Most of the NRIs are not aware of income tax laws in India and even doesn’t know whether they have to file ITR (income tax return) in India or not.
Here are some of the useful points regarding income tax every NRIs should be aware of while filing an income tax return.
1) It’s not compulsory for an NRI to file an income tax return in India. Mainly if all his income is generated from the fixed deposit or any other investments where TDS is already deducted.
2) NRIs should file an income tax return only if their income generated in India e.g. interest income earned on rental income, fixed deposits, dividend and others exceed the primary exemption limit of Rs. 2.5 lakh.
3) While calculating the taxable income, interest earned on NRE as well as FCNR deposit is not counted. For instance, even if you have earned Rs. 5 lakhs as an interest in NRE fixed deposit, your taxable income will be zero for that financial year, make sure that you don’t have any other income in India.
4) Furthermore, income generated due to the long-term capital gain as part of the stock or mutual fund selling is also not included as taxable income.
5) Though the interest earned on NRO fixed deposit is added towards income and you require to pay tax on that. By default, TDS is deducted from interest made on NRO deposits at the rate of 30.9%.
6) The simplest way to claim the refund for the amount deducted in TDS is by filing an income tax return.
7) Moreover, rental income cannot be deposited into NRE account because NRE account doesn’t receive money in INR, an NRI must open NRO account to accept the rental income.
8) When you transfer funds from overseas to India to your close relatives e.g. parents, wife and children that are treated as a gift and they all are not subject to income tax. Although any interest earned by that amount is considered as an income and they are subject to tax.
9) Only Indian income is ruled to tax in India for PIOs and NRIs needs to be specified in ITR. The global or foreign income of a PIO or an NRI is not taxed in India. This is where Indian laws are different from the US, where the global income of US resident is taxed in states.
10) When an NRI returns to India, he/she can still be RNOR (Resident but Not Ordinarily Resident) for a couple of years, depending upon how long he/she has spent outside India from the last 10 years and can enjoy same tax reliefs enjoyed by an NRI i.e. any interest earned on NRE fixed deposit, FCNR fixed deposit as well as foreign income is not taxed in India.
That’s all about some crucial points about income tax in India every NRI should know.