NRI Tax Return: Eligibility, Process, Rates, and Exemptions

It is a well-known fact that the tax paid by citizens is crucial for the development of the Indian economy. In addition to this, taxes paid by non-resident Indians are also a major contributor to the income tax collected each year. The rules for taxation of people outside their home country have been stated in the Income Tax Act. NRIs are also required to file income tax returns for each fiscal year. In this blog, we will take a look at the eligibility, process, and rates of NRI Tax Return.

NRI Tax Return in India

An NRI can be defined as an Indian citizen who is settled overseas for employment or business purposes.. The rules for taxation of such citizens have been stated in the Income Tax Act, 1961. Such citizens are also required to file tax returns for their income earned in India. The foreign taxpayer is required to file a tax return for the same in every financial year.

NRI Tax Return Eligibility

Just like any other taxpayer, an NRI is required to file an income tax return if the total income earned in India is more than Rs 250,000. Any capital gains earned from the sale of any asset or investment in India that exceeds the exemption limit are also taxable under the Income Tax Laws.

 An NRI can also claim a tax refund given that the TDS deducted is greater than the actual tax liability for the fiscal year. Further, in the case of capital loss, a refund can be claimed by setting off the loss against the capital gains.

Tax Rates for NRI

Given below are the tax rates for NRI taxpayers, applicable on their income earned in India:

Who is an NRI According to FEMA?

According to the Income Tax Act and FEMA (Foreign Exchange Management Act), an Indian citizen living outside the country is an NRI. A resident Indian is someone who resides in the country for more than 182 days in a fiscal year. Further, NRI can also be defined as:

• A taxpayer who resides abroad for employment, business, or other such circumstances which indicate individuals intention to stay for an indefinite period.
• Corporate entity or individual registered or formed in India.
• Branch, office, or agency in India owned by an individual residing abroad.
• Agency, branch, or office outside India owned by an individual residing in India.

Income Tax Exemptions for NRI Taxpayers

Given below are some of the circumstances in which an NRI is exempt from paying income tax:

• If the income earned in a fiscal year only includes income from investment or capital gains that have already been subject to TDS.
• Any income earned from the sale of shares or mutual funds is not taxable. Thus, this amount will not be considered while filing tax returns.
• If there is a standing Double Taxation Avoidance Agreement between India and the NRI’s resident country, the individual can save on their tax payments. However, they are liable to pay income tax if their income in India exceeds the basic exemption limit.
• Further, the NRI is not required to file tax returns if they have earned income from only long term investment options.

NRI Tax Return Filing Process

Given below are the steps to follow for filing NRI tax returns:

• To file a tax return, an NRI will first be required to acquire a PAN card. They can apply for a new PAN card online as well as offline by using the Form 49A. The PAN card can be dispatched to any of the countries listed on the official website.
• Given below are some of the relevant income tax forms that can be used for filing returns:
  • ITR 1: This form is to be used by individuals whose main source of income is salary/pension/interest/agricultural income.
  • ITR 2: This form is to be used by individuals who do not derive their income from professional or business activities, or as a result of partnership at any firm.
  • ITR 3: This form is to be used by taxpayers who earn their income from partnership at a firm and no other source of income.
  • ITR 4: People who earn their income from being a proprietor of any business or profession.
• If the NRI wishes to file their income tax returns online, they would be required to upload the relevant tax forms along with all the supporting documents to the official e-filing website of the Income Tax Department. It is necessary to include a digital signature while filing the tax returns. If for some reason the taxpayer is unable to provide DSC, they can file the tax returns in private by using the ITR V Form.
• To physically file the tax returns, the individual will need to submit the relevant tax form and acknowledgement number to the Income Tax Officer. The tax forms and all the supporting documents have to be signed and attested by the relevant authorities.

Income Tax Benefits for NRIs

Given below are some of the tax benefits available to NRIs:

• Any deposits made in India in an Indian bank account are exempt from wealth tax.
• Any interest earned from any such account is also exempt from income tax.
• Any gift is exempt from gift tax if it is made from the NRE or FCNR accounts of the individual.

Advance Ruling for NRIs

While calculating the income tax amount due for the financial year, the NRIs can consult the Authority for Advance Rulings in case of any queries or problems. Both the taxpayer and income tax authorities are bound by the rules and regulations of AAR.

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