Filing Income Tax Return (ITR) for NRI
If an Indian Citizen/Person of Indian Origin stays in India for a temporary period or never stays at all, yet earns money from this country, the income is considered to be NRI income. Taxability of their income that accrues or arises in India or is earned from abroad is decided based on the staying time of these individuals in India. Like any other taxpayers of India, an NRI is also liable of tax payment if the gross total income exceeds INR 2.5 lakh and file ITR Return within time. There are other criteria that are involved in the taxation of NRI income as explained below.
Residential Status of NRI
Three broad divisions are made to classify an individual’s residential status in India for income tax calculation.
Till FY 2020-21, Citizens/PIOs are called Indian ‘Resident’ when their staying time in India is:
- 60 days in a FY (Valid for Person of Indian Origin)
- More than 60 days but at most for 182 days for a FY and for 365 days in past four years before the current FY.
- 182 days (For those who stay abroad and make an income)
Note: In Budget 2020, some changes are made in staying time as:
- 120 days from 182 days for those having net income more than INR 15 lakh from India (other than any foreign income)
- Further, a ‘Resident’ citizen earning a net income more than INR 15 lakh in India is considered to be ‘Deemed Resident of India’ if he/she does not have a tax liability in any other country.
B. Resident not Ordinary Resident:
Till FY 2019-20, RNOR status was decided with either of these options:
- Being ‘Non-Resident’ for 9 out of 10 previous FYs preceding the current FY. On staying for 2 out of 10 years, the individual is classified under ‘Resident ordinarily Resident (ROR)’.
- Staying time is 729 days in total in 7 years before the current FY
In Budget 2020, some more conditions are added:
- The individual’s net income, other than income from foreign sources should be more than INR 15 lakh
- Staying time is 120 days or more (less than 182 days)
Such resident’s foreign income (income that arises/accrues outside India) is not to be taxable in India.
If the conditions of above two classifications are not fulfilled, the individual is treated as ‘Non-Resident’.
Taxable Income for NRI
Computation of Total Income of Mr.NRI
|Income From Salary||XXX|
|Income From House Property||XXX|
|Income From PGBP||XXX|
|Income From Other sources||XXX|
|Income From Capital Gain||XXX|
|Gross Total Income||XXXX|
|Less: Deduction Under Chapter VIA||XXX|
An individual, who is classified as ‘Resident’ is liable to pay tax on his/her global income. Else, if he/she is classified as ‘NRI’, he/she is liable to pay tax in India only for the income that accrues or arises in India. NRIs can earn taxable income in India from these sources:
- Income from Salary: Any salary for a service sought for India is taxable in India irrespective of where the NRI receives the income. This rule is applied for the Indian Nationals who are working abroad on a job that is controlled by Government of India or any Indian Organization.
- Income from House Property: Same conditions are applicable for NRIs as followed for the residents, including provision for standard deduction, benefits on home loans.
- Rental Payments to an NRI: It is subject to TDS payment @ 30%. A tenant should fill and submit Form 15CA as a part of NRI payment rule to the Tax Department, sometimes preceded with Form 15CB, that is Chartered Accountant’s Certificate. Form 15CB is not applicable if:
- Annual Rental Payment not more than INR 5 lakh.
- Lower TDS is deducted either attached with certificate u/s 197 or by the order of AO.
- The transaction falls under Rule 37BB of IT Act.
- Income from Other Sources: Such as, FD interests, Savings Account interests of any Indian Banks, etc.
- Income from Business and Profession
- Income from Capital Gains: Income from capital gains originated in India, such as, shares, securities, house property (subject to TDS @20% over selling price).
NRI Provisions on Special Investment Income
An NRI is allowed to earn income from the following Indian assets bought with foreign currency:
- Shares in a public/private company
- Debentures issued by a publicly-listed Indian company
- Deposits with banks and public companies
- Security of the Central Government
- Other Central Government assets for this purpose recorded in official gazette
Ordinarily, income from such investments is taxed @20%. If it is the only income of the NRI for the whole FY with TDS deduction done, the income from such investments is tax-free.
No indexation and deduction benefits are allowed u/s 80 over long term capital gain received from the sale/transfer of these assets.
Deductions and Exemptions for NRI
Allowed Deductions are:
A. Deductions u/s 80C: Maximum deduction up to INR 1.5 lakh is allowed over an NRI’s gross income. The investments on which the deduction can be claimed are:
- Life Insurance Premium Payment: Policies that are taken in the name of NRI/spouse/children (dependent/independent)
- Children’s Tuition fee Payment: Allowed for two children over the payment in any educational institute fee payment located in India
- Principal Repayment on Loan on House Property: Benefits of principal repayment u/s 80 is allowed along with claims of deduction based on stamp duty, registration charges
- Unit-linked Insurance Plan (ULIPS)
- Investment in ELSS
B. Deduction u/s 80D: NRIs (General age group/Senior Citizens) can claim deductions over Health Insurance of Premium Payments, of up to INR 25,000 (General Age Group) and INR 50,000 (Senior Citizen). They can claim the same benefits over the Insurance of their parents (General age group/Senior Citizens) of up to INR 25,000 (General Age Group parents) and INR 50,000 (Senior Citizen parents).
C. Deduction u/s 80E: NRIs can claim deductions on Education Loan for Higher Studies availed for spouse/children/for whom the NRI is guardian, with a tenure of 8 years or period of interest payment whichever is earlier. No deductions allowed on Principal Repayment.
D. Deduction u/s 80G: NRIs are allowed to claim deduction on donation for Social Cause.
E. Deduction u/s 80TTA: NRIs can claim deduction in against interest paid on Savings Bank Account of up to INR 10,000.
F. Exemption u/s 115F: Available for income from long term capital gains of Indian assets bought with foreign currency, when it is reinvested in certain recognized Indian institutions, such as, company shares, Government securities, Public Company debentures, etc.
G. Exemptions on Interest Income: It is tax-free for the interest earned on NRE Account and FCNR Account. Interest on NRO account is taxable.
H. Exemptions of Sale of Property (Long Term Capital Gains): NRIs can claim exemptions available u/s 54, 54 EC, 54F
Deductions Not Applicable for NRIs
NRIs are not eligible to take tax benefits in against of these investments:
- Investment in PPF
- Investments in NSCs
- Post Office 5-year Deposit Scheme
- Senior Citizen Savings Scheme
- Investment under Rajiv Gandhi Equity Savings Scheme (Section 80CCG)
- Deductions in against Medical Expenses, such as, Section 80DD, 80DDB (available only to Residents), 80U (available only to Residents)
How can NRIs Avoid Double Taxation?
To secure income from coming under Double Taxation, that is the situation when an NRI is taxed on the same income from his/her residing country and India, an NRI should get the relief of (Double Tax Avoidance Agreement) DTAA. NRI can opt any one of the two given relief options:
- Exemption Method: Where the NRI tax to be levied from any one of the countries
- Tax Credit Method: Where income tax is levied by both the countries, but tax credit is granted from NRI’s residence country
Frequently Asked Questions
- What is meant by Gross Total Income of NRI?
Answer: As per the provision of income source(s) allowed for NRIs, each taxable income earned during a FY is separately calculated making the deduction adjustments wherever required and then added together. This sum total of all income sources is called Gross Total Income of the NRI.
- What is the tax-free income amount available for NRIs?
Answer: Like other taxpayers of India, an NRI’s income up to INR 2.5 lakh is tax-free.
- Which ITR forms should an NRI file to declare income tax in India?
Answer: Depending on sources of income of the NRI in India, he/she has to select the ITR form as given below:
- ITR-2, General ITR form to be used by NRI to file Tax Return on Income based on salary, house property, capital gains, other sources, etc.
- ITR-3, if the income is from business/profession that accrues or arises in India. The same form is to be used, for the income under presumptive income scheme
Note: ITR-1 is only used by ‘Residents’ for filing their returns.
- Which information an NRI should declare in their ITR returns?
- Is it mandatory for an NRI to have PAN card and Aadhaar Card for ITR processing?
Answer: As per Section 139AA of IT Act of India, NRIs are NOT required to quote Aadhaar Number.
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