NRI taxation: File a tax return if you are an NRI that has income in India?

The statement that a non-resident Indian (NRI) does not have to pay taxes in India has a huge asterisk next to it, meaning that “conditions apply.” An NRI is a person who is a person of Indian origin, residing outside the Republic of India. Whether or not you pay tax and how much you are required to pay depends upon your residential status..

Ascertaining residential status and return filing

A person’s residential status depends on the number of days he has stayed in India in the financial year in question and depending upon the same the individual can be categorized as an ordinarily resident, not-ordinarily resident or non-resident.

In case an NRI assumes the status of being an ordinarily resident in India they are liable to paying tax on their global income including his Indian sourced income. Such an NRI is eligible to claim a credit of taxes actually paid in the source country. In order to claim such a credit, the NRI has to e-file Form 67 on the e-filing income-tax portal. An NRI assuming ‘non-resident’ status in India, shall only pay tax on Indian sourced income. However, for an NRI who qualifies to be ‘not ordinarily resident’ in India, foreign income is taxable in India only if it is derived from a business ordinarily controlled in India.

NRIs earning a taxable income of more than Rs 2,50,000 are required to file tax returns in India. However, in case the NRI is a non-resident as per their residential status, and their income consists only of investment income and long-term capital gains and applicable taxes have been deducted on such income, then such an NRI is not required to file a return of income. The deadline for filing the return for the tax year 2017-2018 is July 31.

Special provisions for NRIs

Interest earned on Non-Resident (External) Account and Foreign Currency Non-Repatriable account in any bank is tax-free. Additionally, in case the NRI is a non-resident, then interest income on notified savings certificates or bonding is exempt from taxation. Investment income from a foreign exchange asset is be taxed at a special rate of 20% and long-term capital gain on certain assets is be taxed at 10%. Certain benefits, including, Chapter VIA deductions (LIC premium, mediclaim insurance premium, eligible donations, interest on savings bank interest) do not apply, unless, the NRI has any other income in addition to the above mentioned special tax-rated incomes.

What about an Indian working abroad?

Let’s say, Mr A, an Indian national, migrated to Singapore for the reason of his employment and only stayed in India for 170 days in the financial year of migration. Since he remained in India for less than 182 days, he qualified to be a non-resident in India during that year. Accordingly, he shall be taxed in India only on the income he earns in India in that year. Similarly, in case his income exceeds Rs. 2,50,000, he will have to file his tax return in India.

Except for certain special provisions an NRI is taxable in India in a similar manner as any other Indian tax payer.

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