NRI Tax Return in India- FY 2020-21 (AY 2021-22)
The due date for filing Income Tax Return in India for FY 2020-21 has been extended to 31st December for individuals, HUF and non –audit assessee from original due date of 31st July 2021.
For the benefits of NRIs, OCIs, PIOs we have summarized few points which shall be kept in mind while filing NRI Tax Return in India.
1. Determination of Residential Status of NRI
Residential status plays a very significant role in determining the taxability of income of NRI in India. In case of Resident and Ordinary Resident, his global income becomes taxable in India. However, in case of Non Resident and Not Ordinary Resident, only Indian income is taxable and not the income earned in foreign country.
Accordingly, NR and NOR need not to show their foreign income in ITR.
However, in case NR or NOR received their foreign income directly into Indian bank account, same will be liable to tax in India and shall be shown at time of tax return filing in India.
There are 2 exceptions to above:
- As per judicial pronouncements, if NR or NOR received foreign salary in NRE Bank account in India, same will not be liable to tax in India.
- As per CBDT circular, in case merchant navy workers and seafarers receive their foreign ship salary income in NRE Bank account, same will not be taxable in India.
Therefore, in aforesaid 2 cases, no need to show foreign source income in Indian Income Tax Return. However, in order to avoid litigation, it is advisable to avoid receiving foreign income in Indian bank account.
2. Claiming the Treaty Benefit between 2 countries
In case of NRIs or expats, following situations may arise:
- Income arising in Source Country and person is Resident in another country
- Person becoming Resident in 2 countries
- First situation arises when an Indian Resident becomes NRI and residing in foreign country. Also, he has earned income in India in form of rental or interest or capital gain etc. Similarly, an expatriate of foreign country becomes Resident in India and earned interest or dividend income etc, in such a situation, NRI or expat can claim treaty benefit i.e Double Taxation Avoidance Agreement (DTAA) between 2 countries. DTAA allows lower rate of taxability in source country or as per DTAA, NRI/expat can claim credit of taxes paid in source country as foreign tax credit in other country i.e Resident country.
In such cases of NRI Tax return filing, special care should be taken while putting information in the ITR as well as while doing tax computation. Here, in the Income Tax return, details of foreign tax payment need to be mentioned.
- Second situation arises when during a financial year, an Indian citizen has went abroad for business or employment purpose after staying in India for 182 days or when a NRI returned back to India or an expatriate or foreign citizen has come to India for business or employment. In such a situation, Tie Breaker Rule is applied as per DTAA between 2 countries to ascertain in which country such person would be considered as Resident. Accordingly, his tax liability would be computed and ITR filing would be done.
3. Resident needs to report foreign assets and bank account in ITR form
In case of Residents and ordinary Residents, their details of foreign bank account and foreign assets needs to be provided in the Income Tax Return. This will also be applicable to NRI who has returned to India during previous year and became resident as well as to expatriates working in India and became resident. However, not applicable to NRI, POI, OCI since they are Non Resident in India.
4. Dividend received would also be taxable (wef FY 2020-21)
Previously, dividend income received was exempt in the hands of shareholders, however, wef FY 2020-21, dividend income from shares or mutual funds is taxable in the hands of shareholders. Therefore, all NRIs receiving dividend income shall report such income in their Income Tax Return otherwise there may be notice issued by tax authorities.
5. Exempted income shall also be reported in tax return
It may be noted that every tax payer need to also report exempt income received during the financial year in their ITR. NRI should also report details of exempted income like Interest from NRE account, Interest from FCNR etc. Non reporting of same in NRI Tax return, may lead to issue of notice from tax authorities.
6. Whether Income Tax Return filing mandatory even when no taxable income
NRI Tax return filing in India is compulsory only when there is taxable income and it exceeds Rs 2.5 lac. However, even when taxable income does not exceed Rs 2.5 lac, still it is advisable to file tax return in following cases:
- When refund of TDS needs to be claimed
- Copies of ITR filing is required for VISA purpose
- In order to show continuity of ITR filing every year.
- In order to carry forward the loss
- In order to avoid receiving Income Tax notice from tax authorities
- In case loan needs to be taken from banker
For all aforesaid reasons, Income tax return filing shall be done even if it is not mandatory.
7. In case of refund- Correct bank details need to be mentioned
Most of the NRI tax returns shows refund of taxes since most of the income are either exempted or subject to high tax rates and in order to get proper credit of refund in bank account, it is important to mention all the bank details correctly otherwise refund will not be credited. Also, in case of NRIs, they have to provide bank details of NRO account for refund and not NRE account.
8. Filing of NRI Tax Return
Following points shall be kept in consideration while doing final filing of NRI tax return.
- Choose correct ITR filing form for NRI
- ITR shall be filed online only
- E verification of ITR filed shall be done or ITRV need to be submitted to CPC Bangalore within 120 days of filing of ITR
- Keep record of all documents so that any time of Income Tax Assessment, basis of filing ITR can be explained.