Tips on Income Tax Return by NRI
All the NRI are required to file income tax returns if they fulfill either of these conditions: (Read: Decide your Residential Status)
- Your taxable income in India during the previous year was above the basic exemption limit
- You have earned short-term or long-term capital gains from sale of certain investments and assets, even if the gains are less than the basic exemption limit.
“What this means is that firstly, NRIs do not get the benefit of differential exemption limits on basis of age or gender that is available to Resident Indians. Secondly, for NRIs, certain short term or long term capital gains from sale of investments or assets are taxed even if the total income is below the basic exemption limit. These include short term capital gains on equity shares and equity mutual funds where tax rate is 15% and long term capital gains on securities and assets where tax rate is either 20% or 10% without indexation,” explains Vaibhav Sankla, Director, H&R Block India.
There is an exception: If your taxable income consisted only of investment income (interest) and/or capital gains income and if tax has been deducted at source from such income, you do not have to file your tax returns.
Having laid down the ground rules, let us look at some of the important practical aspects on filing tax returns in India.
1) Mandatory e-filing if taxable income is more than Rs 10 lakh
Central Board of Direct Taxes (CBDT) in India issued a notification which has made it mandatory for individuals who have annual gross total income (that is, income before any Chapter VI deductions like Section 80C etc) in excess of Rs 10 lakh to file their returns online from financial year 2011-2012.
This applies to all individuals including non resident Indians. So as an NRI with gross total income exceeding Rs 10 lakh, you must file your returns electronically and send ITR-V within 120 days of filing return.
Read: What is ITR-V?
2) Beware of interest liability on non-payment of advance tax
As per the provisions of the Income Tax Act, you must pay advance tax in three installments during the year in case the tax payable, after adjusting TDS is likely to be Rs 10,000 or more. “There are interest implications in case of default in payment of any installments or lesser payment of advance tax. The interest is generally 1 percent per month for the default amount and extends till the date of payment. Therefore, NRIs should evaluate if they were liable to pay advance tax and whether the same was paid in time. If not, they would need to calculate the interest for default and deposit the same before filing the tax return,” explains Vineet Agarwal, Director, KPMG India.
3) Don’t forget to file a return to claim refund
As per the criteria mentioned earlier, it is possible that you may not have to file a tax return in India at all. However, don’t forget that if you have a refund due, you must file a tax return and get a refund of any excess taxes paid. This may happen where the tax deducted at source is more than the actual tax liability. For example, suppose your taxable income for the year was below Rs 2 lakh but the bank deducted tax at source on your interest amount, you can claim a refund by filing your tax return. Another instance is when you have a capital loss that can be set-off against capital gains. Tax may have been deducted at source on the capital gains, but you can set-off (or carry forward) capital loss against the gain and lower your actual tax liability. In such cases, you would need to file a tax return.
Sankla makes an important point, “If you are expecting a refund, make sure that you put accurate bank details such as account number and MICR code of the branch. If you efile your return, refunds are processed electronically so it is important to give accurate bank account details.”
4) Consequences of delay
The last date to file returns for the financial year is July 31st . However, remember the following:
- If you do not have any tax payable (that is all your tax has been deducted at source), you can still file your tax return withing 2 years from the end of the financial year without any penalties
- If you do have tax payable, you can still file your belated returns withing 2 years from the end of financial year but you will be charged an interest of 1% per month for every month of delay starting from the due date of filing return till the time you file your tax returns under section 234A.
- If you do not file your tax returns at all , you may be charged a penalty of Rs 5,000 for every year of delay under section 271F.
“But remember that irrespective of whether you had tax payable or not, you would not be able to avail of certain provisions if you do not file by 31st July. For instance, suppose you did not have any tax payable but you did have a capital loss to be carried forward to set off against future incomes. If you want to avail the benefit of carry forward, you must file your tax returns by 31st July” Agarwal explains.
Moreover, Sankla adds, “There are several other consequences. You cannot revise a return that was filed late in the first place. You may also lose out on interest receivable on refund for the period of delayed filing.”
5) Exemptions and deductions that you must not miss
- If you’ve been away from India for a long time, you have perhaps lost track of the changes in the Indian income tax law over time. Let us quickly recap on the current stand of the law on various incomes.
- Dividends from equity shares and equity mutual funds is tax free in India
- Interest received on the NRE account and FCNR account is tax free
- Long term capital gains on equity shares and equity mutual funds, that is capital gains from sale after one year of purchase, are tax free in India (provided you pay securities transaction tax at time of sale)
- If you have given a property on rent, you can claim an ad hoc deduction of 30% of net annual value as repairs and maintenance expenses in addition to claiming a deduction on mortgage interest.
- If you are paying health insurance premium in India for yourself or your dependents, you can claim a deduction under section 80D. If the health insurance is taken for your spouse and dependent children, you can claim a deduction of Rs 15,000 per annum. An additional Rs 15,000 is available as deduction on insurance premium paid on behalf of your parents. If either of your parents is over the age of 60, the additional deduction will be Rs 20,000 instead of Rs 15,000.
- If you have made any contributions to an approved charity, you can claim a deduction under section 80G.
- Investments such as PPF, life insurance premiums, equity linked saving schemes, etc. can be claimed as deduction under section 80C up to a total of Rs 1 lakh per annum.
Read: Plan and Save Income Tax