ITR Filing for NRIs: Rules, Forms, and Exemptions Explained

Non-Resident Indians are often inclined with doubts when it comes to income tax filing in India. Whether working abroad, investing in India, or earning rental income, it is important to know your taxation responsibilities. In this blog, we look into ITR filing regulations, forms, and exceptions for NRIs in India.

Who Is an NRI as Per Income Tax Act?

In accordance with the provisions of the Income Tax Act, 1961, residential status is determined with respect to one's physical presence in India. NRIs are considered so if:

• They were in India for less than 182 days during the financial year, and
• They were in India for less than 365 days in the four years prior thereto and for less than 60 days in the current year.

An NRI is subject to tax only for income earned or accrued in India; there is no tax on his global income.

When should NRIs file return of income in India?

An NRI must file an ITR in India if:

• Their gross income in India exceeds Rs. 2.5 lakhs during the financial year (without any deductions).
• They have capital gains in any amount.
• They want to claim a refund of any tax or carry forward losses.
• They hold foreign assets or are directors of Indian Companies (in certain cases).

Type of Income Taxable for NRIs in India

• Salary received in India
• Rent received through property situated in India
• Interest on saving or fixed deposits in India
• Capital gains on shares/mutual funds/real estate situated in India.

Note: Standard deduction of Rs. 50,000 on Salary Income is not claimable by NRIs as against resident individuals.

Which ITR Form Is Applicable to NRIs?

• ITR-1 (Sahaj): Not applicable for NRIs-only applicable for residents.
• ITR-2: Applicable for NRIs not having business income in India.
• ITR-3: Used in case of business/professional income in India by the NRI.
• ITR-4 (Sugam): Not for an NRI choosing a presumptive income scheme.

Hence, most NRIs would be filing under ITR-2 except in cases where there is business/professional income in India.

Tax Benefits and Deductions for an NRI                                                                                      

Deductions under section 80C available to NRIs includes:

• Life insurance premium
• ELSS mutual funds
• Principal repayment of home loan
• Tuition fees for their children

Other deductions include:

• 80D: Health insurance
• 80G: Donations
• 80E: Interest on education loan

However, they are not allowed deductions under 80TTB (senior citizens) and the rebate under section 87A.

Exemptions and Special Cases for NRIs

• NRE (Non-Resident External) account interest is tax-exempt.
• The Indian government sees FCNR (Foreign Currency Non-Resident) deposits as exempt from taxes.
• NRO interest is taxable.
• Most payments to NRIs attract the application of TDS, that is, 30 percent of TDS on the rental income, etc.

Final Thoughts

Filing income-tax return in India for NRI status might seem complicated, but an understanding of the basics makes it straightforward. Identify the source of your income in India, use the correct ITR form (usually ITR-2), and claim the appropriate deductions. File before the due date to avoid penalty and remain within the Indian tax laws.