With India rapidly progressing towards a globalized era with stronger economic ties being forged with other developing /developed markets, there are a plethora of employee movements across the globe. Such, employees, being sent to work in other countries, straddle two tax jurisdictions and may have a host of reporting and other obligations in addition to adherence to the tax laws in two countries.
Non-Resident Indians (commonly referred to as NRIs) are citizens of India or Persons of Indian origin who qualify as Non-Residents in India for the relevant tax year. As per 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, and in case of Indian citizens who leave India (during the year) for the purpose of employment outside India, such limit to break Indian residency is replaced by 182 days. 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.
In order to analyze the tax benefits available to NRIs under the Indian domestic tax laws and under the double tax avoidance agreements (DTAAs), let us break such individuals into 2 categories:
For NR employees coming to work in India: Although India follows a ‘source rule’ basis of taxation, i.e. to tax all incomes which accrue/arise from an employment exercised in India, there are certain reliefs available under the domestic tax laws (commonly known as the 90 day rule) and the DTAA (commonly known as the 182 day rule) which allow exemption of such employment income earned in India for individuals qualifying as Residents of their home country, subject to satisfaction of certain other specified conditions such as physical presence in India, cross charge to an Indian entity etc. Personal income received outside India for such individuals (rent, interest etc) is not taxable in India.
For NR employees leaving India to work outside India: The compensation income received by non-resident Indians in a bank account overseas is not subject to tax in India. However, salary received in India is taxable under the Indian domestic tax laws (along with being taxed in the source country as most countries follow the source rule of taxation) i.e. on a ‘receipt basis’. However, in such a case, an exemption may again be claimed under the Dependent Personal Services (DPS) clause of the DTAA entered between India and the relevant host country, if the individual qualifies as a resident in the host country.
Apart from the above, foreign tax credits may also be claimed by NRIs overseas in respect of incomes taxed both in the home as well as host jurisdictions, in accordance with the rules prescribed under the domestic tax laws and DTAA. It is pertinent to note that in case an NRI intends to avail any of the tax benefits provided under a DTAA, a Tax Residency Certificate needs to be applied for and obtained in respect of each of the tax year(s) for which such benefit is claimed. Such certificate is required to be issued by the country where the individual breaks residency.
An important point to note is that, Indian sourced income in the form of interest on deposits, rental income on property in India etc. shall however continue to be taxed in India (as per domestic tax laws) and the exemptions available under the domestic tax laws (except any specifically not applicable to NRIs) such as Section 80C with respect to certain investments, payment of principal on housing loan etc., may continued to be availed by them. Further, a non-resident individual, whose income during the tax year comprises only of investment income or income by way of long-term capital gains or both, does not necessarily need to file an income tax return in India. Also, a return is not required if the necessary tax has already been deducted at source from such income.
There are certain provisions under Indian tax laws wherein NRIs can opt for special tax rates (instead of progressive slab rates applicable in India) for specific investment incomes or capital gains from foreign exchange assets. Further, the interest earned by an NRI on his NRE bank account etc is tax free subject to certain conditions.
Hence, keeping the above in mind, work/business assignments to different countries may be planned and structured better by NRIs (as well as their employers) from a tax perspective.
In India, Income of the whole financial year is clubbed together under following five heads, i.e.
1. Income from Salary,
2. Income from House Property,
3. Income from Business/Profession,
4. Income from Capital Gains and
5. Income from Other Sources (For those income/s not covered in above 4 heads).
Income Tax Return-Filing Requirements
Under the provisions of Indian Income Tax Laws, if the income of a person exceeds the basic exemption limit, filing of Income Tax Return (ITR) is required. However, In those cases where a person have an asset or financial interest in an entity located outside India or he/she is signing authority in a foreign bank account, then filing of Income Tax Return (ITR) is mandatory even if income is below exemption limit.
Section 139 of the Income Tax Act, 1961 provides that;
139. [(1) Every person,—
(a) being a company or a firm; or
(b) being a person other than a company or a firm, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax,
shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.
It further provides that a person, being a resident other than not ordinarily resident in India, who is not required to furnish a return under this sub-section and who at any time during the previous year,—
(a) holds, as a beneficial owner or otherwise, any asset (including any financial interest in any entity) located outside India or has signing authority in any account located outside India; or
(b) is a beneficiary of any asset (including any financial interest in any entity) located outside India,
shall furnish, on or before the due date, a return in respect of his income or loss for the previous year in such form and verified in such manner and setting forth such other particulars as may be prescribed.
List Of Income Tax Returns Applicable
|S. NO.||ITR Form||Applicable For The Category|
|1.||ITR 1||For Individuals having Income from Salaries, one house property, other sources (Interest etc.) and having total income upto Rs.50 lakh.|
|2.||ITR 2||For Individuals and HUFs not carrying out business or profession under any proprietorship.|
|3.||ITR 3||For individuals and HUFs having income from a proprietary business or profession.|
|4.||ITR 4||For presumptive income from Business & Profession.|
|5.||ITR 5||For persons other than:- |
(iii) Company and
(iv) Person filing Form ITR-7.
|6.||ITR 6||For Companies other than companies claiming exemption under section 11.|
|7.||ITR 7||For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) or 139(4E) or 139(4F).|
Time Limit For Filing Income Tax Return
|S. No.||Type of Assessee||Time Limit|
|1.||Company or a person whose accounts are required to be audited or a working partner of a firm whose accounts are required to be audited (Tax Audit cases).||30th September|
|2.||In the case of an assessee who is required to furnish a report referred to in section 92E (Cases involving Transfer Pricing provisions).||30th November|
|3.||In case of any other assesse.||31st July|
Filing of Belated Return
The last date for filing Income Tax Return is July 31 of each year (with few certain exceptions as provided above) which can be belatedly filed up to March 31. For example, Income Tax Returns for Assessment Year 2018-19 (Financial Year 2017-2018), can be filed belatedly till 31st March 2019. However a service fees/late filing fees will be applicable for the filings beyond specified dates.
Section 139 (4) (w.e.f. 1-4-2017) provides that:
Any person who has not furnished a return within the time allowed to him under sub-section (1), may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.
Revision of Income Tax Return
Section 139 (5) (w.e.f. 1-4-2017) provides that:
If any person, having furnished a return under sub-section (1) or sub-section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.
Defects in Income Tax Returns
As per sub-section (9) of Section 139, Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return :
Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the Assessing Officer may condone the delay and treat the return as a valid return.
Concept of Black Money
The income which is taxable but not disclosed in proper Income Tax Return and due taxes have not been paid, is considered Black Money.
Refund of Excess Tax
Although filing Income Tax Return is a legal requirement with a consequential penalties etc. for non-compliance, one can claim refund of excess taxes (TDS), after adjusting the final tax with the same.
Special Point For Non Resident Indians (NRIs)
Although the provisions mentioned above are applicable for NRIs also, there are certain points which are of special significance for NRIs and while filing Income Tax Returns in India, NRIs should consider the same, for example;
1. Finding out Residential status,
2. Taking benefits of Double Tax Avoidance Agreement (DTAA),
3. Special Deductions and Exemptions for NRIs etc.