Filing income tax returns is an important responsibility for all citizens, including Non-Resident Indians (NRIs). NRIs are liable to pay income tax in India if their income from sources in India exceeds the basic exemption limit of Rs 2.5 lakh. However, many NRIs are unaware of the rules and procedures for filing income tax returns in India and end up paying more tax than they should or missing the deadlines.

There are various processes involved in submitting income tax returns for NRIs in India. These involve getting a Permanent Account Number (PAN) card, signing up on the Income Tax Department website, compiling the required paperwork, figuring out your taxable income, selecting a tax filing portal, completing the proper ITR form, and then verifying and submitting it. 

While not focusing on the obvious perquisites, such as getting PAN card or compiling required paperwork, this write-up will particularly explain the ins and outs of filing income tax returns for NRIs with the intent to help them avoid common mistakes and penalties.

Read more: Crypto Tax India: The Ultimate Guide

Finding Residential Status

As stated in the Income Tax Act of 1961 (IT Act), a person is an NRI if they are an Indian citizen or someone of Indian ancestry but are NOT residents of India. Hence, the first step for us to consider would be finding residency status for tax purpose. 

To determine the residential status, the number of days a person has resided in India during a financial year (FY) and the four FYs before it is the determining factor. 

If a person meets one of the following criteria, they are considered to be residents of India: 

• They have spent at least 182 days in India within a FY; or 
• They have spent at least 60 days in India during a FY and at least 365 days throughout the four prior FYs.

The second criteria is eased to 182 days instead of 60 days for NRIs who are Indian nationals or people of Indian ancestry. NRIs who go to India for fewer than 182 days in a FY are therefore not considered residents of India. Any foreign income will not be taxed in India for NRIs.

Determining Taxable Income

The next step for NRIs would be to determine their taxable income. A taxable income includes income from salary, house property, capital gains, business or profession, and other sources that has been received or accrued in India. Additionally, even NRIs can claim certain deductions and exemptions from their taxable income. For example most of the deductions under Section 80 (such as under 80C, 80D, 80G, etc.) of the Act are also available to NRIs. 

Read more: Common Income Tax Deductions

Filing Income Tax Returns 

The next step would be filing the Income Tax Returns (ITR). Using the Income Tax Department's e-filing site (https://www.incometaxindiaefiling.gov.in), NRIs may simply submit their returns online. Under Section 139 if the Act, NRIs must submit their returns by July 31 of the assessment year (AY), which is the year after the FY. For the FY 2022–23, for instance, the AY is 2023–24, and the deadline is July 31, 2023. 

Depending on their sources of income, NRIs can choose from a variety of ITR forms. For instance, NRIs must use the Return Form ITR-1 to submit their return if their total income is less than Rs 50 lakh and comes from salary, one house property, and other sources (except lottery winnings and racing horses). On the other hand, an NRIs must use the Form ITR-3 if they have income that falls under the heading Profits and Gains from Business or Profession.

Verification

The final step after furnishing the tax return will be verifying the tax returns as the return will be regarded as invalid if it is not verified within the allotted period. The return can be verified using any viable method available. For instance, verification approach such as e-Verification is often preferred by NRIs as the same is known to be a swift and convenient means for verification.

Conclusion

It is critical for NRIs to understand how their residency status impacts their tax obligations. For instance, money earned even outside of India becomes taxable if an NRI's residential status changes from NRI or RNOR (Resident but Not-Ordinary Resident) to ROR (Resident and Ordinarily Resident).

In conclusion, NRIs in India have a significant obligation to file income tax returns. NRIs must make sure they pay their taxes on time and correctly by learning the laws and norms governing NRI taxation and according to the actions indicated above.

Further, if you are an NRI, you should carefully analyse your filing obligations and utilise any relevant exemptions and deductions. The guidelines for a tax audit should also be known to you. Understanding your tax responsibilities will help you stay in compliance with the law and prevent penalties.

We at TaxNodes can help ensure a smooth and hassle-free experience while filing income tax returns.

byAstik Dubey

Astik is a law student diving deep into indirect Tax and business law. With a flair for business writing and a special interest in crypto taxation, he turns complexity into captivating articles. Join his enlightening blog, where law and business intersect.

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