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INCOME TAX RETURN FILING IN INDIA FOR NON RESIDENTS, NRIS

Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), Person of Indian Origin Residing Abroad (PIOs), Foreign Citizens Residing In India (Expatriates) are always concerned about compliance of Laws & Regulations. Income Tax Return (ITR) filing is one of that compliance.

In India, filing of Income Tax Return is a very important, needful and regular compliance. All NRIs, OCIs, Expats are required to file an ITR in India in relation to tax payment and reporting of their Income and other financial transactions. Also, ITR filing is needed to claim tax refund of TDS deducted.

There are various terms, which confuse NRIs, Foreign Citizens, OCIs, PIOs. Hereunder are some relevant terms, which NRIs, OCIs, Expats wish to understand:

Income Tax Return

Income Tax Return is a statement of income components, which a person has earned during a year. Every person need to report the details of income component in the ITR Form. The ITR form also contain information about various deductions, exemptions, reliefs, which a person can claim. ITR form also reflect the computation of tax calculation on the net taxable income, and the details of taxes paid thereon. In addition to this, as per the category & requirement of form, there are various other information, which needs to be submitted in the ITR form. The ITR form is filed on yearly basis for a full year (i.e previous year or financial year).

Previous Year and Assessment Year

In India, ITR is filed in Assessment Year (AY) for Previous Year (PY). Previous Year is equivalent to a Financial Year eg if ITR has to be filed for FY 2022-23 then the Previous Year shall be April 1, 2022 to March 31, 2023. And the assessment year shall be 2023-24.

Residential Status

This is one of the most important concept for an Indian ITR. Hence, NRIs/Expats/OCIs need to determine their residential status first. Residential status is determined based on number of days spent in India. This status is categorized in three category (i.e Non-Resident ‘NR’, Resident & Ordinary Resident ‘ROR’, Not Ordinary Resident ‘NOR’). Generally, if stay in India is for very limited days during the year, the Residential Status for NRIs/OCIs/Expats etc remain Non-Resident. Briefly, following are relevant points for determination of residential status:

If a person stay in India for more than 182 days in a year then he is considered as Resident in India.
If a person stay in India less than 60 days in a year then he is considered as Non-Resident in India.
If a person stay between 60 days to 181 days in India then based on various parameters his residential status is determined.
A person, who is determined as Resident as per above criteria, can be further determined in ROR or NOR. The same is done based on his past 10-11 year stay records.
A person can also be Deemed Resident in India, as per new Residential Rules.

To understand more on the Residential Status Determination Rules (updated with budget 2020 changes), please refer following:

NRIs, PIOs Residential Status Determination (updated after 2020 Rules amendments)

New Residential Rules (Budget 2020 Amendment) for NRIs, PIOs

Hardship Due to coronavirus conditions for maintaining a Non-Resident Status: Due to corona virus many foreign citizens and NRIs are stuck in India. Now question comes what will happen if they could not leave India due to unavoidable circumstances and they become Resident in India. Here, it is important for them to consult with their consultant to seek proper advise as per their facts and circumstances.

Taxability

Upon determination of Residential status, Taxability of Income is determined. For Taxability, following are some important points:

A person, who is determined as Non-Resident or NOR, is not liable for tax in relation to his foreign income.
A person, who is determined a ROR, is liable for tax on his global income in India.
Any income either earned in India or received in India is taxable in India despite any residential status.

Double Taxation Avoidance Agreement (DTAA), Relief of Double Taxation U/s 90

Sometimes, it happens

That a person is determined a Resident in India, and that person is also considered a Resident in his/her residence/home country as per local laws of that country.
That an income is taxable in two countries ie Country of Source (where income is arising) and Country of Resident (where that person is normal Resident).
Taxes are levied in two countries.

To provide a relief in such cases and also for some other purposes, DTAAs are entered between various countries. These DTAAs, amongst others, provide for:

Determination of Tax Resident Country
Determination of Taxability Country
Determination of Tax Rates In Source Country
Determination of Tax Relief Provisions If Tax is levied in Source Country
Information Exchange Between Tax Authorities of Two Countries

New Tax Slab option system is also available for Non-Residents, Foreign Citizens, NRIs etc.

Components of Income

In India, Income is categorised in 5 categories ie

Income From Salary
Income From House Property
Income From Business of Profession
Income From Shares, Mutual Funds Sales Capital Gain
Income From Property Sale Capital Gains
Income From Other Sources

NRIs Taxability In India

Generally, NRIs/OCIs are liable for following kind of Income In India:

Income from House Property (Wrt Immovable Property In India)
Interest Income From NRO Bank Accounts In India
Gains From Mutual Fund or Shares Traded In Indian Share Market
Gains on Sale of Immovable Property In India (Inherited Property/Other Property in India)
Salary/Business Income in the year of Migration From/To India

Further to this, for detailed summary on financial transactions & income, which generally form part of NRI PIO ITR in India,

Benefits of Filing Indian ITR

NRIs/OCIs/Expats must file an Indian ITR if there is any Income Taxable In India. In addition to a Statutory Compliance, there are various reasons/benefits for filing of Indian ITR including following:

To claim back the refund of TDS deducted in India
To report his/her Residential Status as well financial transactions or income incurred/earned in India during a PY
To use ITR copy as a legal/govt document for various purposes
To keep a track record with the Income Tax Department in India
To carry forward of losses (eg loss on Property Sale)
To avoid Income Tax Enquiries (ITR plugs many IT Deptt Notices)
To avoid Penalty for Non-filing or late filing of ITR

Penal Provisions, Consequences of Non-Filing of ITR, Late Filing of ITR

Penalty Fee for Late Filing Fee
Loss of TDS Refund Claim
Late Processing of ITR
Carry Forward of Losses Lapses
Notices From IT Deptt

E-Filing OF ITR IN INDIA, ITR Filing PROCESS

As per the Income Tax Provisions, now an ITR in India can be filed online only i.e. E-filing process. The salient features of this e-filing process of ITR filing are:

Register on the website (www.incometaxindiaefiling.gov.in), and create a login id.
This login id is created with PAN number, mobile, email id and other details. Only information. No document is needed.
Thereafter, assessee can get his ITR prepared either online with the help of facilities provided on this website or by generating a .xml file through a software.
Thereafter, this file is submitted on the web portal of income tax (www.incometaxindiaefiling.gov.in).
On submission of this file, an acknowledgement is generated i.e. ITR V.
This ITR V needs to be either e-verify (on the web portal only) or it can be sent in hard copy (after signing it) to the processing center of Income tax department in Bangalore.
In due course of time, IT Deptt Central Processing Centre process the ITR and issues the refund if any.