For the financial year of 2023, which commences from April 1, 2022 to March 31, 2023, as per regulations, NRIs also need to pay tax on income which arises in India. And while this means that business 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.
“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?
- Non-resident bank account (NRO, NRE) statements from April 1, 2022 to March 31, 2023 from all the banks
- Rental agreements for all the properties on the rent from April 1, 2022 to March 31, 2023, if any.
- Interest certificates for all the fixed deposits (FDs) and Foreign Currency Non-Resident Accounts (FCNRs) held with any bank from April 1, 2022 to March 31, 2023.
- Details of properties with address and nature held in India from April 1, 2022 to March 31, 2023.
- Have you sold any property during the year? If yes, provide the purchase and sale deed for calculation of capital gains.
- Capital gains report for sale of stock market shares and mutual funds made from April 1, 2022 to March 31, 2023, if any.
- Details of any other income or investment in India from April 1, 2022 to March 31, 2023
- Housing loan interest certificate from April 1, 2022 to March 31, 2023, if any.
- Copy of Aadhar card, if you have it and Passport copy with visa.
- Number of days of stay in India from April 1, 2022 to March 31, 2023, and previous four years.
- If you are holding shares or are the director of an unlisted company in India, 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, and 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 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.
- 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.
- 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.
- 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.
First steps for NRIs filing income tax returns (ITRs)
- 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.
- Calculate your taxable income: 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.
- 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.
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 your return saying you have an income below the exemption limit.
- 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.
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 doing so!
