The laws and regulations relating to taxation are never easy to understand. You should know that the exact tax rules which are applied to Indians residing in the country are somewhat modified for the non resident Indians or NRIs. Chapter XII – A in the Indian Income Tax Act has been devoted to this question of taxation of the NRI. If you are a non resident Indian, you will have to navigate quite a few tax laws to understand and pay up exactly what your due is.
The most important fact that you, as a NRI should know is that you are required to have a PAN card, even though you are a non resident Indian. Since the process of applying for a PAN card has been made so easy, you can apply for it online and obtain your PAN card.
There is several taxable income of a NRI as well as several exemptions. You need to understand all of them so that you can pay the correct amount of tax on time and avoid any penalty. If you find the information too complicated, you should take the help of an accountant to sort out your tax questions.
Laws and regulations relating to NRI taxation
If you are a NRI, you have to bear the following facts in mind as regards to the filing of your tax:
- You can be taxed only on that income which is earned in India. You do not have to pay tax on the income you earned abroad in India. However, the reverse may not be true and you should check the tax laws of your country of residence to verify it. For example, you do not have to pay tax on dividend income received from Indian companies, but you will have to pay tax on these in the USA.
- If your resident country has a Double Tax Avoidance Agreement with India, you will get tax concessions there. So, you should find out about these details.
- If your total income is less than the prescribed limit, you need not pay tax in India. However, there are a few exceptions to this clause.
- If your income is above the prescribed limit, you will have to pay tax on income from such sources as immovable assets in India, investments, capital gains and any other income obtained from India.
- However, even if your income is below the exemption limit, you still will have to pay tax in certain cases. For example, you will have to pay taxes on short term capital gains like equity shares. In case of long term capital gains, the tax is almost always deducted at source. If it is not so deducted, then you will have to pay tax on it.
- You will not have to pay tax on inheriting property in India, but you will have to pay tax on any income derived from it like rent.
The tax filing process:
The process of filing tax return of a NRI is as follows:
- Obtain your PAN number, either physically or online or with help of specialized brokerage firm.
- Then you will have to select the correct form for filing your return. The categories are :
o ITR 1 for income from salary, interest, agricultural activities or pension.
o ITR 2 for those not earning from profession or business.
o ITR 3 for partners in a firm.
o ITR 4 for those earning from proprietary profession or business.
- Fill up the form and deposit them using either of two methods:
o You can deposit them online after obtaining your digital signature from designated authority.
o You can physically file them. In that case, the form should be accompanied by the acknowledgement of an income tax officer.
- You have to sign the returns yourself or authorize a signatory for the purpose.