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Income tax return (ITR) filing: Step by step guide for NRIs
August, 07th 2018

It is important for NRIs to determine their residential status every financial year. This is based on the number of days stay as prescribed under Section 6 of the Income Tax Act 1961 (IT Act). Under the Income Tax Act, an Indian citizen who leaves India for employment purpose or an NRI who comes on a visit to India, can stay up to 181 days in India, without losing his non-residential status. The day of arrival as well as the day of departure is considered as stay in India.

Under the Indian tax regime, Non-resident Indians (NRIs) are subject to tax on their income, which accrues or arises in India or income that is received or deemed to be received in India. As such, there is a requirement to compute and file their tax returns in India, if applicable. Lets look at it can be done.

Step1 - Determination of residential status in India
It is important for NRIs to determine their residential status every financial year. This is based on the number of days stay as prescribed under Section 6 of the Income Tax Act 1961 (IT Act). Under the Income Tax Act, an Indian citizen who leaves India for employment purpose or an NRI who comes on a visit to India, can stay up to 181 days in India, without losing his non-residential status. The day of arrival as well as the day of departure is considered as stay in India.

Step 2 -Reconciliation of income and taxes with Form 26AS
Do reconcile the TDS credit or advance taxes paid, in the tax return, with TDS credit/advance tax, if any paid reflected in Form 26AS.

Step 3 - Determining taxable income
The incomes that NRIs are liable to tax in India include interest on bank accounts held in India, dividend or capital gains from shares held in India, rent from house property, etc. Further, the income shall be reduced by eligible deductions that are available, such as deduction under section 80C.

Step 4 – Determining tax liability
Tax liability shall be determined on the basis of slab rates applicable to individuals. Basic exemption limit for all NRIs is Rs 2.5 lakh, before deductions or exemptions.

Step 5 – Claim Double Taxation Treaty Benefit
In case where NRI's income is taxable in India as well as in foreign country, relief under Double Taxation Avoidance Agreement (DTAA) can be claimed. Relief under DTAA is provided depending on the type of income (income may be entirely exempt, or may be taxable at a lower rate). If income is taxable even under the DTAA, NRIs shall have to pay tax in India and claim the credit of such taxes paid against the tax liability in their country of residence subject to certain conditions. For claiming relief, Tax Residency Certificate (TRC) of the country where NRI is tax resident, is required.

Step 6 – Selection of the ITR
From FY2017-18, NRIs will have to file return in ITR 2, in all cases, other than those having business income. NRIs having business income must file return in ITR 3. ITR 1 is no longer available for non-residents. NRIs do not have to quote Aadhar for filing ITR.

Step 7 – Filing of exempt income details
Report exempt income such as dividends, interest on NRE /FCNR deposit, long-term capital gains on listed securities, interest on tax-free bonds, eligible gifts received, etc, even though it has no tax impact under the schedule of Exempt Income.

Step 8 - Disclosure of bank account details
NRIs, who are not claiming refund, or NRIs who are claiming refund but have a bank account in India, are not required to furnish details of their foreign bank account in the return of income. However, NRIs who are claiming income-tax refund and do not have bank account in India may furnish details of one foreign bank account for issuance of refund.

Step 9 – Furnish details of assets and liabilities in ITR
NRIs with total income above Rs 50 lakh are required to report details of movable as well as immovable assets located in India and the corresponding liabilities under the schedule of assets and liabilities (Schedule AL) in the ITR.

Step 10– Verification of ITR
Once the ITR is uploaded, it should be verified within 120 days. Returns that are not verified will be considered as invalid (as if return was never filed). Option of e-verification is available through net banking account in India. Verification can also be done physically by sending signed ITR V (acknowledgment) to the Income-tax CPC, Bengaluru.

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