How a Non resident Indian is taxable in India

NRI having income during the financial year from any Indian source will be liable to tax. Any income which is incurred outside and received in India will also be taxable in India. Incomes like salary for services rendered in India, sale of any capital asset are liable to tax even though the individual is a non resident Indian.

Your residential status does impact your tax ability in India. You will be treated as an NRI based on your residential status in India. For tax purpose, IT act has defined the conditions to be fulfilled for an individual to treat him/her as resident or non resident. If you as an Indian citizen satisfy the conditions for becoming a non resident then you will be treated as an NRI. If during the financial year you have crossed the number of days staying in India then you will be treated as resident even though last year you were non resident Indian.

Recommended read: NRI – Residential conditions for NRI

NRI – How a Non resident Indian is taxable in IndiaNRI having taxable incomes are liable to file IT return before 31st July of the assessment year related to the financial year in which incomes are generated if either of these conditions is fulfilled;

  1. Taxable income in India for the financial year is above the basic exemption limit applicable to that year. For financial year 2012-2013 and 2013-2014 basic exemption limits for an individual below 60 years of age is Rs. 2, 00,000 and if your age is 60 or above 60 years then limit is Rs. 2, 50,000. or
  2. Incurred short term and/or long term capital gain during the financial year by selling investments or assets. In this case you will be liable to file your IT return even if it is less than basic exemption limit.

However, if such due date for a financial year has been extended then such extended date will be treated as the due date. Like for financial 2012-2013 (i.e. Income generated between April 2012 to 31st March 2013) due date of filling IT return has been extended from 31st July 2013 to 5th august 2013.

Recommended read: Basic exemption Limit for Income tax

Such IT return can be filled online or can be filed in hard copy with the IT department. However if taxable income is more than Rs. 500000 then the NRI has to compulsorily file IT return electronically (earlier this limit was Rs. 10, 00,000). Failure to file IT return on or before the due date may attract interest penalty @ 1% per month based on your tax liability.

Non resident Indians (NRI) are also eligible to get IT exemption for the capital gain that is generated by selling residential house property if another house property is brought within the specified time limit.

Recommended read: Section 54 of IT act – capital gain exemption on sale of residential house property

Similar exemptions are also available if certain specified assets like shares in Indian company, debentures and deposits issued by Indian public company and central government securities are sold and the sale considerations are reinvested is specified shares within 6 months of time.

NRI also need to take the double taxation agreement that India has signed with the country where they are residing. They will definitely get some kind of tax relief that they paid because of their Indian income.

In certain cases like interest from bank or house rent generated in India are liable to tax deduction at source (TDS) if it exceeds the specified limit as prescribed in IT act. If you have not provided PAN to such deductor then they will be deducting tax @ 20% instead of the tax rate applicable to you (general TDS rate is 10%). To avoid this you need to obtain a PAN number and communicate the same to the deductor. At the end of year you need to collect form 16A from the deductor and file your tax return based on that.

In certain cases NRI are not required to file their tax return if income tax has been deducted at source. Followings are two cases where tax returns are not required to file;

  • If you have interest income from investments in India or capital gain income from sale of investment or capital assets and from such income, tax has been deducted at source then you need not file your tax return.
  • Capital gain on sale of equity shares or mutual fund are not required to include in your tax return as you need not required to pay any tax on it.

However, if your tax deducted is less than your tax liability then you can claim refund from IT department and to claim refund you need to compulsorily file your tax return.

If you have missed the due date of filling income tax return i.e. 31st July then you can still file your income tax return before the end of the assessment year without any penalty. However, if income taxes are not paid before the due date then you will be liable for interest penalty otherwise you are not required to pay any penalty.

If you want to file you income tax return after the end of the assessment year then you can still do so within one year from the end of assessment year with penalty of Rs. 5, 000. You need not pay penalty while filling your income tax return. If your assessing officer requires you to pay it then you need to pay penalty amount.

Recommended read:

  1. TDS on income tax
  2. NRI PAN – How to apply for it in India

Editorial Staff at Yourfinancebook is a team of finance professionals. The team has more than a decade experience in taxation and personal finance.