INCOME TAX FOR NRI

An Indian citizen or anyone of Indian descent who does not fit the requirements to be regarded as a resident of India for tax purposes is known as a non-resident Indian (NRI). The Income Tax Act of 1961 states that you are deemed a resident of India if you spend more than 182 days there in a fiscal year, or 60 days this year and 365 days in the four years prior. You are considered an NRI otherwise.

For NRIs, it’s important to understand income tax for NRIs, including NRI tax filing requirements. You need to know how to file an income tax return in India for NRI if you earn income in India. This includes understanding capital gain tax on sale of property for NRI and the tax rate for foreign income, as NRIs are taxed on their Indian income and may benefit from exemptions on foreign income.

METHODS FOR DETERMINING YOUR TAXABLE RESIDENTIAL STATUS IN INDIA

Understanding your residential status is the first and most crucial step in calculating your income tax for NRI (Non-Resident Indian). Your tax obligations in India depend on whether you qualify as a resident or non-resident for a particular financial year.

In a fiscal year, you are deemed to be a resident of India under Indian tax regulations if:

1. You are physically present in India for 182 days or more during the financial year, OR
2. You spent 60 days or more in India during the relevant fiscal year, and you spent 365 days or more in India during the four years prior.

However, special provisions apply to:

• Indian citizens working abroad,
• Crew members of Indian ships, and
• PIOs, or persons of Indian origin, traveling to India.

Only the first criterion is applicable in these circumstances. This implies that you will only be considered a resident if you spend 182 days or more in India during the fiscal year.

Important Exception: If you are an Indian citizen or PIO visiting India and your total income, excluding income from foreign sources, exceeds Rs. 15 lakhs, then the threshold of 60 days (in the second condition) gets extended to 120 days. This has direct implications for NRI tax filing and the determination of your tax rate for foreign income.

WHY YOUR RESIDENTIAL STATUS MATTERS

Your residential status affects:

• Your eligibility to submit an Indian tax return
• The taxability of global income
• How the capital gains tax on the sale of property for an NRI is applied
• The applicable tax rate for foreign income

WHAT IT MEANS FOR NRIS TO BE RESIDENT BUT NOT ORDINARILY RESIDENT (RNOR)

Knowing the RNOR (Resident but Not Ordinarily Resident) classification is essential when handling NRI income tax. Your income is taxed differently in India under this unique category, particularly if you are changing from non-resident to resident status.

If either of the following applies to you, you are considered an RNOR:

1. For nine of the ten fiscal years before the relevant fiscal year, you were not a resident of India, OR
2. You spent no more than 729 days in India over the seven years before the relevant fiscal year.

FILING TAXES AS RNOR

If you’re classified as an RNOR, you still need to complete NRI tax filing if you have taxable income in India. Knowing how to file an income tax return in India for NRI is essential to remain compliant and avoid penalties.

HOW AN NRI CAN FILE AN INDIAN INCOME TAX RETURN

Filing your income tax return in India for an NRI involves the following steps:

Step 1: Determine Your Residential Status

The first step is to determine whether you qualify as a Resident, Non-Resident, or Resident but Not Ordinarily Resident (RNOR) based on the number of days you’ve stayed in India during the year.

Step 2: Gather Required Documents

Get all the paperwork you’ll need to file your taxes, including:

• Form 16 (if you receive a salary)
• Bank statements
• Details of property or capital gains
• Proof of foreign income (if applicable)
• Any other income received in India

Step 3: Fill Out the Tax Return

Log in to the Income Tax e-filing portal and fill out the relevant tax return forms based on your income type (ITR-1, ITR-2, etc.).

Step 4: Submit the Return

After filling out the form, submit it online and keep a record of the acknowledgment receipt.

Step 5: Pay Taxes (if applicable)

If you owe taxes, make the necessary payment through the e-filing portal. Ensure you pay before the due date to avoid penalties and interest.

CAPITAL GAIN TAX ON SALE OF PROPERTY FOR NRI

One of the major concerns for NRIs is the capital gain tax on the sale of property for NRIs. In India, you may be required to pay capital gains tax on the proceeds from the sale of real estate. The property’s holding time determines the tax treatment:

Short-Term Capital Gains (STCG): If the property is sold within 2 years of purchase, it is considered short-term, and the gains are taxed at 30% (plus applicable surcharge and cess).

Long-Term Capital Gains (LTCG): If the property is sold after 2 years of purchase, it is considered long-term, and the gains are taxed at 20% with indexation benefits (which help reduce the taxable gain).

For NRIs, tax is deducted at source (TDS) at 20% on long-term capital gains. You may be able to claim a refund if your tax liability is less than the TDS amount through the income tax return.

TAX RATE FOR FOREIGN INCOME

Tax rate for foreign income is one of the main issues that NRIs are worried about. NRIs are solely subject to taxes on income received within India, following the country’s tax regulations. NRIs typically do not have to pay taxes on foreign income, or money originating from sources outside of India, with the exception of the following circumstances:

• Resident but Not Ordinarily Resident (RNOR): If you qualify as an RNOR, you may be taxed on certain foreign income.
• Indian Income: While foreign income is typically not taxed, any income generated within India, such as rental income from property, dividends, or interest earned in Indian banks, will still be subject to Indian tax laws.

TAXATION ON FOREIGN INCOME IN THE CONTEXT OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA)

To avoid taxing the same revenue twice, India has ratified Double Taxation Avoidance Agreements (DTAA) with several nations. You might be able to get relief on your foreign income and avoid paying taxes twice if you reside in a nation with which India has a DTAA.

CONCLUSION

Understanding income tax for NRIs is essential for managing your financial obligations in India. Whether it’s dealing with NRI tax filing, understanding capital gain tax on sale of property for NRI, or determining the tax rate for foreign income, it’s important to stay informed about your rights and responsibilities. Always ensure that you file your tax returns on time and consult with a tax professional if needed to navigate the complexities of NRI taxation effectively.

If you have specific questions or need help with filing your income tax return in India for NRI, feel free to reach out for personalized guidance.