Income Tax News: According to a report on Tuesday, the Income Tax administration has requested sworn declarations from non-resident Indians (NRIs) regarding the precise number of days they have spent in India. This follows the department’s recent spate of recommendations to NRIs requesting that they confirm high-value transactions from 2022–2023 and take corrective measures about any non-filing of taxes.
Tax Exemptions for NRIs on Foreign Earnings
These notices have also been sent to non-resident Indians (NRIs) who have created foreign currency non-resident accounts (FCNR) and/or NRE/NRO deposits, according to The Economic Times. The assessment years under examination in several notices range from 2014–15 to 2022–23.
NRIs are exempt from paying tax on foreign earnings and are not needed to report their foreign assets, according to provisions in the Income Tax Act of 1961. But, they are subject to the same tax and transparency laws as residents if they overstay, meaning they spend more than 181 days in India annually. When a visitor’s total income (excluding income from outside sources) exceeds Rs 15 lakh throughout the financial year, they may be required to stay for 120 days.
Determining NRI Tax Obligation in India
An NRI’s income tax obligation in India is based on whether they were a resident for the entire year. When submitting their ITR, non-resident Indians (NRIs) must ascertain their residence tax status in India based on the length of time they spent there during the fiscal year.
After the relevant financial year ends, non-resident Indians (NRIs) with total income over the basic exemption limit of Rs. 250,000 under the old regime or Rs. 300,000 under the new regime, before any deductions or exemptions, must file their tax returns in India by July 31 of the following year.
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The following income is the only ones on which an NRI must pay taxes:
- income from any property, asset, or source of income in India, including capital gains from the sale of a capital asset (like shares or real estate) located in India, income from a business relationship in India, and salary income received for services provided there.
- Dividend income from Indian corporations is regarded as income that has accumulated or originated in India, regardless of where it is received.
- India taxes interest income from savings accounts and fixed deposits kept in Indian bank accounts.
- Similarly, unless they are connected to a business, profession, or other source of revenue that the payer conducts outside of India, royalties or fees for technical services received from a resident are similarly considered income that has accrued or originated in India.
- Taxes on income obtained outside of India do not apply within the country. Taxes do not apply to interest earned on FCNR and NRE accounts. However, non-resident Indians’ interest on NRO accounts is subject to taxation.
Legislative Changes in Residence Status Evaluation
The standards for evaluating an individual’s residence status have been modified by the Finance Acts 2020 and 2021. Let’s examine the revised standards for ascertaining Non-Resident Indians’ (NRIs’) residential status.
Until the end of FY 2019–20, those who were outside of India but visited for fewer than 182 days within a fiscal year were considered Non-Resident Indians (NRIs), which covered both Indian citizens and Persons of Indian Origin. This term was shortened to 120 days by the Finance Act 2020 for visitors whose total income during the financial year (excluding income from overseas sources) exceeds Rs 15 lakh.
NRI is excused from submitting returns
According to sub-Section (1) of Section 139, an NRI is excused from submitting returns if:
- He only received income from investments, income from long-term capital gains, or both, for the entire preceding fiscal year.
- TDS has been withheld from such revenue in accordance with Chapter XVII-B’s regulations.
Tax Regime Options for Non-Resident Indians (NRIs)
Under Section 115BAC of the Income-tax Act, NRIs have the option of choosing the new, lower-tax regime or the old one. They are eligible for the following exemptions under the former:
- Section 80C (tuition cost, LIC policy premium, Ulips, ELSS, and principal amount of home loan) up to Rs 1.5 lakh
- Section 80D (premium on medical insurance)
- Section 80E (interest on education loan)
- Section 80G (earmarked donations)
- Section 80TTA (interest on savings bank account)
Investment Restrictions for NRIs
NRIs are prohibited from investing in the PPF, five-year Post Office Deposit Scheme, Senior Citizens Savings Scheme, or certificates of deposit (NSCs).
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