by Moiz Mannan
Many more non-resident Indians (NRIs) who are liable to pay income tax in India have now come under the category required to e-file their tax returns. The income tax department has lowered the limit to mandatorily e-file tax returns from Rs1m to Rs 500,000 this year.
It means that all NRIs who had taxable income of Rs500,000 or more in the assessment year 2012-13 will have to e-file their income tax returns.
Further, the IT authorities have introduced a tax credit statement to tally deductions made or paid throughout the year with the tax returns. If the two do not match, the department proposes to send out ‘show cause’ notices to those concerned.
NRIs are liable to pay tax in India only on income earned in India. This includes any income from investment or income from long-term capital gains of an asset other than a specified asset and income by way of long-term capital gains.
In certain cases where investments are made in specified assets such as savings certificates, capital gains on transfer of foreign exchange assets are not charged. Similarly, in some cases it is not necessary for an NRI to furnish a return of his income. This happens if his total income in respect of which he is assessable under the Act during the previous year consisted only of investment income or income by way of long-term capital gains or both; and the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.
Income of NRIs is exempt from income tax interest on various specified securities or bonds. NRIs enjoy tax exemptions from property investment and other assets including dividend income, interest income, and even gifts.
NRIs who pay health insurance premium in India for dependents can claim a deduction under section 80D. For health insurance taken for spouse and dependent children, a deduction of Rs15,000 can be claimed. A similar amount can be claimed for insurance premium paid on behalf of your parents. If either parent is over the age of 65, the additional deduction will be Rs20,000 instead of Rs15,000. Deductions under section 80G are also available to NRIs donating to an approved charitable institution.
Apart from tax deductions (including a standard deduction of 30 percent of net annual value and interest on borrowed capital), NRIs enjoy tax exemptions on dividends received from domestic companies, income arising from deposits at banks – this income will be treated as interest income, which would be chargeable under ‘Income from other sources’. Interest received on the NRE account and FCNR account is tax-free. Money exceeding Rs25,000 ($625), even if received as a gift, is liable to be taxed, except in cases of gifts received on occasions like weddings or money received as inheritance.
Unlike Indian residents, NRIs do not get the benefit of differential exemption limits on the basis of age or gender. Some short- and long-term capital gains from sale of investments or assets are taxed in the case of NRIs even if the total income is below the basic exemption limit. These include short-term capital gains on equity shares and equity mutual funds where the tax rate is 15 percent and long-term capital gains on securities and assets where the tax rate is either 20 percent or 10 percent without indexation.
There are several options for NRIs to e-file their tax returns. NRIs can do it by themselves using online e-filing portals. The income tax department provides a free method to upload tax returns online. For those who might not be comfortable with doing it themselves, there are paid e-filing portals such as hrblockindia.com, taxsmile.com or elagaan.com. Those NRIs who have been paying income tax in India would presumably be availing of the services of assisted return preparers or chartered accountants. Most of these firms are now helping their clients with e-filing as well.
While e-filing returns, NRIs should be very careful with entering accurate refund details such as name and branch of the bank where the refund would be deposited, the holder’s account number and the MICR code of the bank branch. This is important because in the case of e-filed returns, the refunds are processed electronically.
Most NRIs would know that the last date to file returns for the assessment year 2012-2013 is 31st July, 2013. If an NRI does not have any outstanding tax payment to make and everything has already been settled through deductions, the return may be filed by the end of March 2014 without any penalties. Those who do have payable taxes would be fined one percent per month of delay until March 31, 2014 after which they would have to pay a penalty of Rs 5,000 per year of delay until a specified period.
As for the matching of tax credits and actual returns, the Income Tax department has introduced a statement it calls Form 26AS. It contains details of tax deducted on behalf of the taxpayer by deductors, tax collected on behalf of the taxpayer by collectors, paid refund received during the financial year, high-value transactions in respect of shares, mutual fund etc, and advance tax/self-assessment tax/regular assessment tax, etc. deposited by taxpayers.
