Tax Returns for Non-Resident

Last Updated at: Sep 15, 2022
All You Need to Know About Income Tax Returns for Non-Resident India
NRI or not, every individual must file a tax return if their income exceeds the defined limit. But note that NRIs are only taxed for income earned/collected in India. So, Rahul will pay taxes on income earned while in India, and income accrued from FDs and savings accounts.


NRIs also have a duty to file a tax return in India. The rules to the NRI income is totally different from the Indian earned income.It is essential for the NRIs to decide the tax residency status in order to control the tax liability. For NRIs the tax liability depends on nature of income.

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Taxability in India extends to Indian Citizens, however, the law doesn’t exclude income earned abroad by the non-resident Indians. Even NRIs have the obligation to file a tax return in India. The rules and perks applicable to NRI income are drastically different from the domestically earned income. For an NRI it is essential to determine the tax residency status in order to determine the tax liability. The tax liability fixed upon NRIs can differ depending upon the nature of income. Below is a brief of the nature of income and the associated tax liability. The general rule relating to taxability of the income of an NRI is that all income that arises, accrues or is deemed to arise and accrue or is received or deemed to be received in India is taxable.

Nature of Income Tax Liability for NRIs
Income that accrues or arises in India or is deemed to accrue or arise in India Taxable
Income which is received in India or is deemed to be received in India Taxable
Income accruing outside India from a business of profession set-up or run in India Non-Taxable
Other Income (has no relation to India) Non-Taxable

In order to determine the exact tax-liability, perks, exemptions and another tax-related issue, you need to consider the following aspects about the status of the assessee.

Tax-Residency Status of the Assessee:

Taxing law recognises two types of people- residents or non-residents. The criteria that demarcate the two residency statuses are as follows:

  • If you have stayed in India for at least 182 days to be exact(approximately 6 months) during the financial year, then you will be taxed as a resident.
  • If you have stayed India for 60 days(approximately 2 months) for the year in the previous year and have lived for o365 days(One Year) in the last four years, then you will be taxed as a resident.

Note: Only the first condition requires to be fulfilled to determine the tax residency of:

  1. An Indian citizen working abroad or a member of a crew on an Indian ship
  2. A person of Indian Origin (PIO; one whose parents or any of the grandparents were born in undivided India) who is on a visit to India.

If you do not fulfil the above conditions, your residency status for the purpose of determining the tax will be that of a Non-Resident under Section 2(30) of the Income Tax Act, 1961. The tax residency status changes from year to year depending upon the duration of one’s stay in India. It is important to determine the tax residency because, if an NRI fulfils the above-mentioned criteria and is seen to be a resident his global income (irrespective of the fact that income is earned or has accrued to a taxpayer outside India) will be taxed. However, if it can be determined that the above-mentioned criteria are not fulfilled and the assesses residency status is that of a Non-Resident then only the income which is earned or accrued in India is taxable.

 Examples of Income arose or accrued in India or deemed to have arisen or accrued in India:

  1. Salary received in India or salary for service provided in India.
  2. Income from a house property situated in India.
  3. Capital gains on transfer of asset situated in India.
  4. Income from fixed deposits or interest on the savings bank account

Therefore, if the income of an NRI is arising or accruing in India or is deemed to arise or accrue in India or is received or deemed to be received in India, it shall be taxable. However,  returns for tax are not always mandatory, but only so if the following cases arise:

  1. Before claiming any deductions, the sum total of his taxable income from all sources exceeds the basic exemption limit of Rs 2,50,000. The calculation of total taxable income is to be done as per the Budget of each financial year.
  2. In cases where the sum total of taxable income doesn’t exceed Rs.2,50,000/- but the NRI is claiming benefit under a tax treaty, the filing of  IT Returns is mandatory.

Exemptions to Non-Resident India:  

The basic exemption that arises in case of an NRI as an assessee is that if the sum total of his total taxable income is less than Rs.2,50,000 in a given financial year. However, there are certain other operative exemptions, listed below:

  1. If a nri tax in india is covered by the special provisions of Chapter XII-A, he may choose not to file a tax return, if his income consists only of capital gains which charged to tax at a flat rate of 20%.
  2. NRIs only having interest income (given in Section 115A which is charged to tax at a flat rate of 25%) may also choose not to file their IT returns.

The general rule related to tax of the NRI’s income is that all the income which accrues or arises, is deemed to accrue or arise or is received or deemed to be received are taxable. Inorder to control the exact tax-liability exemptions, perks and for any tax related issue, you have to consider aspects about the status of the assessee.

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