Income tax tips for NRIs returning to India

When an NRI returns to India, one of the significant changes that happen with him/her is regarding the tax compliances. Being abroad, he/she may not be in touch with the changes in the taxation system in India. However, once the status changes to a Resident, he/she must take care of the additional tax compliances. Here are few income tax tips for NRIs returning to India:

Filing Income Tax Returns (ITR) - The financial year in India runs from Apr 01 to Mar 31. For the year 2019 - 2020, the due date for filing ITR has been extended up to Dec 31, 2020 as a COVID-19 compliance relaxation. In general the due dates for filing ITR is Jul 31 - Sep 30. While NRIs are eligible to file ITR-2/ITR 3 as per their respective source of income In India, Residents need to choose between ITR-1 to 4 as per the specific income sources. Further, if one claims the residential status as a Non-Resident, one must also provide the details of their total stay in India in the ITR in terms of the number of days.
Taxation of Global Income – As far as the NRI tax in India is concerned, only the income accrued in India or deemed to accrue or arise in India or received in India are taxed. However, once the status changes to a Resident, all incomes, whether accruing within India or outside India, are taxed. As such, one must take care to include the global income while filing an ITR in India as an Indian tax Resident.
Double Taxation Avoidance Agreement (DTAA) – Considering that the global income is taxed in India for Residents, there might be instances that the income accruing outside India might even be getting taxed in some other country. As such, the instances of double taxation may occur as the same income gets taxed in more than one country. For example, rental income from property situated in Singapore will be taxable in Singapore, as well as India for a Resident taxpayer. However, the Indian Government has entered into DTAA with several countries, which allow specific tax reliefs in terms of income being taxed more than once. As such, the taxpayer can avail of the benefits of such DTAA by taking tax relief, in respect of tax paid in a foreign country, from tax payable on such income in India.
Re-designation of NRI Bank Accounts in India – NRI Bank Accounts need to be re-designated into Resident Bank Accounts once the individual’s residential status changes. Along with this, the tax benefits that flow with NRE Accounts, as well as Foreign Currency Non-Resident (Bank) (FCNR) (B) Deposits are also withdrawn automatically.
Foreign Assets – One must also plan well for the assets held in a foreign land before returning to India, as there might be administrative discomfort to hold such assets from a distance. Further, some tax territories also tax the notional incomes from properties just based on property ownership, even when such an asset may not be generating any income. Additionally, one may also be liable for capital gains to be taxed in India for such assets outside India, if such assets are disposed when the individual becomes a Resident. As such, one may plan carefully with regards to whether to retain such assets or dispose of such assets after listing the pros and cons for both the decisions.
Disclosures of Foreign Assets and Income in ITR – The ITR Forms specifically require a Resident to disclose the details of foreign assets held as an owner or as a beneficiary, foreign bank accounts held, ownership interest in a foreign entity, etc. Further, the taxpayer also needs to provide the details of income accruing from such assets and any other foreign income along with the details of specific schedules in the ITR form where the taxpayer has disclosed such income. Such a disclosure tends to ensure that the taxpayer has collated all the required information carefully and also got such income to be taxed in the ITR.

Conclusion

With the above income tax tips, NRIs returning to India may plan for their tax compliances in a better manner.

Disclaimer The contents of this document are meant merely for information purposes. The information contained herein is subject to update, completion, revision, verification and amendment and the same may change materially. The information provided herein, is not intended

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