How to File Income Tax Returns for NRI

28 September 2023
7 min read
How to File Income Tax Returns for NRI
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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-

Steps

Details

Step 1

Determine the Residential Status in India

Step 2

Reconciliation of Income & Taxes with Form 26AS

Step 3

Ascertain Taxable Income and Determine Your Tax Liability

Step 4

Claim Double Taxation Treaty Relief

Step 5

Select ITR and File Details about Exempt Income

Step 6

Disclosure of Bank Account Details

Step 7

Provide Assets and Liabilities Details in ITR

Step 8

ITR Verification

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.

As per the Income Tax Act, 1961, an individual will be treated as a Resident in India in any previous year if he/she satisfies any of the following conditions-

  • If he/she is in India for a period of 182 days or more during the previous year or
  • If he/she is in India for a period of 60 days or more during the previous year and 365 days or more during the 4 years immediately preceding the previous year.

Note - An individual who does not satisfy the abovementioned conditions will be treated as Non-Resident in that previous year.

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.

Taxable Income for NRIs

Following are the incomes that fall under the taxable bracket for NRIs-

- Income from Capital Gains

Any income earned by transferring capital assets located in India stands liable to be taxed.

- Income from Salary

NRIs’ Salary is taxable mainly under 2 cases-

  • Case 1: If a Non-resident Indian gets a salary in India into an Indian bank account directly, it will be taxed according to the income tax rules applicable for NRI. This condition will be applicable in one more situation when someone else gets the income on that NRI’s behalf.  

  • Case 2: If an NRI gets a salary for services provided in India, this income will be taxed in India.

- Income from House Property

In the case of NRIs, any income from property that is located in India stands liable for taxation. Although NRIs can avail of certain benefits such as deduction on property tax, standard deduction of 30%, interest deduction in case of home loan, etc.

- Income from Other Sources

Income earned, such as interest on FD and savings account, sourced in India, and are liable for taxation.

Income Tax Exemptions and Deductions for NRIs in India

Here are some of the major exemptions and deductions one must note while filing an income tax return for NRI-

Income Tax Exemptions for NRIs

Income Tax Deductions for NRIs

NRIs can claim exemptions under Section 54 on LTCG from the sale of house property in India. However, the exemption will be limited to the total capital gain on the sale. 



Section 80C: NRIs can claim a deduction under this section for investments made in ULIPs, ELSS, and on payment of life insurance policy premiums, payment of tuition fees for children, etc.

LTCG from listed equity shares and equity mutual funds

Section 80TTA: A deduction of Rs 10,000 on interest earned on an NRO savings bank account can be availed in this section.

Exemption under Section 54F is available when there is an LTCG on the sale of any capital asset other than a residential house property.

Section 80G: A deduction on donations made to social services can be claimed.

Interest generated from NRE/FCNR accounts

Section 80E: A deduction can be claimed on interest on an education loan.

Tax can be saved on your LTCG by investing in certain specified bonds. Note, bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) have currently been specified for this purpose.

Section 80D: NRIs can claim a deduction for the premium paid for health insurance.

The Takeaway

Whether you are an Indian resident or an NRI, fulfilling your tax obligations on time is a must. It may cost you a fortune if done otherwise.

Therefore, make sure to pay off your tax liabilities as an NRI and do not miss out on claiming your tax deductions too.

We hope the above summed-up information was helpful in understanding the applicable taxation regulations while holding an NRI status.

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