Which ITR Form to File for an NRI With Indian Income?

Income Tax Returns (ITRs) in India serve as a formal declaration of an individual’s income and tax liability to the government. For Non-Resident Indians (NRIs), navigating these requirements can present specific challenges due to their unique tax status and income sources. Selecting the appropriate ITR form is a fundamental step to ensure compliance with Indian tax laws and avoid potential discrepancies. This selection process depends on factors such as the type and amount of income earned in India.

Understanding NRI Tax Status

An individual’s tax liability in India is primarily determined by their residential status, which differs from their citizenship. The Income Tax Act of 1961, Section 6, outlines the criteria for determining whether an individual is considered a Resident, Resident but Not Ordinarily Resident (RNOR), or Non-Resident (NR) for a given financial year. This assessment dictates the scope of income taxable in India.

Generally, an individual qualifies as a Resident if they are in India for 182 days or more during the financial year. Alternatively, residency is established if they are in India for 60 days or more in the current financial year and 365 days or more during the four preceding financial years. However, special provisions apply to Indian citizens or Persons of Indian Origin (PIOs) visiting India, where the 60-day period extends to 182 days.

If an individual does not meet these residency conditions, they are classified as a Non-Resident (NR). For NRIs, understanding this annual residential status directly impacts which of their income is subject to Indian taxation.

Indian Income Tax Rules for NRIs

For Non-Resident Indians, only income that accrues or arises in India, or is deemed to accrue or arise in India, is subject to Indian income tax. This principle aims to tax income with a significant economic connection to India, even if the recipient is not physically present in the country. Income earned outside India is generally not taxable for NRIs in India.

Specific examples of income typically taxable for NRIs include salary for services performed in India, rental income from property located in India, and capital gains from the transfer of assets situated in India. Interest earned from Indian bank accounts, dividends distributed by Indian companies, and fees for technical services or royalties received from Indian sources are also taxable. While Double Taxation Avoidance Agreements (DTAAs) can offer relief to prevent income from being taxed in both India and the country of residence, the determination of taxable income for an NRI stems from its Indian connection.

Choosing Your Income Tax Return Form

Selecting the correct Income Tax Return (ITR) form is a step for NRIs, as the choice depends on their specific income sources and financial profile in India. Filing the wrong form can lead to notices from the Income Tax Department, processing delays, or even penalties. NRIs are generally not eligible to file ITR-1 (Sahaj) or ITR-4 (Sugam), which are typically designed for resident individuals with simpler income structures or those opting for presumptive taxation.

The most common ITR form for NRIs is ITR-2. This form is suitable for individuals and Hindu Undivided Families (HUFs) who do not have income from a business or profession. NRIs can file ITR-2 if their income includes salary, capital gains (short-term or long-term) from Indian assets, rental income from one or more house properties, and income from other sources like interest or dividends. It is also the appropriate form for NRIs who have foreign assets or foreign income, even if that foreign income is not taxable in India.

NRIs who have income from a business or profession in India are generally required to file ITR-3. This form is comprehensive and covers income from salary, house property, capital gains, and other sources, in addition to business or professional income. If an NRI is a partner in an Indian firm, they would also use ITR-3.

Preparing Your ITR for Filing

Before commencing the Income Tax Return (ITR) filing process, Non-Resident Indians (NRIs) need to gather various documents and information. Organizing these details in advance streamlines the filing experience and helps ensure accuracy. A Permanent Account Number (PAN) is a mandatory identification for tax purposes in India and is essential for filing. Along with the PAN, passport details and proof of foreign residency or a valid visa are necessary to confirm NRI status.

Bank statements for both NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts are required to report interest income, as interest on NRO accounts is taxable in India. For salary income earned in India, Form 16, issued by the employer, provides details of income and Tax Deducted at Source (TDS). For other income where tax has been deducted, such as interest or rent, Form 16A (TDS certificates) and Form 26AS, which provides a consolidated summary of all tax credits, are needed.

Details of any capital gains, including sale deeds and purchase records for assets like property or shares, should be compiled. Proof of investments made in India for claiming deductions under sections like 80C or 80D must also be readily available. If claiming benefits under a Double Taxation Avoidance Agreement (DTAA), a Tax Residency Certificate (TRC) from the country of residence and Form 10F are required. The Annual Information Statement (AIS) and Taxpayer Information Summary (TIS) also provide a comprehensive overview of financial transactions and should be reviewed.

Submitting Your Income Tax Return

Once all necessary documents are prepared and the correct ITR form is selected, NRIs can proceed with submitting their Income Tax Return, predominantly through online e-filing. The official e-filing portal of the Income Tax Department (www.incometax.gov.in) is the platform for this process. Taxpayers must log in to their account on this portal using their credentials.

After logging in, the appropriate assessment year and the prepared ITR file are uploaded. A final step in the filing process is e-verification, which confirms the authenticity of the submitted return. Without e-verification within 30 days of filing, the ITR is considered invalid.

Several methods are available for e-verification, including Aadhaar OTP, net banking, or through a pre-validated bank account. For those with an Aadhaar card linked to their PAN, an OTP can be received on the registered mobile number. Alternatively, e-verification can be completed by logging into the net banking portal of a designated bank, which then redirects to the e-filing portal for verification. Upon successful e-verification, an acknowledgment (ITR-V) is generated, which should be saved for records.