If you have moved abroad and now reside in a new country as a Non-Resident Indian (NRI), you might wonder if filing income taxes in India is mandatory for you. The short answer is yes. While the income earned outside India will not be taxed here, according to the Indian taxation laws, NRI incomes that are generated or accrued in India are taxable, and thus, you will have to file an ITR for NRIs.
However, you don’t have to worry. While tax returns may seem complex to navigate as an NRI, in this article, we will walk you through the step-by-step process of filing NRI income tax returns and explain each step in detail. We will cover all the steps involved in the tax filing—from determining your residency status to verifying your filed returns towards the end.
NRI income tax return filing: A step-by-step guide
Overall, we have broken down the process for filing ITR for NRIs into 8 easy steps. Let us first look at the summarised steps, and then, we will look closely at the details and discuss each step separately.
| No. | Steps |
| 1 | Ascertain your residential status in India |
| 2 | Utilise form 26AS for reconciliation of taxes and income |
| 3 | Calculate taxable income and tax liability |
| 4 | Claim double taxation relief |
| 5 | Choose ITR for NRI and claim exemptions |
| 6 | Provide bank details |
| 7 | Report assets and liabilities |
| 8 | Verify ITR |
Let us now understand each step in greater detail.
Step 1: Ascertain your residential status in India
Before even getting to the income tax return form for NRIs, the very first step for you should be to determine your residential status in India in each financial year. The Income Tax Act of 1961 lays out clear guidelines to ascertain if you will be categorised as a resident or a non-resident for a given year. The framework states that if you stay in India for 181 days or less in the preceding year, you still retain the non-resident status. However, with a stay of 182 days or more, you will be categorised as a resident. Otherwise, if you have stayed in India for 60 or more days in the preceding year but have stayed 365 days or more cumulatively in the four years before that, you will be categorised as a resident. This will easily help you determine your residency status in India for the preceding financial year.
Step 2: Utilise form 26AS for reconciliation of taxes and income
After you have determined the residential status, the next step is to reconcile the Tax Deducted at Source (TDS) offset or input tax that you have already paid on your ITR with the TDS displayed in form 26AS.
Step 3: Calculate taxable income and liability
This step is all about figuring out your total income, which falls under the ambit of taxation as an NRI. Taxable income includes income from sources like bank deposits, stock markets, and real estate. An important facet here is that you can opt for some tax-saving investments like tax-saving fixed deposit, to reduce your income. Post this, you can ascertain your tax liability based on the tax slab you would fall under.
Step 4: Claim double taxation relief
This is a very important step if part of your income falls under the taxation laws of India and the country you reside in. Save yourself from double taxation by leveraging the provisions of the Double Taxation Avoidance Agreement (DTAA). Relief under the provision is based on the type of income, and your income may still be taxable under the law. In this case, you would typically pay the taxes in India and claim credit in the country of your residence.
Step 5: Choose ITR for NRIs and claim exemptions
Post 2017-18, NRIs are required to file their returns in ITR 2, with the exception of business income, which must be filed under ITR 3. In this step, you must also calculate and declare your exempted income, like the long-term capital gains on securities, interest from bonds, deposits, etc.
Also read: Post office tax saving scheme
Step 6: Provide bank details
In this stage, you must provide details of a bank account in India. This is required if you are claiming an income tax refund. You do not have to provide these details if you are not claiming a refund. Also, if you do not have a bank account in India as an NRI, you will be required to provide the foreign bank account details under your name. This is vital to receive the claimed refunds.
Step 7: Report assets and liabilities
Before completing and uploading the NRI income tax returns, you must also report your assets and liabilities. If your total earnings are in excess of Rs. 50 lakh, it will be mandatory to report your total assets (movable and immovable) in India, along with your liabilities.
Also read: How much tax Is deducted on fixed deposit
Step 8: Verify ITR
Finally, the last step after all the calculation and reporting is to upload your NRI income tax return. Post submission, you can verify it within 120 days. Note that the verification is extremely important, and your ITR would be considered invalid without it.
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Conclusion
Filing income tax returns as an NRI may seem confusing and overwhelming at first glance, but it is a manageable process when broken down into clear steps. As outlined in this guide, determining your residential status, reconciling taxes, calculating taxable income, and leveraging provisions such as double taxation relief are crucial steps. Choosing the appropriate ITR form, claiming exemptions, providing bank details, reporting assets and liabilities, and verifying the filed return ensures compliance with Indian taxation laws. By following these steps diligently, you can navigate the process of ITR for NRIs with confidence, ensuring both legal compliance and peace of mind.
