The government is boosting its ante against tax evaders. In the recent history, a slew of measures has been announced to check misreporting of income by people. In light of the current developments, it has become a necessity for all of us to know our tax liabilities and abide by them respectively. We may have to suffer the wrath of the Income Tax Act (I-T) department in case we fail to do so. Things become more complex for a non-resident (NRI) and are not well-versed with the requirements. Surely keep in mind, we answer some questions about your tax liabilities.
What determines my tax liability?
To determine your tax liability, your residential status is decided first. You have to pay taxes, depending on your residential situation. As per the provisions of the law, you could be:
- a Non-resident Indian (NRI)
- a resident
- a resident but not ordinarily resident in India (RNOR)
Does my residential status changes just once in my lifetime?
The answer is No. Under the provisions of the Income Tax Act, the residential status of a taxpayer is discovered every year. Originally, a person could be a resident; his status may change to being non-resident. In a situation, NRI decides to come back to India, and his status would change to the resident but not ordinarily resident. This is an ever-changing rule.
What is my status if I have newly returned to India?
For three financial years after your return to this nation, you enjoy the status of being a resident but not an ordinary Indian. This indicates your taxation liabilities will be related to that of an NRI’s.
Do I have to pay taxes in India in case I am an NRI?
You do not have to give taxes in India if you are not earning anything here. In a situation, you are making certain earnings in India (even if it is through money lying in your savings account which is named as passive income), that specific part of your earnings will be taxed in India while the left part of your income would be taxed in the nation of your residence.
Is it a necessity for NRIs to pay advance tax?
As an NRI, if your tax liability passes Rs 10,000 in a financial year, you are obliged to pay advance tax. However, if you fail to do so, you will have to pay an interest on the outstanding liability below the Section 234B and Section 234C of the income tax Act. Advance tax is a part payment of your tax liabilities, and the person pays as he earns under the scheme. The tax is suitable if you are making money from sources other than your monthly salary. Gains made through interest earned on investments, the sale of property, profits gained through business, etcetera, attract advance tax payments.
What are the deductions allowed to NRI?
On a par with residents, NRIs have approved deductions for property purchased in India.
- Under Section 80D, NRIs can also claim a deduction of up to Rs 40,000 in a financial year for health insurance premiums.
- As per Section 80E, NRIs can also claim a deduction on interest paid on education loans.
- Under Section 80G, NRIs can also demand a deduction on charity and donations.
- As per Section 80TT-A, NRIs can claim a deduction on interest earned on funds lying in savings bank accounts(SA). There is a cover of up to Rs 10,000 on that revenue, however, which applies to both residents as well as non-residents.
What are the discounts not allowed to NRI?
Unlike Indian citizens, NRIs do not enjoy abatements on some investments under Section 80C of the Income Tax Act. These involve:
- Investment in the Public Provident Fund (PPF). however, you can maintain your PPF accounts if you opened them while people were a resident.
- Investment in the National Savings Certificate(NSC).
- Investments in five-year Post-Office Deposit Scheme(PODS).
- Investment in senior-citizen savings scheme(SCSS).
- Investment in Rajiv Gandhi Equity Savings Scheme (commonly referred to as RGESS).
- Deductions are given to differently-abled people as per the Section 80DD, Section 80DDB and also Section 80U.
How do I assure I am not taxed double for the same income?
India has signed an agreement with over 80 countries known as the Double Taxation Avoidance Agreement so that NRIs do not close up paying taxes twice – once in Indian and once in the nation of their residence – on the same income. Under the provisions of the deal, there are two ways to ensure there is no overlapping of tax payments. Under the exemption system, a person is taxed in one nation and exempted in another. In the credit input method, your income is taxed in both countries, and the exemption is claimed in the nation of your current residence.
What forms do NRIs have to fill to file taxes?
An NRI earnings a passive revenue in India must fill the ITR-1. However, in this state, the income should not exceed Rs 5 million. In fact, an NRI has taxable capital gains or income from more than two house properties, and he has to file his return using ITR-2 form.
Is having an Aadhaar Card must for NRIs, for filing taxes?
The answer is No. While the citizen of India is needed to quote their Aadhaar numbers for the filing of taxes under Section 139AA of the Income Tax Act, this law does not apply to NRIs. The Central Board of Direct Taxes has declared that NRIs are not residents under the provisions of the Aadhaar Act, 2016.