Do NRIs Need to File ITR in India?

Non-Resident Indians (NRIs) often face questions regarding their financial obligations in India, particularly concerning income tax. Many individuals living abroad are unsure whether they need to file an Income Tax Return (ITR) in India. Understanding the distinct tax rules that apply to NRIs is essential for compliance and effective financial planning.

Understanding Non-Resident Indian Tax Status

Determining one’s residential status for tax purposes is the first step in understanding Indian tax liabilities. This status is distinct from citizenship and is based on the number of days an individual spends in India during a financial year, which runs from April 1 to March 31. An individual is considered a Resident if they stay in India for 182 days or more in a financial year. Alternatively, a person is a Resident if they were in India for at least 60 days in the current financial year and 365 days or more in the four preceding financial years.

Special rules apply to Indian citizens who leave India for employment abroad or as a crew member of an Indian merchant ship, or to Indian citizens or Persons of Indian Origin (PIOs) visiting India. For these individuals, the 60-day threshold for the second condition is extended to 182 days. Additionally, an Indian citizen or PIO with total Indian income exceeding INR 15 lakh (excluding foreign sources) can be deemed a Resident if they are not liable to pay tax in any other country, regardless of their days spent in India.

If an individual does not meet the criteria to be classified as a Resident, they are considered a Non-Resident (NR) for tax purposes. A third category, Resident but Not Ordinarily Resident (RNOR), applies to individuals who have been a Resident for less than two out of the ten preceding financial years or stayed in India for 729 days or less during the seven preceding financial years. This classification impacts the scope of income taxable in India, making this determination important for every financial year.

Income Subject to Indian Taxation for NRIs

Non-Resident Indians are primarily taxed on income that is earned or accrued in India, or deemed to accrue or arise in India. Income generated outside India is generally not subject to Indian income tax for NRIs. However, any income with a direct connection to India is taxable.

Specific income types taxable for NRIs include:
Salary received for services rendered in India.
Income from house property located in India.
Capital gains from the transfer of assets situated in India, such as land, buildings, or shares of Indian companies.
Income from a business connection in India.
Interest earned from Indian bank accounts, specifically Non-Resident Ordinary (NRO) accounts.
Dividends received from Indian companies.
Royalties or fees for technical services sourced from India.

Interest earned on Non-Resident External (NRE) accounts and Foreign Currency Non-Resident (FCNR) accounts is explicitly exempt from tax in India.

Mandatory and Voluntary ITR Filing for NRIs

The requirement for Non-Resident Indians to file an Income Tax Return (ITR) in India depends on their income and certain financial transactions. Filing an ITR is mandatory if an NRI’s gross total income in India, before claiming any deductions under Chapter VI-A, exceeds the basic exemption limit, which is currently INR 2,50,000.

Even if income is below this threshold, filing an ITR is compulsory for NRIs with income from capital gains, business, or professional income, regardless of the amount. Recent amendments also mandate filing if an individual engages in specific high-value transactions, including depositing more than INR 1 crore into a current bank account, incurring foreign travel expenses exceeding INR 2 lakh, or spending over INR 1 lakh on electricity consumption within the financial year.

Filing an ITR can be beneficial for NRIs even if not legally required. Benefits include:
Claiming a refund of excess Tax Deducted at Source (TDS).
Carrying forward losses, such as capital losses, to offset against future capital gains.
Facilitating claims under Double Taxation Avoidance Agreements (DTAAs).
Maintaining a clear tax record for future financial dealings or visa applications.

Filing Your Income Tax Return

The process of filing an Income Tax Return (ITR) for Non-Resident Indians involves distinct preparatory and procedural steps to ensure accurate and timely submission. Before initiating the filing process, NRIs must gather all necessary documents and information. A Permanent Account Number (PAN) is essential.

Key financial documents include:
Bank statements for Non-Resident Ordinary (NRO) and Non-Resident External (NRE) accounts.
Form 16 (for salary income) or Form 16A (for other income where TDS has been deducted).
Statements for capital gains from the sale of Indian assets.
A Tax Residency Certificate (TRC) from the country of residence, if claiming Double Taxation Avoidance Agreement benefits.

Next, selecting the correct ITR form is a crucial preparatory step. ITR-2 is typically applicable for NRIs with income from salary, house property, capital gains, and other sources. If an NRI has business or professional income, ITR-3 is the appropriate form. All gathered information, including income details, deductions, and taxes paid, must be systematically organized for accurate data entry into the chosen ITR form. This organization ensures that all relevant financial transactions are properly reported.

E-filing is done through the official Indian Income Tax Department’s e-filing portal. After logging in with your PAN, select the correct assessment year and ITR form. The portal guides you through entering income details, claiming deductions, and verifying the calculated tax liability or refund. Upon successful submission, the return must be e-verified. This can be done via Aadhaar One-Time Password (OTP), net banking, or Demat account. A signed physical copy of the ITR-V acknowledgment can also be sent to the Centralized Processing Center (CPC) in Bengaluru, though e-verification is generally faster.

Claiming Double Taxation Relief

Double Taxation Avoidance Agreements (DTAAs) are bilateral tax treaties between India and various countries designed to prevent the same income from being taxed twice. These agreements provide a mechanism for Non-Resident Indians (NRIs) to claim relief from double taxation on their income. The primary purpose of DTAAs is to promote economic cooperation by ensuring that individuals and entities are not unduly burdened by taxes in both their country of residence and where the income originates.

NRIs can claim DTAA benefits to either reduce their tax liability in India or claim a credit for taxes paid in India against their tax liability in their country of residence, depending on the specific DTAA provisions. To avail these benefits, NRIs must submit Form 10F to the Indian tax authorities, along with a Tax Residency Certificate (TRC) from their country of residence. This certificate serves as proof of their tax residency outside India.

DTAA provisions often specify lower tax rates on certain income types, such as interest, dividends, and royalties, or provide for exemption from tax in India for specific income categories. For example, a DTAA might stipulate that interest earned in India by an NRI is taxed at a reduced rate compared to the standard domestic tax rate. These provisions are facilitated by Sections 90 and 90A of the Income Tax Act, 1961. DTAA provisions override the general provisions of the Income Tax Act when they are more beneficial to the taxpayer, ensuring the NRI receives the most advantageous tax treatment.