Global Indians are important contributors to Indian forex reserves through remittances and investment in various Indian asset classes. The Indian Central and state governments, therefore, actively encourage overseas investments and incentivise the process through multiple schemes. With great honour comes even greater responsibilities of filing tax returns in India. As the return filing date has been crossed, NRIs who have not filed their ITR yet should consider filing ‘Belated Returns’. A tax return filed after the due date is referred to as ‘Belated Return’.
Filing tax returns comes with many advantages for Global Indians. Firstly, it is important to understand the kind of income that is taxable in India and what constitutes such an income. India, like a majority of the world economies, follows ‘Residency’-based taxation and not ‘Citizenship’-based taxation.
Indian citizens who are Persons of Indian Origin (PIO), Overseas Citizens of India (OCI), or Foreign Citizens and who are residents of India for more than 182 days have to pay tax and file income tax return in India. The income tax filing is usually based on his/her global income and is subject to the conditions of DTAA (Double Tax Avoidance Agreement). In case of NRIs/PIO/OCI, who have lived for less than 182 days (in any financial year in India), will have to pay tax and file income tax return only on the income earned in India.
CBDT has prescribed TDS for NRIs for various asset classes and the TDS rate for NRIs is higher than that for Resident Indians. For example, for sale of property the TDS for NRIs is @20% + surcharge + cess while for resident Indians the TDS is 1% of the sale value of the property. Further, NRIs whose income in India from all sources is below Rs 2.5 lakh per annum will be exempted from paying any further taxes and can in fact claim refunds. In majority of the cases for NRIs the total TDS amount deducted in a given financial year is higher than the total tax payable, for which a refund can be claimed from Income Tax Department by filing income tax return. They can also claim benefit under DTAA (Double Tax Avoidance Agreement); and can claim tax benefit in their country of residence for the tax already paid in India.
If NRIs own more than one property in India, as under income tax rules, there is an incidence of presumed rental income on the second property, which again many NRIs are unaware of. Since the tax compliance in India has become strict and most of the data is available electronically, an increasing number of NRIs has started getting assessment notices for not filing income tax returns. Another advantage of filing IT returns is that NRIs like Resident Indians can also claim exemptions and deductions available under income tax and carry forward any loss on their investments in India. They can claim benefit under Section 54, 54 EC, 54 F for capital gains. For repatriation of funds in an NRO account, NRIs will need to obtain a form 15 CA/15CB, which they can only get after payment of the applicable tax.
It is, therefore, very important for NRIs to file income tax returns in India, even if they have Nil income or if they want to claim refunds only. In the present scenario, they should consider filing ‘Belated Returns’