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How to File Income Tax Returns for NRI in India in Simple Steps

Non-Resident Indian income tax* return filing can be daunting, but it's a necessary financial responsibility. This guide takes you through the NRI income tax e-filing process - from determining your residential status, claiming deductions and exemptions and paying any tax due. 

Filing income tax* returns is a crucial financial responsibility for Indians, and this applies not only to residents of the country but also to Non-Resident Indians (NRIs) who generate income in India.

NRIs have specific rules and procedures to follow when filing their income tax returns. In this comprehensive guide, we will walk you through the process of filing income tax returns or ITRs for NRIs in simple steps.

Steps to File Non-Resident Indians Income Tax Returns in India

Let us look at a step-by-step process on how to file income tax returns for NRIs in India:

Section 1: Determining Residential Status

The first step in income tax e-filing for NRIs is determining the residential status. This status is crucial as it affects your tax liability and dictates the taxable income in India.
 

As per the Income Tax Act of 1961, there are three main categories:
 

  • Resident: If you have stayed in India for at least 182 days or more during the financial year, you are considered a resident for tax purposes.
  • Non-Resident (NRI): If your stay in India is less than 182 days during the financial year, you are categorised as an NRI.
  • Resident but Not Ordinarily Resident (RNOR): An individual who is not a resident in the last nine out of ten financial years and has stayed in India for less than 729 days in the past seven financial years falls under this category.

Section 2: Types of Income Taxable for NRIs

As an NRI, you are liable to pay tax on specific types of income generated in India. These include:
 

  • Income from Salary: If you have worked in India during the financial year, any salary earned here is taxable.
  • Income from House Property: Rental income from properties in India is subject to tax.
  • Income from Capital Gains: Profits from the sale of assets like property, shares, or mutual funds2 are taxable.
  • Interest Income: Interest earned from bank deposits, fixed deposits, or bonds is also taxable.
  • Business Income: If you have a business in India, the income generated is taxable.
     

It is essential to report and calculate the tax on these income sources correctly.

Section 3: Documents Required for NRI Tax Filing

Before you begin the tax filing process, gather the necessary documents, which typically include:
 

  • PAN Card: Your PAN is essential for tax filing.
  • Passport: This helps determine your citizenship status.
  • Form 16: If you have worked in India, your employer should provide you with Form 16, which details your income and TDS deductions.
  • Bank Account Details: Tax refund, if any, is credited to the bank account held in India.
  • Bank Statements: Copies of bank statements for the financial year to track interest income.
  • Property Documents: If you own property in India, keep documents related to it.
  • Rent Receipts: If you have rented out your property in India, you need to possess the rent receipts.
  • Investment Statements: Statements of investments made in India, such as mutual funds or stocks.
  • Tax Paid Details: Proof of any taxes paid during the financial year.
  • Foreign Income Details: Documentation related to income earned outside India, such as interest earned in foreign bank accounts, investments made outside India, etc.
  • Other Details: You may be asked to provide specific details, based on your unique circumstances, such as the Tax Deducted at Source (TDS) certificate, agricultural income details, etc.
     

Having these documents ready will streamline the filing process.

Section 4: Filing the ITR for NRIs

Once you have determined your residential status and gathered the required documents, you can proceed with filing your tax return. Here are the steps involved:
 

  • Online or Offline: You can proceed with income tax e-filing online through the Income Tax Department's official website or seek assistance from a tax consultant.
    Note: Tax consultants and experts will also file your tax returns online on the Income Tax Department’s website.
  • Choose the Correct Form: ITR forms for NRIs differ based on their income sources. ITR-2 is applicable for all types of income except business income. For business income, NRIs can use ITR-3.
    Note: ITR-1 has been discontinued for NRIs.
  • Fill in the Details: Provide accurate information regarding your income, deductions and taxes paid. Double-check all the details before submitting.
  • Claim Deductions: NRIs can claim deductions under sections like 80C, 80D, and 80G, similar to residents.
    Note: You can check the list of applicable deductions for NRIs on the Income Tax Website.
  • Mention the Exempt Income: Certain incomes and gains, such as LTCG from the sale of house property/listed securities, interest on FCNR or NRE accounts, etc., are exempt from taxation for NRIs.
    Note:
    You can check the list of tax-exempt incomes for NRIs on the Income Tax Website.
  • Check and Include Income and Taxes with Form 26AS: Form 26AS provides details of the taxes deducted at source (TDS) and other income sources.
    Note: Verify that the income and TDS details in your return match those in Form 26AS to avoid discrepancies.
  • Claim Double Taxation Treaty Relief, if any: If your income is taxable both in India and your home country, you may be eligible for relief under the Double Taxation Avoidance Agreement (DTAA) between the two countries. File the necessary forms to claim this relief and avoid double taxation.
    Note: You can gather more information about DTAA on the Income Tax website.
  • Finalise the Tax Liability: You will have to pay taxes if your tax liability is more than any Tax Deducted at Source (TDS) or taxes paid. The applicable tax amount is calculated based on the various tax slabs determined by the Government.
    Note: Here is a table of tax slabs under old and new tax regimes applicable for NRIs.
  • Online Tax Payment: You can pay any applicable tax online through various payment modes, such as internet banking, credit or debit cards, etc.
    Note: A challan with a unique number is generated after online payment. Keep it safe as proof of payment.
  • Verify and Submit: Verify your income tax e-filing return using your Aadhaar OTP or Electronic Verification Code (EVC) and submit it.
    Note: If the returns are not verified, your filing can be deemed invalid. If the electronic or online method does not work, you can opt for offline verification by sending a duly signed hard copy of ITR-V to the Central Processing Centre (CPC), Income Tax Department, Bengaluru, India.
  • Acknowledge Receipt: After submission, you will receive an acknowledgement receipt. Keep this for future reference.
     

Section 5: Deadline and Penalties

It's crucial to file your tax return within the stipulated deadlines to avoid penalties. For NRIs, the deadline is typically the same as for residents, which is July 31st of the assessment year.
 

Penalties for late filing or non-filing of tax returns can include interest charges and even prosecution in some cases. Therefore, it's essential to adhere to the deadlines.

Tax Deductions and Exemptions for Non-Resident Indian Income Tax Return

The below table lists some popular tax deductions and exemptions for NRIs in India.

Tax Benefit

Description

Applicable Section(s)

Conditions and Limitations

Exemptions

Basic Exemption

NRIs are allowed a basic exemption limit on their taxable income.

Section 5 and 10(14)

The basic exemption limit for NRIs is the same as for resident individuals.

Income from Foreign Sources

Income earned outside India is generally exempt from Indian taxation.

Section 5(1)

Income must genuinely arise from foreign sources and not be deemed as Indian income.

Long Term Capital Gains Tax (Property)

NRIs can claim an LTCG tax on the sale of house property in India

Section 54

The total exemption amount is limited to the actual capital gain from the sale.

Long Term Capital Gains Tax (Any capital asset except house property)

As per Budget 2023, the capital gains from the sale of capital assets can be tax-exempt if the profits are used to buy a residential property.

Section 54F

This exemption limit is ₹10 crores.

Reinvesting capital gains in specific bonds

NRIs can claim this exemption for LTCG on the sale of house property if the gains are used to buy specific bonds.

Section 54EC

NRIs can invest up to ₹50 lakhs in bonds of Rural Electrification Company (REC) and National Highway Authority of India (NHAI) within 6 months of property sale.

Foreign Income Tax Credit

NRIs can claim a foreign tax credit for taxes paid abroad to avoid double taxation.

Sections 90 and 91

The taxpayer must furnish evidence of foreign taxes paid.

Interest Income

The interest earned on NRE and FCNR accounts is exempt from taxation.

-

This exemption is applicable as long as the individual holds the NRI or RNOR status.

The interest income from an FCNR account may be taxable in the country of residence, as per applicable laws.

Deductions

Deductions for certain savings schemes

NRIs can claim deductions for investments in certain plans, such as ULIPs^, ELSS, life insurance premiums

Section 80C

The total deduction permissible under this section is ₹1.5 lakhs.

Deduction for Health Insurance

Deduction for premiums paid for health insurance policies for self and family.

Section 80D

A total deduction of ₹25,000 is allowed under this section.

Deduction for Education Loan

Deduction for interest paid on loans taken for higher education.

Section 80E

The deduction is available for a maximum of 8 years or until the interest is paid, whichever is earlier.

Deduction for Donations

Deduction for donations made to eligible charitable institutions.

Section 80G

The deduction amount varies based on the type of donation and eligible institutions.

Deduction for Interest Income

Deduction for interest earned on a Non-Resident Ordinary (NRO) savings account operating in an Indian bank.

Section 80TTA

The deduction is allowed up to ₹10,000.


You can find the
complete list of NRI deductions and exemptions on the Income Tax Department’s website.

Conclusion

Non-Resident Indians’ income tax return filing may seem complex, but by following these simple steps, you can fulfil your tax obligations efficiently.

Remember to determine your residential status, understand the types of taxable income, gather the required documents, choose the correct ITR form for NRIs and file your return accurately. Pay any outstanding tax liability promptly to avoid penalties.

With proper planning and adherence to the tax laws, NRIs can ensure compliance with Indian tax regulations while managing their finances effectively.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

Do NRIs need to file ITR in India?

Yes, it is mandatory to file ITRs for NRIs in India if their total income in India exceeds the basic exemption limit. However, specific rules apply based on their income sources and residential status.

Can NRIs claim deductions on their income tax returns?

Yes, NRIs can claim deductions under various sections of the Income Tax Act, such as Section 80C, 80D, and 80G, for investments, insurance premiums, and charitable donations, respectively.

How can NRIs claim a foreign tax credit for taxes paid abroad?

NRIs can claim a foreign tax credit by providing evidence of taxes paid abroad when filing their Indian tax returns. This helps avoid double taxation on the same income.

What are the consequences of not filing income tax returns as an NRI?

Not filing income tax returns when required can lead to penalties, interest charges and legal consequences. It's essential for NRIs to comply with tax regulations to avoid such issues.

When should NRIs file an income tax return?

NRIs should file their income tax return in India if their total income for the financial year exceeds the basic exemption limit. The due date for filing typically falls on July 31st, but it's crucial to check the current year's deadline as it may vary.

Do NRIs declare foreign income in ITR?

Yes, NRIs must declare their foreign income in their Non-Resident Indian’s income tax returns if they are classified as Residents or Ordinary Residents in India. However, if they are classified as Non-Resident or Not Ordinarily Resident, only income earned or received in India needs to be declared.

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to the Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions, please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication. However, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
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