NRI taxes are confusing to many. It is essential to understand the Taxation of NRIs because several Indians visit their motherland to see family or because they are stuck in India due to the Covid-19 pandemic. In addition, in ITR Filing, the NRIs face various hurdles. Thus, we shall study this article in-depth to know about the Taxation of NRIs under the Indian Income Tax Act.
What is Residential Status under Income Tax Act?
Section 6 of the Income Tax Act prescribes provisions for the determination of the residential status of an individual. These provisions are as follows.
- Person Resides in India for a minimum of 182 days in a year, or
- Resided in India for a minimum of 365 days in the immediately preceding four years and for a minimum of 60 days in the current financial year.
Who is NRI in India?
An NRI is one that doesn’t satisfy the above-mentioned provisions. Or in other words –
- Non-Resident Indians (NRIs) are Indian Citizens who resided in India for less than 182 days in the previous financial year,
- have left India or remain outside India for employment purposes,
- or have gone out of India or remain outside India for business or vacation purposes,
or stays outside India for any other purpose indicating his intention to stay outside India for an uncertain period.
What is Resident Ordinarily Resident (ROR) and Resident Not Ordinarily Resident (RNOR)?
If a person becomes a resident, the next stage is to decide if he or she is a normal resident (ROR) or an RNOR. If both of these qualifications are met, he or she is a ROR:
- Have been an Indian resident for at least two years out of 10 years in the immediately previous year
- Been in India for at least 730 days seven immediately preceding years
Therefore, if a person does not meet any one of the qualifications mentioned above, they would be under consideration as an RNOR.
That’s why, it becomes important to file Income Tax Return if your taxable Income in India exceeds the threshold limit, which is not chargeable to tax, i.e.Rs 2.5 lakh.
Furthermore, NRIs or Indian Residents also need to file ITR to claim a refund of excess tax deducted at source or to carry forward the losses for set off in the future.
Know about ITR
ITR filing contains information about the person’s income and the taxes that need to be paid on it during the year. Information filed in ITR pertains to a particular financial year. In India, we categorize income in the form of-
- Profits and gains from business and profession
- Income from house property
- Profits from capital gains
- Income from other sources such as dividends, interest on deposits, royalty income, winning on lottery, etc.
Understand the types of ITR/Taxation of NRIs under the Indian Income Tax Act
There are six types of ITR. These are as follows.
This ITR filing applies to anyone whose earnings are up to INR 50 Lakhs through salary, pensions, houses, or other sources.
Individuals and HUFs with incomes from wages, pensions, or household property, as well as capital gains, must file ITR 2.
This income tax return is for individuals and HUFs who earn money from a business or profession (PGBP).
This ITR Filing is for Individuals or HUF who have income from PGBP but have opted for a presumptive income scheme.
Firms, Limited Liability Partnerships (LLPs), Bodies of Individuals (BOI), and Associations of Persons are all eligible to file this form (AOP)
This return is for all types of companies such as Public Limited Company, Private Limited Company, OPC, except Section 8 Company.
Is it mandatory to disclose foreign assets for NRIs?
NRI Taxpayers need not reveal details on foreign assets in ITR. This duty for disclosure only applies to resident taxpayers of India.
Do various accounts have taxability of interest in the Taxation of NRIs?
- NRE account: exempt if the account holder resides outside India, otherwise taxable under the FEMA requirements.
- NRO Account is taxable
- FCNR Account: NR or RNOR is Income tax exempt.
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