If you are an NRI filing tax returns in India, this checklist is a must

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NRIs applying for tax refunds have to share foreign bank account details.

India's overseas population is the largest in the world with 16 million people. Most non-resident Indians (NRIs) have bank accounts, investments in shares/bank deposits, house property and other assets in India and are required to file tax returns in India by 31 July 2017.

Here are the certain check points from NRIs perspective, which they should consider while filing their tax returns in India.

Determination of their residential status in India

It is important for NRIs to ascertain their residential tax status in India depending upon their period of stay for a particular financial year (1 April to 31 March). This is a pertinent check point as the global income of an individual who is a resident of India is taxable and in the case of non-residents, only their income from sources in India is taxable.

It may be pointed out that residency test under the Foreign Exchange Management Act (FEMA) is different from the test given under the Income Tax Act and the same is not relevant for tax purpose.

Under the Income Tax Act, an Indian citizen who leaves India for an employment purpose, or an NRI who visits India, can stay for up to 181 days without losing his non-residential status in India. The day of arrival, as well as the day of departure, is considered as stay in India.

Changes in the return of income for AY 2017-18

For reducing compliance burden ITR 1 – (SAHAJ) has been introduced replacing SAHAJ ITR-1 for individuals. NRIs having only passive income can use this simpler ITR-1 for filing their tax return.

ITR 1 – (SAHAJ) is applicable to individuals having salary income, one house property and other sources income such as interest. One of the new conditions for usage of this form is that the total income should be less than Rs 5 million.

ITR 2 is introduced, which will replace previous ITR 2, 2A and 3. Individuals not covered in SAHAJ ITR-1 will be covered in ITR 2. It is also applicable to HUFs. However, individuals and HUFs must not carry any business or profession. NRIs, who have taxable capital gains or income from more than one house property, shall be required to file their return of income in ITR-2.

Quoting of Aadhar card number not mandatory for NRIs in their return

The Central Board of Direct Taxes (CBDT) has clarified that the requirement to quote Aadhaar as per section 139AA of the Income Tax Act shall not apply to an individual who is not a resident as per the Aadhaar Act, 2016.

Details of assets and liabilities to be furnished in schedule AL of the ITR for AY 2017-18

NRIs having total income above Rs 5 million are required to report the cost of certain assets (movable as well as immovable) located in India and the corresponding liabilities under the schedule of assets and liabilities (Schedule AL). This schedule is contained in ITR 2, 3 & 4.

Recent CBDT clarification on optional reporting of details of one foreign bank account by the non-residents in refund cases

On 24 July, 2017, CBDT clarified that non-residents who are not claiming refund or non-residents who are claiming a 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, non-residents who are claiming income tax refund but do not have a bank account in India may furnish the details of one foreign bank account in the return of income for the issuance of refund. Further, non-residents are not required to report their assets and financial interests outside India.

Obligation to file return income in case of exempt long-term capital gain

Where the taxable income of the NRIs are below the basic exemption limit, but the exempt income is more than the basic exemption limit (i.e. Rs 250,000), then also they are required to file the return of income.

Until last year, up to FY 2015-16, a taxpayer (individual or HUF) was required to file his return of income if his total income without considering the deduction under Chapter VI-A exceeds the basic exemption limit. For instance, if an NRI has only exempt long-term capital gains income of Rs 575,000 and has no other income, he shall still be required to file his return of income as the long term capital gains (without considering the exemption) exceeds Rs 250,000.

Availing benefit under the Double Tax Avoidance Agreement (DTAA)

To claim the DTAA benefit, firstly, it needs to be ascertained whether a particular income is taxable in India or not as per Indian domestic tax law. Once it is determined that the income is taxable in India, it has to be checked whether India has signed a comprehensive DTAA with the country of residence (India has signed around 90 such DTAAs, including USA, UK, UAE, Singapore) of NRI and the NRI must furnish a Tax Residency Certificate (TRC) issued by the tax authorities of that country (in certain case also furnish a self-declaration in Form 10F).

Depending on the type of income, relief under DTAA can be claimed (income may be entirely exempt, or may be taxable at a lower rate). If income is taxable even under the DTAA, the 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.

Certain aspects that need to be taken care of while finalising the Indian tax returns:

Reporting of passive income - It is pertinent to report all the bank interest (savings and fixed deposit), post office interest in the return of income. Central Board of Direct Taxes has clarified that the interest credited/received on deposits is taxable unless exempt under section 10 of the Income-tax Act. Such interest income should be shown in the return of income even in cases where Form 15G/15H has been filed if the earning is not exempt under section 10 of the Income-tax Act and the total income of the person exceeds the maximum amount not chargeable to tax.

Filing of exempt income details - Also, ensure to 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, among others, even though it has no tax impact under the schedule of exempt income.

Reconciliation of Income and Taxes with Form 26AS - Do reconcile the TDS credit or advance taxes paid, which you are claiming in the tax return with TDS credit /advance tax paid reflected in Form 26AS.

Time limit for filing a belated return reduced by 1 year - Effective FY 2016-17 (The assessment year 2017-18), a belated return can be filed till the end of the relevant assessment year. Thus, time available for filing a belated income tax return for assessment year 2017-18, would be up to 31-3-2018 and not 31.03.2019.

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