How much tax do I have to pay on this income?

The amount of tax you pay on the income you generate depends on two factors:

1. A slab system, which will determine the percentage of tax based on the amount of taxable income.
2. The type of income you are generating, as some incomes – like short-term or long-term share trading – are not included within the slab system and have special tax rates.

Slab system for tax rates

If you have capital gains from selling property or interest on your NRO account, you will need to pay tax on it based on a slab rate.

The slab is as follows:

Income: Rs250,000 to Rs500,000
Tax: 5%

Income: Rs500,000 to Rs1,000,000
Tax: 20%

Income: More than Rs1,000,000
Tax: 30%

In the system mentioned above, you can claim certain deductions that may apply to you.

“Within this slab system, you can get deductions for certain investments like a life insurance premium, housing loan, mutual fund, IPO (Initial Public Offering) investment or a Public Provident Fund (PPF) – which is a long-term fixed income savings scheme. If you have any of these investments in India, you can get a deduction of up to Rs150,000 as per Section 80C of the Income Tax Act of 1961,” Jain said.

Another slab option for tax payers

However, in the Indian budget for 2020, a new system was announced with a more staggered slab rate, which could benefit tax payers. You can also choose to pay your taxes as per this new slab system. But, if you do choose this option, it is important to note that you will not be able to claim any deductions for other investments you have made in India.

The new slab rate which was announced is as follows:

Income: Rs250,000 to Rs500,000
Tax: 5%

Income: Rs500,000 to Rs750,000
Tax: 10%

Income: Rs750,000 to Rs1,000,000
Tax: 15%

Income: Rs1,000,000 to Rs1,250,000
Tax: 20%

Income: Rs1,250,000 to Rs1,500,000
Tax: 25%

Income: More than Rs1,500,000
Tax: 30%

Which slab system should I choose?

“A person has to decide on which system would be more beneficial for them, where they may be getting a lower tax rate, or saving more by claiming deductions, and then decide on which slab system they want to choose,” Jain said.

This is why it is always advisable to speak with a tax consultant or chartered accountant to get assistance on filing your tax returns, to ensure you do not over-report or under-report your earnings, according to Jain.

Special tax rate

For individuals who have invested their money in the stock market, any capital gain they get from selling stocks becomes a part of taxable income, even if it is below the limit of Rs250,000.

“For tax on this income, no slab rate is involved. The capital gains are taxed as and when you make the income. If you sell a share for Rs100, even if it is in less than a year, which would be considered a short-term income, you will have to pay tax on it, even though it is not up to Rs250,000,” Jain said.

The tax rate for short-term and long-term capital gain will be different depending on the kind of capital asset. So, the tax rate is different for sale of property, sale of shares and so on.

How can I file taxes from the UAE?

Once you have understood how much tax you have to pay, there are two steps to keep in mind when filing taxes:

1. File your tax returns.
2. eVerify the tax return.

When it comes to filing your tax returns, the first thing to note is that India’s Income Tax (IT) department has now introduced two digital systems – AIS (Annual Information Statement) and TIS (Taxpayer Information Statement), which can be used by Indians to keep track of their investments and earnings.

“Oftentimes, people make investments but they don’t really remember all the details. The AIS and TIS systems are linked to the PAN (Permanent Account Number) card, so whenever you complete a transaction, it gets noted in the tax record,” Jain said.

In order to start filing your taxes, follow these steps:

- Visit https://eportal.incometax.gov.in/iec/foservices/#/pre-login/register
- Register as a ‘taxpayer’ by entering your PAN card, contact number and email address. You will also be asked to set a password.
- Once you have registered as a new user, log in using your account details.
- On your Dashboard, click e-File, then ‘Income Tax Returns’ and then ‘File Income Tax Return’.
- Select Assessment Year and click ‘Continue’.
- Select ‘Mode of Filing’ as ‘Online’ and click ‘Proceed’.
- Select ‘Status’ as ‘individual’, if you are filing taxes for your personal income and investments.

- You have two options to select the type of Income Tax Return (ITR), according to the official IT tax return website - www.incometax.gov.in. If you are not sure which ITR to file, you may select ‘Help me decide which ITR Form to file’ and click ‘Proceed’. Once the system helps you determine the correct ITR, you can proceed with filing your ITR.
If you are sure which ITR to file, select ‘I know which ITR Form I need to file’. Select the applicable Income Tax Return from the dropdown and click ‘Proceed with ITR’.
- The system will then provide you with a list of documents that you need to keep ready, that will be required to complete the process. Once you have ensured that you have the documents needed, click ‘Let’s get started’.
- Next, enter the details of the income you are paying the taxes for. With the system being centralised, much of the data will be pre-filled for you, which you can update as required.
- Enter your income and deduction details in the different sections. After completing and confirming all the sections of the form, click ‘Proceed’.
- You will be shown a summary of your tax computation based on the details provided by you. If there is tax liability payable based on the computation, you get the ‘Pay Now’ and ‘Pay Later’ options at the bottom of the page. The IT website advises applicants to choose the ‘Pay Now’ option, as opting for the ‘Pay Later’ option, which allows you to make the payment after filing your Income Tax Return, can lead to the risk of being considered as a defaulter, with a liability of paying interest on the payable tax.
- After paying tax, click ‘Preview Return’. If there is no tax liability payable, or if there is a refund based on tax computation, you will be taken to the ‘Preview and Submit Your Return’ page.
- On the Preview and Submit Your Return page, enter Place, select the declaration checkbox and click Proceed to Validation.
- Once validated, on your’ Preview and Submit your Return’ page, click ‘Proceed to Verification’.

‘Proceed to verification’ is the second step that you need to complete when filing your tax returns.

eVerify your Tax returns

Once you have filed your tax returns, you need to then eVerify the return, as well. This can be done through multiple options.

1. Net banking
2. Adhar card 
3. Digital signature in India. A digital signature or eSignature can be used in India to complete various government tasks.
4. Demat account or bank account.

“If you do not have any of these options available to you, you can also send the Income Tax Return Verification (ITRV) acknowledgement physically, through post,” Jain said.

The documents for ITRV can be downloaded from the IT portal. Once you fill them out, you can visit a post office and send the ITRV to the Income Tax Department Centralised Processing Centre (CPC) in Bengaluru. The complete address is also provided on the website.

Should I file ‘zero tax return’?

If you do not have earnings over the required limit for filing taxes, should you still file a ‘zero tax return’? According to Jain, it is not a bad practice to do it, as the process is easy and having a running file with the IT department can be helpful when expatriates relocate back to India.

“Whenever you go back to India for good, the IT department will have details of your earnings and know that you have been an NRI for so many years, so your records will be updated with the tax department. It is also easier to get housing loans, as banks ask you for your tax details. I would highly recommend everyone to file tax returns, even if you have incurred losses in a particular year on your investments. The losses from one year can be carried forward to the next, if they are on your record, to offset any profits in the future on which you may have to pay taxes,” he said.