Returning NRIs (Non-Resident Indians) possess a unique set of issues in managing their income tax in India. While transitioning from NRI to resident, it is important to understand the Indian tax system and its application to your worldwide and domestic income. Properly handling your Indian Income Tax Return can help you easily comply with legal provisions and reduce your tax burden. We are going to discuss the procedures and strategies in this blog that will assist you in managing your Indian income tax return efficiently if you are a returning NRI.
Understanding Your Residency Status
Your Indian tax obligation largely depends on your status of residence, and it is derived from the period of time that you’ve been in the country:
- Resident: If you’re resident in India for 182 days or more in a financial year, you’re a resident for tax purposes.
- Resident but Not Ordinarily Resident (RNOR): There is this special transitional status category of returning NRIs for a few years, where they are charged to tax only on Indian income and not foreign income.
- Non-Resident: If you do not cross the 182-day mark, you are still an NRI, and only your Indian income will be taxed. Knowing your residency status is the key to getting your tax return right.
Taxation of Global Income
When your status is changed from NRI to Resident, your global income is taxable in India. Here’s how various kinds of global income are taxed:
- Foreign Salary: Foreign income becomes tax-paying in India once you are resident.
- Interest on Foreign Bank Accounts: Foreign account interest income must be reported and taxed in India.
- Rental Income from Foreign Property: Foreign property rental income is taxed in India.
- Capital Gains on Foreign Investments: Capital gains arising on sale of foreign shares or foreign mutual fund are taxable in India.
If you are still being treated as RNOR, you benefit from being treated as non-resident for tax purposes for a limited time period, usually two or three years.
Benefits under the Double Taxation Avoidance Agreement (DTAA)
As a repeat NRI, you might have already paid tax on your foreign earnings in the foreign country itself. To prevent double taxation, India has entered into Double Taxation Avoidance Agreements (DTAAs) with many nations. Here’s how you can gain:
- Tax Credit: You can avail a tax credit in India for taxes already paid on the same income abroad.
- Exemption: In some cases, DTAA provisions allow certain types of foreign income to be exempt from taxation in India.
Make sure to provide all necessary documentation, including foreign tax receipts, to claim these benefits while filing your Indian tax returns.
Managing Indian Income and Deductions
As a resident, your Indian income such as salary, rental income from Indian property, or capital gains on Indian investments will be chargeable to tax. These are some of the ways in which you can reduce your tax outgo:
- Section 80C: You can take deductions up to ₹1.5 lakh for investment in tax-saving schemes such as Public Provident Fund (PPF), National Savings Certificate (NSC), and ELSS mutual funds.
- Section 80D: Premiums paid towards your and your family members’ health insurance by you can also reduce your tax payable.
- Home Loan Interest: If you’ve taken a home loan in India, you’re entitled to a deduction on the interest paid under Section 24.
Claiming these deductions will help you pay lower taxes when you return to Indian life.
Filing Your Indian Income Tax Return
Filling your tax return as a return NRI is a many-layered process. Follow this simple guide:
- Calculate Your Taxable Income: Add your worldwide income or Indian income, based on your residency status.
- Claim Exemptions and Deductions: Claim all the available deductions, including under Sections 80C, 80D, and DTAA.
- File Online: Submitting your tax return online is as simple as it can get. Use the e-filing website of the Indian government. Carefully choose the correct form based on the sources of your income.
- Report Foreign Assets: You are required to report foreign assets in your tax return if you are a resident with foreign assets.
Make sure you file on or before the due date (July 31 typically) to avoid penalties.
Conclusion
Managing your Indian income tax return as a returning NRI requires planning and familiarity with the tax laws controlling your global and domestic income. By determining your residency status, taking advantage of DTAA benefits, and taking advantage of deductions, you can reduce your tax burden and ensure compliance with Indian regulations. Taking advice from a tax consultant may also ease the process and provide insights into complex tax matters.
FAQs
- What is RNOR status, and how does it benefit me as a returning NRI?
Ans- RNOR status benefits returning NRIs to be exempted from tax on Indian income as well as foreign income for a brief period. - Is the global income taxable in India after return?
Ans- Yes, global income becomes taxable once you are a resident of India, with the exception of RNOR status. - Can I get tax relief on overseas taxes paid?
Ans- Yes, under the Double Taxation Avoidance Agreement (DTAA), you can claim foreign tax exemption or credits on taxes paid. - Do I have to include foreign bank accounts in my Indian return of taxes?
Ans- Yes, since you are a resident, you need to declare any foreign assets, which would include foreign bank accounts, in your tax return. - Deductions in returning NRIs?
Ans- You may avail deductions under Sections 80C and 80D against health insurance premium paid and investment, among others. - How is foreign property rent income taxed in India?
Ans- The rental income earned on foreign properties is considered to be global income and is assessable in India if you are a resident of India. - Do I have to file my tax return online?
Ans- Yes, the e-filing website of the Indian government provides for easy filing of tax returns by returning NRIs. - What happens if I don’t file my tax return in time?
Ans- If you miss the deadline (usually July 31), you may be liable for penalties and interest on the outstanding tax. - How long is RNOR status?
Ans- RNOR status typically remains for two to three financial years on return to India, with some conditions. - Do I need to close my NRE account on return to India?
Ans- Yes, on becoming a resident, you can either close the NRE account or convert the NRE account into a resident account.
Disclaimer: The information provided here is for educational and informational purposes only and should not be construed as financial, legal, or tax advice. Consult with a qualified professional before making any investment decisions. We do not accept any liability for errors or omissions in this information nor any direct, indirect, or consequential losses arising from its use.
