First and foremost, what is an NRI and who is an NRI? The abbreviation NRI stands for Non-Resident Indian. These are Indian citizens who work and advance their professions in countries other than India. The IT act, on the other hand, has a different definition of NRI. the NRI taxation system differs significantly from the regular taxation system for persons who live and work in India.
While living in India, it is critical for NRIs to file their income tax forms on time. Because NRI nationals can invest, maintain bank accounts, own real estate, and other assets in India, they should be aware that completing annual returns help them avoid tax penalties and prosecutions.
Definition of NRI under FEMA act:
FEMA, or the foreign exchange management act, contains a law that states if a person remains in the country for less than 182 days during the current fiscal year, he or she is considered a non-resident alien. The fiscal year typically begins on April 1st and ends on March 31st of the following year.
Definition of NRI under the IT act:
A person is now regarded as an NRI under the IT act if he or she meets the following criteria.
- If the person in question has been absent for more than 182 days during the current fiscal year.
- If the person in question has not been present for 365 days or more in the four previous financial years.
In situations like these NRI tax consultants come in handy. They offer advice, counselling and analysis of residence status, as well as assistance with paying and reporting IT returns, financial advice and determining eligibility for women’s residency.
Essential points while filing income tax returns by NRIs:
- The residential status of an NRI must be specified when it comes to ITR.
When filing ITR, NRIs must identify their residence tax status in India based on their time of stay throughout the fiscal year. NRIs residency status is one of the most important considerations while filing tax returns in India.
NRI who claim the status of Indian resident are responsible to pay tax on their worldwide income, whilst non residents are only taxed on income derived from sources in India.
It is important to remember that the resident test under the income tax act differs from the one under the foreign exchange management act or FEMA. As a result, the FEMA residency test should not be taken into account.
- Selecting the correct ITR return form for NRIs
The ITR-1 form was created by the Indian government to make compliance saiser for taxpayers in the country. NRIs can also use the ITR-1 form to file their tax returns. However, such NRs must have an annual revenue of less than INR 5 million. Individuals who earn money through their salary, a single family home, or other sources such as interest can use the ITR-1 form.
- Aadhar number is not compulsory for NRIs
According to the Central Board of Direct Taxes (CBT), NRI citizens living in India are not required to include their aadhaar numbers while filing tax returns. According to Section 139AA of income tax act, persons who are not residents of India are not required to include ther aadhar number in their ITR.
- Include accurate assets and liabilities in ITR
NRs with a total of more than INR 5 million must report the cost of certain assets (both movable and immovable) in India, as well as their associated liabilities, according to the assets and liabilities table (schedule AL). The schedule can be found in ITR 2,3 and 4.
- It is optional to disclose a foreign bank account in ITR
Non-residents or non-citizens of India need not to declare details regarding their foreign bank account in ITR, if they do not claim a tax refund, according to a CBDT statement dated july 24, 2017.
Non-residents who are claiming a tax refund under ITR but do not have an Indian bank account should include the data of their most recent foreign account for refund issuing.
- Filing ITR is compulsory in case of exempt long term capital gain (LTCG)
Non-resident citizens should be aware that if their exempt LTCG income exceeds the basic tax exemption ceiling of INR 250,000 they must file an ITR, even if their total taxable income is less than the tax threshold limit.
For example, if an NRI has exempted INR 600,000 in long term capital gains income and has no other sources of income, he or she will still be obliged to file tax returns because the exempt LTCG income exceeds the INR 250,000 threshold.
Taxpayers in India (both residents and non residents) should file their income tax returns on time to avoid the government imposing severe penalties and interest. NRIs must provide all required information in the most acceptable manner during ITR filing and must do so before the deadline. The experience of submitting a tax return can be easier by remembering the above mentioned points.