Filing tax returns in your native country as a Non-Resident Indian (NRI) can be difficult and complicated. To avoid fines and maintain compliance with the tax laws, NRIs must abide by various rules and regulations when filing their tax returns.
Top Mistakes to Avoid During Tax Return Filing 2023-24
Failing to Produce the Residential Status
Choosing the proper residential status is one of the most important parts of completing a tax return for NRIs. For tax purposes, NRIs are categorised as either residents or non-residents depending on how many days they spend in India in a fiscal year. If the proper residential status is not provided, taxes may be calculated incorrectly and fines may apply. NRIs should maintain account of their time spent in India and get advice from a tax expert to accurately ascertain their residency status. Mistakes to Avoid During Tax Return Filing NRI without understanding the tax laws and regulations that apply to your situation.
Failing to File Tax on Time
Failing to file taxes on time is one of the grave mistakes done by any individual. NRIs must file taxes on time to avoid penalties. An NRI must submit their income tax return in India, just like domestic taxpayers, if their total taxable income in India for the fiscal year exceeds ₹ 2.5 lakhs. The assessment year of July 31 is the deadline for NRIs to file their income taxes.
Not Being Aware of the Benefits
NRIs are entitled to various tax benefits and exemptions under Indian tax laws. For example, NRIs can claim deductions on certain investments and expenses, such as life insurance premiums, home loan interest, and medical expenses, to reduce their taxable income. NRIs should be aware of these benefits and take advantage of them to optimise their tax liability. However, failing to be aware of these benefits can result in higher tax liability.
Not Considering DTAA
When submitting their tax returns, NRIs who reside in nations with which India has a double taxation avoidance agreement (DTAA) should take into account the advantages of the DTAA. A DTAA between two nations forbids taxpayers from paying taxes on the same income in both jurisdictions. NRIs may be eligible for DTAA benefits such lower tax rates, exemptions, and credits, which may have a big influence on their tax obligation. To prevent double taxation, NRIs should be aware of and take advantage of the DTAA laws between India and their place of residence.
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Failing to Maintain Proper Documents
When filing their tax returns, NRIs must maintain the appropriate records. In order to support their tax filings, NRIs should maintain track of all of their earnings, outlays, investments, and deductions. Inaccurate reporting of income, spending, and deductions due to a lack of sufficient documentation may result in fines and interest. To avoid any problems when completing their tax returns, NRIs should make sure they keep precise and comprehensive records of all of their financial transactions.
Failing to Declare all the Income Sources
NRIs frequently have a variety of income streams, including salaries, rent, interest, capital gains, etc. When submitting tax returns in India, it is crucial to disclose all of these sources of income. Failure to disclose all sources of income might result in noncompliance with tax regulations, which could result in fines and legal repercussions. To prevent any potential problems, NRIs should carefully evaluate all of their sources of income and make sure that they are appropriately represented in their tax forms.
FAQs
What is the NRIs' residency status for tax purposes?
For tax purposes, NRIs are categorised as either residents or non-residents depending on how many days they spend in India in a fiscal year.
What advantages are provided to NRIs by Indian tax laws?
To lower their taxable income, NRIs are eligible for a number of tax perks and exemptions, including deductions on investments and costs.
What is the DTAA?
DTAA, or double taxation avoidance agreement, is a pact between two nations to stop citizens from having to pay taxes on the same income in both jurisdictions.
What records should NRIs keep on hand to file tax returns?
NRIs must keep accurate records of all their earnings, outgoings, investment and so on.
What are the common errors NRI taxpayers should steer clear of when filing their tax returns?
Common errors include not reporting global income, misunderstanding tax treaties, missing exemptions, improper residency determination, and disregarding Indian assets.
Can you explain the 120-day rule for NRIs and how it impacts their tax liability in India?
The 120-day rule states that if an NRI stays in India for more than 120 days in a financial year, their global income is taxable in India, affecting their tax liability.
What are the key tax-related challenges that NRIs often encounter?
Key challenges include understanding tax residency rules, managing tax on foreign income, navigating double taxation agreements, and dealing with property taxation complexities.
Could you summarise the latest changes in the taxation rules for NRIs in India?
Recent changes include stricter tax residency criteria, taxation of deemed Indian income, modified TDS rates, and adjustments in property transaction regulations for NRIs.
How does the 60-day rule affect the tax status of NRIs, and what should they be aware of?
If an NRI exceeds 60 days in India during a financial year and 365 days over the last four financial years, they qualify as a tax resident, impacting their tax liability.
Can you elaborate on the significance of the 182-days rule for NRIs' tax residency in India?
If an NRI stays in India for 182 days or more in a financial year, they become a tax resident, subject to tax on their global income.
What is the 4-year rule for NRIs, and how does it affect their tax obligations?
The 4-year rule implies that an NRI becomes a tax resident if they stay in India for at least 730 days in the preceding four years, impacting their tax obligations.
Is there a maximum duration an NRI can stay in India without being liable to pay taxes?
If an NRI stays less than 120 days in India during a financial year, they are not liable to pay taxes in India on their global income.
How many days can an NRI spend in India each year without affecting their tax status?
An NRI can spend up to 120 days in India each year without affecting their NRI tax status.
Conclusion
Avoid during Tax Return Filing NRI that could result in penalties or audits from the government. When filing tax returns as an NRI, it’s important to carefully evaluate a number of variables, including your residency status, the tax filing dates, your benefits and exemptions, the DTAA’s requirements, the maintenance of your records, and the accuracy of your income declaration. To maximise their benefits and ensure compliance with Indian tax rules, Avoid During Tax Return Filing NRI the frequent mistakes. To know more about the mistakes and to clarify all queries, contact our Vakilsearch experts.
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