Many NRIs often wonder whether filing an income tax return in India is mandatory, whether only Indian-sourced income needs to be disclosed, and other related queries. This guide aims to offer a clear understanding of an NRI’s filing obligations. Although NRIs earn their income overseas, that does not exempt them from filing tax returns in India. With the income tax filing deadline of July 31 approaching, NRIs should prepare to file their returns if their total income earned or received in India surpasses the basic exemption limit set by the government for that financial year.

The first step for an NRI is to verify their residential status for tax purposes—whether they qualify as a resident or non-resident for that financial year. While long-term NRIs usually have no confusion regarding their status, individuals who have recently moved abroad or returned after extended stays must carefully evaluate their tax residency.

If you have moved abroad but spent more than 182 days in India during the previous financial year, your global income may come under Indian taxation. Tax residency is determined based on the number of days physically spent in India in a financial year.

As per the Indian Income Tax Act, a person is classified as a non-resident if:

• They stayed in India for less than 182 days in the relevant financial year; or

• They were in India for less than 60 days in the financial year and less than 365 days in the preceding four years.

To determine this, review your passport and track the entry and exit stamp dates, as both the arrival and departure dates are counted in the day calculation.

Any income that is earned or received in India by an NRI is subject to tax in India. Common taxable income sources include:

• Rental earnings from property situated in India

   

• Gains from sale of Indian securities or other assets

   

• Interest income from Indian sources

   

• Capital gains on Indian investments

   

If an NRI works in India, the salary earned for that work is taxable in India, regardless of where the salary is deposited. Conversely, if an NRI works abroad but receives the salary in India, it is considered taxable in India. Moreover, interest earned on NRO accounts (not NRE or FCNR accounts), as well as on fixed deposits and debentures, is also taxable. NRIs are liable to pay tax on capital gains from the sale of immovable property or shares in India.

Is Filing an Income Tax Return Mandatory for NRIs?

The primary question many NRIs have is whether filing a return in India is mandatory. It becomes compulsory for a Non-Resident Indian to file an income tax return in the following scenarios:

• When the total taxable income from all Indian sources (before any deductions) exceeds the basic exemption limit set by the government.

• Even if this threshold is not crossed, filing is still required if the NRI wants to claim benefits under a tax treaty (DTAA).

It’s important to understand that only income earned or accrued outside India is exempt from Indian taxation. However, the interest earned on NRE and FCNR accounts remains tax-free, whereas interest from NRO accounts is fully taxable.

Filing a return is also essential for claiming refunds of TDS or for carrying forward losses to future years.

Eligible Deductions for NRIs

Similar to resident taxpayers, NRIs are also allowed to claim several deductions under Chapter VIA of the Income Tax Act. These deductions are commonly available to both resident and non-resident individuals.

Double Taxation Avoidance Agreement (DTAA) Benefits

India has DTAA agreements with nearly 90 countries. Under this agreement, NRIs must:

• Determine whether a specific income is taxable in India.

• Obtain a Tax Residency Certificate (TRC) from the tax authority of their country of residence.

• Provide a self-declaration in the prescribed format.

Based on the nature of income, relief under the DTAA may be in the form of either full exemption or reduced tax rates. If income is taxable in India under DTAA, NRIs can pay tax in India and then claim credit in their resident country for the tax paid.

Previously, NRIs were required to provide a PAN to avoid a higher withholding tax rate of 20% under Section 206AA. However, the Central Board of Direct Taxes (CBDT) has introduced Rule 37BC, which permits NRIs to submit alternate documents instead of a PAN to avoid the higher rate. These include:

• Full Name

• Email ID and Contact Number

• Address

• TRC (Tax Residency Certificate)

• Tax Identification Number (TIN)

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