Many people believe that NRI/OCI/PIOs do not have to file income tax returns in India. Unfortunately this is not the case. It is unwise for Non-Resident Indians to neglect tax related matters as something which does not concern them.
The fact is that NRIs living abroad enjoy a tax exemption only for income earned abroad.
Regardless of your residency status, you will be expected to pay taxes on all income and assets in India, whether that is property sales, shares or sale of assets.
According to Indian tax laws, a ‘Non-Resident’ is defined as an individual who was present in India for less than 60 days during the relevant tax year.
Additionally, when a citizen of India or a person of Indian origin who is outside India visits India in any year, he would be regarded as Non-Resident if his total stay is less than 182 days in the relevant tax year.
However it is not a completely low-spirited outlook for those NRIs who dislike the prospect of dealing with the pervasive Income Tax department.
Income tax is levied only on income over Rs 2.5 lakh a year for NRIs. Also exemptions on income tax are available for NRIs who qualify as residents of their host country.
That leads to interesting questions on what areas are covered by income tax, and crucially what kind of exemptions may be available for you as an NRI. The main areas that are taxed are below:
Property rent: As mentioned before if you have property rented out in India you will have to pay tax on the rent it earns.
Sale of assets: Any assets are liable for tax when sold.
Shares and mutual funds: These are covered in the form of capital gains tax.
Interest on bank accounts: All bank accounts in your name EXCEPT NRE accounts are taxable. This means that NRO accounts fall under the Indian income tax slabs.
Salary from India: Even if you are an NRI you may have to pay tax on salary from any work you did for part of the year. If you are working for a foreign company or multinational corporation you will be liable for tax.
Foreign exchange assets like shares in Indian companies which are paid for in foreign currency are taxed at 20%. The period to hold equity assets in India in foreign currency is 36 months to qualify for long term capital gains.
Dividends received by shareholders in Indian companies are tax free. Please note that even if your capital gains are below the tax limit you will have to pay capital gains on them. You do not have to file income tax returns on any gains from long term capital gains.
Long term in this instance means you have sold your property three years after buying it.
However if your income is only investment income and the tax has been deducted from that income you do not have to file tax returns on it. The capital gains tax is calculated by subtracting the inflation indexed value of the property from the final sales price.
If you are owed a tax refund then you may also file an income tax return. It is advisable for NRIs to make use of the services of tax specialists in India who can file the returns on your behalf.
Or someone in India can be granted the power of attorney to file for you. The best way to file is online.
Jeevan Vipinachandran is a political analyst and writer, specialising in political violence and counter-terrorism. He graduated from LSE with a Masters in Comparative Politics: Conflict Studies.
He has written for the Conservative Party, Future Foreign Policy and the Times of Israel. Regular updates can be found on Twitter on @jeevanvc and www.jeevanvc.com. Jeevan also blogs on business development and holistic lifestyle growth at www.my-wise-owl.com.