As the last date (31st of July) for filing income tax returns in India draws near, the Non Resident Indians (NRIs) must set up to get their paperwork done. We take a look at the top 5 things that NRIs should keep in mind while filing their India tax return. But before that, let us quickly sum up under what circumstances the NRIs should file their returns in India.
If you are an NRI, you will have to file your income tax returns for 2015-2016, if you fulfill either of these conditions:
1. If your taxable income in India during the year 2015-2016 was above the basic exemption limit of Rs 1.8 lakh
2. If you have earned short-term or long-term capital gains from sale of certain investments and assets, even if the gains are less than the basic exemption limit.
What this means is that firstly, the NRIs do not get the benefit of differential exemption limits on the basis of age or gender which is available to the Resident Indians. Secondly, for the NRIs, certain short term or long term capital gains from the sale of the investments or the assets are taxed even though the total income is below the basic exemption limit. These include the short term capital gains on the equity shares and the equity mutual funds where the tax rate is 15% and the long term capital gains on the securities and the assets where the tax rate is either 20% or 10% without indexation.
There is an exception: If the taxable income consisted only of the investment income i.e., interest and/or the capital gains income and if the tax has been deducted at the source from such income then you do not have to file your income tax returns.
Having laid down the few ground rules, let us look at some of the important practical aspects on filing the income tax returns in India.
1) Mandatory e-filing if taxable income is more than Rs 10 lakh
Recently, the Central Board of Direct Taxes (CBDT) in India issued a notification which has made it essential for the individuals who have annual gross total income that is, income before any Chapter VI deductions like Sec 80C etc., in surplus of Rs 10 lakh to file their income tax returns online from the financial year 2014-2015.
This applies to all the individuals including the non resident Indians. So as an NRI with the gross total income crossing Rs 10 lakh in 2015-2016 then you should file your income tax returns electronically. There are many options for you to do that. You can file your income tax returns on the income tax website for free. But the process can be massive.
2) Beware of interest liability on non-payment of advance tax
As per the provisions of the Income Tax Act, you should pay the advance tax in three instalments during the year in case the tax payable, after adjusting TDS is likely to be more than Rs 10,000 or less. There are interest implications if any of the instalments are not paid or lesser payment of advance tax. Generally, the interest is 1% per month for the default amount and extends till the date of payment. Therefore, the NRIs should calculate if they were subjected to pay advance tax and whether it was paid in time. If not then they will require calculating the interest at 1% for the default and depositing the money before filing the income tax returns.
3) Don't forget to file a return to claim refund
It is possible that you may not have to file an income tax return in India at all. Therefore, do not forget that if you have a refund due then you should file an income tax return and get a refund of any surplus taxes paid. This can happen only when the tax deducted at source is more than the actual tax liability. For example, suppose your taxable income for the year was below Rs 1.8 lakh but the bank deducted tax at source on your interest amount then you can claim a refund by filing your tax return. Another instance is that when you have a capital loss that can be set-off against the capital gains. Tax may be deducted at source on the capital gains, but you can set-off or carry forward the capital loss against the gain and lower your actual tax liability. In such cases, you would you would need to file a tax return.
For example, Ii you are expecting a refund then ensure that you have put exact bank details such as the account number and the MICR code of the branch. If you efile your income tax return then refunds are processed electronically so it is important to give exact bank account details.
4) Consequences of delay
The last date to file your income tax returns for the financial year 2015-2016 is July 31st 2016. Therefore, remember the following:
If you do not have any tax payable that is all your tax has been deducted at source then you can still file your income tax return by the 31st March 2017 without any penalties.
If you do have tax payable then you can still file your income tax returns by 31st March 2017 but you will be charged an interest of 1% per month for every month of delay beginning from the 31st July 2016 till the time you file your income tax returns.
If you do not file your income tax returns even by the 31st of March 2017 then you may be charged a penalty of Rs 5,000 for every year of delaying or sometimes may not be able to file your income tax returns at all after the 2017.
But remember that irrespective of whether you had tax payable or not, you will not be able to avail certain provisions even if you do not file by 31st July. For example, suppose you did not have any tax payable but you did have a capital loss to be carried forward to set off against the future incomes. If you want to avail the benefit of carry forward then you should file your income tax returns by the 31st July 2016.
Moreover, there are several other consequences. You cannot revise a return which was filed late in the first place. You may also lose out on the interest receivable on the refund for the period of delayed filing.
Moreover, there are several other consequences. You cannot revise a return which was filed late in the first place. You may also lose out on the interest receivable on the refund for the period of delayed filing.
5) Exemptions and deductions that you must not miss
If you have been away from India for a very long time then you have perhaps lost track of the changes in the Indian income tax law over the time. Rapidly, recap on the current stand of the law on various incomes.
Dividends from the equity shares and the equity mutual funds are tax free in India.
Interest received on the NRE account and the FCNR account is tax free
Long term capital gains on the equity shares and the equity mutual funds that is the capital gains from the sale after one year of purchase are tax free in India, provided that you pay the securities transaction tax at the time of sale.
If you have given a property on the rent then you can claim an ad hoc deduction of 30% of net annual value as repairs and the maintenance expenses in additional to claim a deduction on the mortgage interest.
If you are paying health insurance premium in India for yourself or your dependents then you can claim a deduction under section 80D. If the health insurance is taken for your spouse and dependent children then you can claim a deduction of Rs 15,000 per annum. An additional of Rs 15,000 is available as the deduction on insurance premium paid on the behalf of your parents. If either of your parents is over the age of 65, the additional deduction will be Rs 20,000 instead of Rs 15,000.
If you are paying health insurance premium in India for yourself or your dependents then you can claim a deduction under section 80D. If the health insurance is taken for your spouse and dependent children then you can claim a deduction of Rs 15,000 per annum. An additional of Rs 15,000 is available as the deduction on insurance premium paid on the behalf of your parents. If either of your parents is over the age of 65, the additional deduction will be Rs 20,000 instead of Rs 15,000.
If you have made any contributions to an approved charity then you can claim a deduction under section 80G.
Investments such as PPF, life insurance premiums, equity linked saving schemes, etc. can be claimed as the deduction under section 80C up to a total of Rs 1 lakh per annum.
Investments such as PPF, life insurance premiums, equity linked saving schemes, etc. can be claimed as the deduction under section 80C up to a total of Rs 1 lakh per annum.
Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.
With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.
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