How to File Income Tax Returns for NRI

Picture this - You have just moved abroad from India and now working at a renowned MNC while holding an NRI status. You are now earning a decent income with a bunch of amazing perks and having the best time of your life !

But wait, what about your taxes?

Since you moved out from India, would you be completely exempt from tax now?

Well, no.

The Indian tax regime states that Non-resident Indians (NRIs) are liable to pay tax on their income accrued in India or also the income that is received or deemed to be received in India.

The income earned outside India by an NRI is not liable for taxation in India and will be taxed abroad.

Now, you might already know that filing income tax is a backbreaking task. It is as taxing as its name. And when it comes to paying taxes as an NRI, this errand feels even more arduous.

But to resolve all your queries and cloud of doubts, here is a blog on how to file income tax returns as an NRI with some simple steps.

File Income Tax Returns as an NRI: A Step-by-Step Guide

Here we have summarised the 8-step guide for filing tax returns as an NRI-

Step 1: Determine the Residential Status in India

The first step for NRIs involves determining their residential status every financial year.

As stated by the Income Tax Act 1961, an Indian citizen who leaves India for employment or a Non-resident Indian who visits India can reside for up to 181 days in India without losing his non-residential status.

Step 2: Reconciliation of Income & Taxes with Form 26AS

In the second step, you would be required to reconcile and compare the TDS offset paid on your income tax return (ITR) or input tax paid on your tax return against the TDS offset/input tax that is shown on Form 26AS.

Step 3: Ascertain Taxable Income and Determine Your Tax Liability

In this step, you would have to determine the taxable income you must pay off as an NRI. This may include capital gains from shares held in India, rent earned from house property, interest on bank accounts held in India, etc.

Note this income can be reduced by claiming the right deductions under various sections of the Income Tax Act.

Next, assess your tax liability based on the income tax slab rates applicable to individuals.

Step 4: Claim Double Taxation Treaty Relief

You can avail of a tax relief called the Double Taxation Avoidance Agreement (DTAA) if your income is held taxable in India and also in a country abroad.

Note this relief is offered based on the type of income.

Also, another point to take note of is that if your income is held taxable even under the DTAA, you would have to pay tax in India and claim the tax credit paid against the liability in your resident country as per the conditions.

Visit https://incometaxindia.gov.in/pages/international-taxation/dtaa.aspx for more information.

Step 5: Select ITR and File Details about Exempt Income

As per the income tax laws, from the financial year 2017-18, Non-resident Indians are required to file returns in ITR 2, in all cases, except for business income.

Non-resident Indians getting business income must file an income tax return in ITR 3.

Note ITR 1 is not available anymore for NRIs.

Also, determine and state the exempt income, like the LTCG earned on listed securities, interest on tax-free bonds, interest on NRE /FCNR deposits, dividends, etc.

Remember, this has no impact on tax under the Exempt Income schedule.

Visit https://incometaxindia.gov.in/Pages/non-resident-indian.aspx to learn more about income exempt from tax.

Step 6: Disclosure of Bank Account Details

All such Non-resident Indians (NRIs) claiming an income tax refund and not having a bank account in India may be required to provide one foreign bank account’s details for the issuance of a tax refund.

However, if you’re not claiming a tax refund or are claiming one but have a bank account in India, you will be discharged from providing your foreign bank account details.

Step 7: Provide Assets and Liabilities Details in ITR

Just before the final step, you would be needed to fulfil one more requirement, i.e. providing details about your assets and liabilities.

In case your total income is above Rs 50 lakh, you would be required to furnish information about your movable and immovable assets located in India. With that, you must also provide details about your liabilities in the tax returns.

Step 8: ITR Verification

In this final step, you have to upload your ITR and verify it within a span of 120 days.

In case the returns are not verified, they will be deemed invalid. It may even be assumed that the income tax returns were never filed.

Note e-verification can be done via a net banking account in India. On the other hand, a physical verification can be done by sending a duly-signed ITR V to the Income-tax CPC, Bengaluru.