Setindiabiz Team |Updated : October 7, 2024

How To File Income Tax Return for NRI?: Process, Documents, and Due Date

Overview : An NRI may generate income in India through salary, wages, rent, investment, and other sources. This income is taxable in the same way as the income of a resident Indian. Additionally, the NRI is also required to file tax returns to declare his income. The process may be complicated and requires an understanding of the steps, which we have explained in this blog. Learn about the process to file income tax return India NRI along with which ITR form to fill for NRI for reporting his income to the tax authorities here.

An NRI may generate income in India through salary, wages, rent, investment, and other sources. This income is taxable in the same way as the income of a resident Indian. Additionally, the NRI is also required to file tax returns to declare his income. The process may be complicated and requires an understanding of the steps, which we have explained in this blog. Learn about the process to file income tax return India NRI along with which ITR form to fill for NRI for reporting his income to the tax authorities here.

Who is an NRI Individual?

Section 6 (1) of the Income Tax Act 1961 defines a ‘resident’ person for tax purposes. Any person who does not fit into this definition will be considered an NRI or Non-Resident Indian. So, to understand who is an NRI, it is essential first to understand who is a resident Individual. Ordinarily, a Resident Indian is one who resided in India for at least 182 days in the last financial year. Another criteria for being a resident Indian is to reside in India for at least 365 days in the 4 years preceding the last financial year, and at least 60 days in the last financial year. The 60 days-period gets replaced by 120 days if the resident’s income from Indian sources exceeds Rs.15 lakhs in a financial year.

However, if an Indian citizen has left India for foreign employment or as a crew member of an Indian ship, he would be considered a resident only if he has resided in India for at least 182 days in the last financial year. This applies to Persons of Indian origin who have previously visited India as well.

Other Categories of NRI

The above definition applies to individual NRIs only. Let’s explore a few other categories of non-individual NRI entities like HUF and companies. Also, besides residents and NRIs, the Government has identified two new categories of residents, that are deemed residents and RNORs. Let’s understand what they mean.

Hindu Undivided Family (HUF)

A non-resident HUF is one whose place of effective control and management during a particular year is situated wholly outside India. In this context, a place of effective control and management refers to a place where all the major business-related decisions are made.

Companies

A company is considered to be non-resident if it is incorporated in India but its effective place of control and management in a particular year resides outside India.

Resident But Not Ordinarily Resident (RNOR)

Besides, Resident and Non-Resident, there is a third category of resident status for Indian persons – Resident But Not Ordinary Residents or RNOR. RNOR citizens are also taxed like NRIs, as long as they maintain their status. To keep the RNOR status, an Indian citizen must be a non-resident in nine out of the ten previous years or must live in India for 729 days or less in the preceding 7 years. In the case of a HUF, this criteria applies to the head or manager of the family.

Deemed to be Residents

The Finance Act 2020 has introduced “deemed to be residents” as a new category of Resident Indians. They are Indian citizens whose total income generated in India exceeds Rs.15 lakhs and are not liable to pay taxes in any other country. They are treated as RNORs by the Income Tax Department.

How to Calculate Total Income for NRI ITR Filing?

Calculating the total income of the NRI taxpayer can help determine his tax liability. According to section 5 of the IT Act, the total income of NRI includes the income generated and received in India only. For Residents but Not Ordinarily Residents, the total income can include foreign income if it is generated by a business or profession established in India. On the contrary, a resident Indian’s taxable income includes all income earned from India and abroad

Types of Taxable Income for NRI ITR

The category of taxable income is similar for both Resident and Non-Resident Indians. Common ones include income from salary, wages, rent, business, profession, capital gains, interests, and so on. The rates applicable are also the same as those in the tax slabs prescribed for Resident Indians. Let’s break it down for you.

Salary Income

Salary earned and received in India is taxable for an NRI. For this, the NRI must render his services in India only, whether to an Indian or a foreign employer. The tax slabs for the NRI employee are the same as those applicable to a resident employee.

Income from Rented House Property

Rental income from property situated in India is taxable for NRIs. It is calculated in the same way as that for an ordinary resident Indian.

Income from Capital Gains

NRIs have to pay taxes on the income earned from the sale of property, shares, and other assets.

Income from Interest

Interest earned from bank deposits, fixed deposits, bonds, debentures, etc. in India, is taxable for NRIs, provided it is received in resident or NRO accounts only. Income received in NRE and FCNR accounts is non-taxable.

Business Income

Income earned from businesses operational in India is taxable. The tax rates and laws applicable are similar to resident businesses.

Other Sources

Other types of income such as lottery winnings, dividends from Indian companies, royalties, etc., are also taxable for NRIs in the same way it is for Resident Indians.

How to File ITR Return for NRI?: ITR Filing Process for NRI

Income Tax Return (ITR) Filing for NRI is a simple, online process, provided every step is carefully completed. However, most taxpayers struggle through it due to their lack of expertise and immediate knowledge of India’s tax laws. It is for this reason that consultation and assistance from tax experts like ourselves is suggested for both, an Indian resident and an NRI taxpayer. Here’s a breakdown of the procedural assistance we provide in e-filing Income Tax Return India for NRI:

1. Analysing Residency Status

The first step or rather the prerequisite for filing ITR for NRI is analyzing whether the assessee is an NRI in the first place. For this, section 6 of the Income Tax Act may be referred to, where a detailed explanation of who is an NRI, a resident, a resident but not ordinarily resident, and a deemed resident is given.

2. Choosing the Right ITR Type for NRI

ITR Filing form for NRI is the same as that for a Resident Indian. So, to choose the right ITR form for NRI, the assessee must know the type of income that’s being taxed. For example, filing Form ITR 2 for NRI is required for income generated from sources other than business or profession. Another ITR form for NRI is ITR-3. It is used to file tax returns on income generated from business or profession only.

3. Calculating the Total Taxable Income

After choosing the right income tax return form for NRI, calculate his total income. The scope of total income is mentioned in Section 5 of the Act. For a Non-Resident person, the total income will include all income earned and received in India, excluding the ones earned and received outside India.

4. Claim Deductions and Exemptions

To reduce the taxable income, an ITR filing for NRI can claim a few deductions under sections 80C, 80G, 80E, 80D, 80I and so on. These deductions optimize the taxpayer’s tax liability and minimize the tax burden.

5. Analyse DTAA to Avoid Double Taxation

As an NRI, the income you earn in India may be taxable in your country of residence, if you’re repatriating it. To avoid double taxation on the same income, analyze the Double Taxation Avoidance Treaty (DTAA) signed between India and your native country. Check if its provisions apply to the category of income you’re repatriating. If eligible, prove your residency in the concerned country by submitting a Tax Residency Certificate issued by the tax authorities of that country during the ITR filing process. Also, mention the DTAA exemption.

6. File NRI IT Return Form Online

Finally, get ready to file income tax return India NRI form. Go to the income tax e-filing portal. Login and access the correct form. Finally, fill in details of the taxpayer, his income, and bank account. Also clarify any deductions, exemptions and ITC claims. Specify DTAA benefits to avoid double tax.

7. Attach Necessary Documents

Form ITR 2 for NRI may require certain documents for completion. These may include form 16, form 26 AS, taxpayer’s PAN, proof of Tax Residency, and other supporting documents based on the type of Income like investment proofs, dividend certificates, donation receipts, sale receipts, insurance premium payment receipts, loan certificates, rental agreements, property documents, etc.

8. ITR Form Verification

Submitting the ITR form for NRI requires verification. This verification can be done online via Aadhar OTP or EVC. For offline verification, the taxpayer can file ITR-V form within 120 days of ITR form submission.

Due Date for NRI Filing ITR

The due date for filing ITR of NRI individuals and non-individuals is 31st July, if no audit is needed. However, if an audit is needed, this due date gets extended to October 31st. If you miss this deadline, the last date to file belated returns is 31st December.

For Example: If the ITR is being filed for FY 2023-24, the due date for audit cases will be 31st July 2024 and for non-audit cases will be 31st October 2024. Belated returns can be filed by 31st December 2024.

Income Tax Rates for NRI ITR Filing

NRIs are taxed at the same rates as Resident Indians. The existing and the new tax regimes apply to both. However, the new regime is applicable by default and taxpayers need to opt out of it and return to the old regime. Here’s a breakup of the tax structure of both regimes.

Income Tax Rates for Individuals and HUFs below 60 years:

Surcharges: Above the income tax, taxpayers also have to pay a surcharge if their income exceeds certain limits. Here are the surcharge rates:

Conclusion

NRIs are Indian citizens who do not stay or carry out their profession in India. However, if they do, the income they earn out of it is taxed under the Income Tax Act 1961. The rates applicable are the same as resident Indians. Also, the tax liability in terms of the types of taxable income are similar. The only difference is that an NRI’s foreign income is not taxed in India while filing income tax return in India.

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