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

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

 

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. The simpler ITR-1 form can be used for filing the tax returns if the NRIs have only the passive income.

ITR 1 – (SAHAJ) is relevant to individuals having one house property, salary income, and other sources of 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 explanation on discretionary reporting of particulars of one foreign bank account in refund cases by the non-residents

CBDT on 24 July 2017, made it clear that it is not necessary, for the non-residents who are not requesting refund or non-residents who are requesting a refund but are having a bank account in India, to furnish the details of their foreign bank account in their income tax return.

However, for non-residents who are applying for income tax refund but are not having a bank account in India will have to provide the particulars of one foreign bank account in their income tax return for the issuance of refund. Moreover, non-residents do not have to report their assets and financial interests outside India. 

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

If the taxable income of NRIs is below the basic exemption limit, but the income to be exempted is more than the basic exemption limit (i.e. Rs 250,000), then it is mandatory for the NRIs to file income tax return.

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 example, if an NRI has no other income except the only exempt long-term capital gains income of Rs 575,000, he still has to file his income tax return because the long term capital gains exceeds Rs 250,000 (without considering the exemption).

Availing benefit under the Double Tax Avoidance Agreement (DTAA)

In order to claim the benefit of DTAA, it has to be discovered whether that income is taxable or not as per Indian domestic tax law. After determining that the income is taxable in India, it has to be checked whether India has signed a comprehensive DTAA with the country of residence of NRI and in such a case, NRI has to furnish a TRC (Tax Residency Certificate) which is issued by the tax authorities of that country (in certain case also furnish a self-declaration in Form 10F). 90 such DTAAs have been signed by India, including USA, UK, UAE, Singapore.

Relief can be claimed under DTAA, depending on the type of income, (income may well be completely exempted, or may be taxed at a lower rate). If the income is taxable under the DTAA, then the NRIs have to pay tax in India and can claim credit of such taxes paid against the tax liability in their country of residence subject to certain conditions.

 

Various aspects that needs to be taken care of while finalising the Indian tax returns:

Reporting of passive income – It is apposite to state all the post office interest, bank interest (savings and fixed deposit) in the Income Tax Return. CBDT has explained 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, report the exempt income like interest on NRE/FCNR deposit, dividends, interest on tax-free bonds, eligible gifts received, long-term capital gains on listed securities, among others, even though there is 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. Hence, time available for filing a delayed income tax return for 2017-18 assessment year, would be up to 31-3-2018 and not 31.03.2019.