Income Tax Returns FY24: The Income Tax department has asked non-resident Indians (NRIs) to give sworn statements on the exact number of days spent in India, a report said on Tuesday. This comes after the department recently sent numerous advisories to NRIs asking them to verify high-value transactions made in 2022-23 and to address any non-filing of returns.
NRIs who have opened foreign currency non-resident account (FCNR) and/or NRE/NRO deposits have also received these notifications, The Economic Times reported. In some notices, the assessment years under review are from 2014-15 to 2022-23.
As per the clauses in the Income Tax Act 1961, NRIs are not required under the law to pay tax on overseas earnings or declare foreign assets. But if they overstay – spending more than 181 days in a year in India – tax and disclosure regulations are applicable to them as related to residents.
In some cases, the staying period is 120 days where the total income (except foreign sourced income) of the visiting individuals during the financial year is more than Rs 15 lakh.
Taxation rules for NRIs
The income tax liability of an NRI in India is determined by their residential status for the year. NRIs need to determine their residential tax status in India based on their duration of stay during the fiscal year when filing their ITR.
NRIs who have a total income exceeding the basic exemption limit of Rs 250,000 under the old regime or Rs 300,000 under the new regime, before any deductions or exemptions, are obligated to file their tax returns in India by July 31 of the following year after the end of the relevant financial year.
An NRI will have to pay tax only on the following income:
> Income generated from a business connection in India, income from any property, asset, or source of income in India, such as rental income from a property located in India, capital gains from the sale of a capital asset (such as shares or immovable property) situated in India, and salary income earned for services rendered in India.
> Dividend income from Indian companies, even if received from outside India, is considered as income that has accrued or originated in India.
> Interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India.
> Similarly, royalties or fees for technical services received from a resident are also treated as income that has accrued or originated in India, unless such royalties or fees are related to a business, profession, or other source of income carried out by the payer outside India.
> Income earned outside of India is not subject to taxation within India. The interest earned on an NRE account and FCNR account is exempt from taxes. However, the interest earned on NRO accounts is taxable for non-resident Indians.
How is residential status determined?
The Finance Act 2020 and Finance Act 2021 have introduced changes to the criteria for determining the residential status of individuals. Let’s take a look at the amended criteria for determining the residential status of Non-Resident Indians (NRIs).
Till the end of FY 2019-20, NRIs (both Indian citizens and Persons of Indian Origin) included those individuals who, being outside India, visited India for less than 182 days in a financial year. The Finance Act 2020 reduced this period to 120 days where the total income (except foreign sourced income) of the visiting individuals during the financial year is more than Rs 15 lakh.
One is considered an Indian resident for a financial year if :
> If they are in India for at least 6 months (182 days to be exact) during a given financial year.
> If a taxpayer was in India for 2 months (60 days) in the previous year and have lived in India for a total of one year (365 days) within the last four years.
Special cases
If a taxpayer is an Indian citizen working overseas or a crew member on an Indian ship, he will only be considered a resident if they spend at least 182 days in India.
This condition also applies to a Person of Indian Origin (PIO) who visits India.
However, the second condition does not apply to these individuals. A PIO is someone whose parents or grandparents were born in undivided India.
Advance Tax
If the tax liability of NRIs exceeds Rs 10,000 in a financial year, they are required to make advance tax payments. Failure to do so will result in the application of interest under Section 234B and Section 234C.
Tax exemptions
An NRI is exempt from filing returns under sub-Section(1) of Section 139 if:
> His total income in the previous fiscal was only investment income or income by way of long-term capital gains, or both.
> TDS under the provisions of Chapter XVII-B has been deducted from such income.
NRIs can opt for the old tax regime or the new regime with a lower tax rate under Section 115BAC of the Income-tax Act. Under the former, they can avail of the following exemptions:
Section 80C up to Rs 1.5 lakh (Tuition fee, premium for LIC policies, Ulips, ELSS, and home loan’s principal amount)
Section 80D (premium on medical insurance)
Section 80E (interest on education loan)
Section 80G (earmarked donations)
Section 80TTA (interest on savings bank account).
However, NRIs are not allowed any investment in the Senior Citizens (Savings Scheme, certificates of deposit (NSCs), five-year Post Office Deposit Scheme, and the PPF.
Also read: Income Tax Returns 2024: How to make a switch between new and old tax regimes
Also read: Investment proof submission: Section 80C and other sections that can fetch you exemption