Saturday, July 30, 2016

Does a NRI need to file Income tax if no income in India?

The short answer is No, you don't need to file income tax in India if you have no income but it's very rare that you don't have income. You might not have salary income because you are employed overseas but you could have income as interest generated by bank fixed deposit, rental income generates by your flats in India, a royalty paid to you by your book published and sold in India, dividend paid on your stock market investment in India.


Though, it's not mandatory for an NRI to file income tax in India there are certain scenarios when NRI has to file income tax even if they don't have any salaried income. In this article, I'll share some important details about Non Resident Income tax, which I think every NRI should know. It's very  basic information but I have seen many Non-resident doesn't know about it, especially the young breed of IT people who has just been on their first trip to the United States or Europe.


Important details about NRI filing Income Tax in India

Here are some of the fundamental but important information related to filing income tax in India. It includes details related to when exactly you need to file income tax, exemptions available to NRI e.g. they are exempted from filing income tax if they only have investment income and TDS is already deducted. Though I always advise to file ITR and get the refund if investments are your only income in India.


1) First thing first, you need to find your residential status for a given financial year because tax obligations and rules are different for residents and non-residents taxpayer in India. There are deductions which are only available to resident tax payer also NRIs need to pay higher TDS than resident such as in the case of interest earned on NRO fixed deposits. Check out this post to find out your residential status for a given financial year.


2) It's not mandatory for NRIs to file income tax return in India. You should only require to file income tax return if your total taxable income is greater than basic exemption limit i.e. 2.5 lacs in a given financial year without considering the deductions under section 80C and 80U. This 2.5 lacs exemption limit is valid for the financial year 2014-15 and 2015-16.


3) While calculating your total taxable income for income tax purpose incomes earned from tax-free instrument such as interest on NRE and FCNR deposits as also long-term capital gains from equity and equity MFs, if any, will not be taken into consideration. This is the most common doubt among NRIs who have invested a good amount of money on NRE fixed deposits. So if you only have income in terms of interest earned on NRE fixed deposit than you don't need to file income tax returns in India because interest earned on NRE fixed deposit is not taxable in India.


4) NRIs don't need to file income tax return if your taxable income consisted only of investment income e.g. interest on NRO fixed deposit and/or short or long term capital gains income and if tax has been deducted at source from such income, but remember you cannot claim the TDS back. Many a times you can save that tax by filing income tax return and making some tax saving investment e.g. buying equity linked mutual funds.


5) An NRI must file the income tax return in India when he wants to get a tax refund against the TDS or he wants to carry forward losses so that they can be adjusted later. See this post to learn more about when does NRI needs to file income tax in India.


6) Financial year in India runs from 1st April to 31st March. So, the financial year 2015-16 means the period between 1st April 2015 to 31st March 2016. So, if your income during this period is more than 2.5 lacs before any deduction under section 80C and 80U then you need to file income tax returns.


7)When do you have to file the return if required to pay income tax? You need to file the returns before the last day of filing, 31st July of every year e.g. 31st July 2016 for the financial year 2015-16. That's why it's important to know the last date for filing income tax returns in India, otherwise you need to pay the penalty.


The last date to file income returns for any financial year is 31st July next year e.g. for the financial year 2015-16 the last day of income tax return filing would be is July 31st, 2016. However, If you do not have any income tax payable i.e. all your taxes has already been deducted at source from bank or broker than you can still file the income tax return by 31st March 2017 without any penalties.

On the other hand, If you do have some tax payable depending upon final calculation than also you can still file your income tax returns by 31st March 2017 but you need to pay a penalty. You will be charged an interest of 1% per month for every month of delay starting from 31st July 2016 till the time you file your tax returns.

Does a NRI need to file Income Tax When there is no income in India? No

8) You should take advantage of tax deductions and exceptions applicable to NRIs e.g. you can reduce almost 1.5 laks from your taxable income by taking advantage of deductions available under section 80C. Here are some of the tax deductions allowed for NRIs under section 80C:

i) Life Insurance Premium Payment
If you have an LIC policy or life insurance policy from any other insurer e.g. Max Life, ICICI Lombard or Bharti Axa then you can claim the premium paid against section 80, provided you meet the following conditions :
The policy must be in the NRI's name or in the name of their spouse or any child's name (child may be dependent/independent, minor/major, or married/unmarried)
The premium must be less than 10% of sum assured.

ii) Investment in ELSS e.g. Birla Sun Life tax saving fund, ICICI Prudential tax saving funds

iii) Premium paid against ULIPs
You can also claim tax deductions upto 1.5 lacs against the premium paid for ULIPs or Unit Linked Insurance Plans .

iv) Premium paid against the health insurance for family members including parents. NRI can buy health insurance for his family e.g. spouse, children and parents and claim money under section 80D, see here to learn more about tax benefit of buying health insurance in India.


9) Take advantage of DTAA (Double Tax Avoidance Agreement)
If you are an NRI and end up paying tax on same income on two countries i.e foreign country where you are currently staying and earning and India due to your residential status for tax purpose turns out to be resident for a given financial year than you can take advantage of DTAA to claim refund on already paid tax on any of the two country. This mostly happens with IT professionals who are on short visits to foreign countries like UK and USA.

DTAA stands for Double Tax Avoidance Agreement is an agreement between two countries to avoid taxation of same income in both the countries. If India and the foreign country you are currently staying have DTAA signed between them and If you have earned an income which is taxable in a foreign country and has to be offered to tax in India then you should take help of CAs to take benefit of DTAA.


That's all about when does NRIs need to file income tax return in India and what they should know about filing income tax and deductions and exemptions applicable to NRIs. You need not file income tax return if you don't have any income but you have to if you have any income outside investment income e.g. rentals. You should also file income tax returns if you want to claim the money back which is deducted as part of TDS or you want to carry forward the losses you made on your Equity investment to be adjusted next year.


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