Should NRIs File an Income Tax Return in India or Not?
The last 25 years have been a tremendous change for the Indian Economy. GDP Growth rates have surged, India has integrated more with global economy, NRIs are increasing as more and more Indians are settling abroad. Many Indians, now NRIs, who left India to settle in foreign countries in the last 3 decades have a particularly peculiar problem in terms of filing of Income Tax Returns in India. Majority of NRIs have either not filed Income Tax Returns or some have been filing Income Tax Returns erroneously as Resident Indians. Still there is another significant minority of NRIs who have Income in India, yet they haven’t cared to file Income Tax Returns in India itself. This oversight or carelessness can be attributed to some of the commonly held misconceptions by these people:
- I don’t need to file Income Tax Returns as I do not earn a salary or own a business in India
- Banks and other Financial Institutions already deduct TDS, so, there is certainly no need to file Tax Returns in India
- I live in a tax free country so I definitely do not have to pay any taxes
- I only own a couple of properties in India and have no other source of an income, so why should I pay taxes?
- I have a rental income, but then again it is not above the threshold limit for filing of Income Tax Returns in India
- I only have Bank Deposits, or Investment in Mutual Funds / Insurance, and the Income from them is tax free, so I do not need to file any Income Tax Return.
With the changes in Income Tax Provisions regarding Long Term Capital Gains in this year’s budget in India, NRIs will have no choice but to file the Income Tax Returns.
Some of the reasons “Why NRI’s Should File Income Tax Return in India” are:
- If NRIs have an income above the threshold limit of INR 2,50,000 lac
- If TDS has been deducted by banks or any financial institutions
- If NRIs have Long Term Capital Gains Tax on account of selling of any financial instruments, for example, Mutual Funds, Equity, Private Equity, and so on
- If the time of a sale of property by them was in correlation to the time of TDS deduction
- If they have an Indian credit card in their possession with some transactions that have been made
- If there have been cash deposits in their account
- If NRIs want to claim the benefits of DTAA
- If they want to avail the benefits of different Tax Deduction Plans available in India
- If they own more than one property in India (as the second property owned by NRIs, the equivalent of market rent on that second property will be presumed to be an Income in India -unless they file an Income Tax Return and claim the appropriate adjustment)
With the linking of Pan Card and Aadhar Card with all kinds of investments and property sales/purchases coupled with the use of Big Data by Indian Regulatory authorities, it is imperative that NRIs should start Filing Income Tax Returns. In fact, many a times, by not Filing Income Tax Returns NRIs end up losing the benefit of getting a refund for TDS which had been deducted at a higher rate.
In conclusion, it is crucial for NRIs to File Income Tax Returns in India to avoid future assessment notices and peace of mind.