Revision as of 19:34, 5 August 2014

For Non Resident Indians (NRIs)

India tax returns: Two important changes NRIs should note this year

Deepa Venkatraghvan | Jul 10, 2013

The Times of India

India tax returns: Two important changes NRIs should note for 2013

If you are not comfortable doing the entire filing by yourself, you can choose to go to assisted preparers. You can get professional advice along with help with efiling your tax return. As always, July is the time for filing tax returns in India. As a Non Resident Indian, you would typically need to file a tax return in India if you have income that arises in India. This year, the income tax department has made two important changes that you must be aware of. These changes apply to residents as well as non residents.

Change #1: Mandatory efile if taxable income over Rs 5 lakh

Until last year, that is, for tax returns until financial year 2011-2012, it was mandatory to efile returns where the taxable income was over Rs 10 lakh. This year, the limit has been further reduced. If you had taxable income in India that exceeded Rs 5 lakh in 2012-13, you must efile your tax returns.

You can either do it yourself using online efiling portals or take the help of assisted tax preparers. The income tax department provides a free method to upload your tax return online. If you are looking for a more user friendly approach, paid efiling portals might be a good choice. Many of these paid service providers do offer special packages for NRIs.

If you are not comfortable doing the entire filing by yourself, you can choose to go to assisted preparers. You can get professional advice along with help with efiling your tax return.

Change #2: Match your tax credits

From this year, the Income Tax department has introduced a system by way of which you can match your income tax credits with your actual tax return. The tax credit statement is available in the form of Form 26AS.

"This statement provides details of all taxes deducted on your behalf or paid by you during the year. What you file in your tax return must match exactly with the details on Form 26AS. If there is a mismatch, you will get a show cause notice from the Income Tax department seeking clarification," explains Ankur Sharma, CEO of Taxspanner.com.

He adds, "There can be two reasons why there is a mismatch. First, on the part of the tax deductor. He may have misquoted the PAN number or may have made a delayed deposit of the tax deducted. In such case, you would need to contact the tax deductor and ask him to rectify the error. The other reason could be that you have entered incorrect details while filing your tax return. You can easily rectify this error by matching it with your Form 26AS."

Form 26AS contains:

• Details of tax deducted on behalf of the taxpayer by deductors *Details of tax collected on behalf of the taxpayer by collectors *Advance tax/self assessment tax/regular assessment tax, etc. deposited by the taxpayers *Details of paid refund received during the financial year *Details of the high value transactions in respect of shares, mutual fund etc.

This statement is generated through a valid Permanent Account Number (PAN). For NRIs, important income sources that would be reflected in Form 26AS include interest on NRO bank deposits and other bonds, capital gains on sale of securities on an Indian stock exchange, tax deducted, if any on rental income or sale of property etc.

You can access your Form 26AS in several ways. You can view the form on the Income Tax website - https://incometaxindiaefiling.gov.in. You must register at the portal and click on 'View Tax Credit Statement (From 26AS)' in "My Account". The facility is available free of cost.

Alternately, you can view the form through your bank using net banking facility. The Income Tax department has authorised some banks for this purpose. You can find a list here. The facility is available for free of cost.

You can also access the form through the TRACES website.

Some online efiling portals like taxspanner.com too have a facility to validate the tax credit from Form 26AS.

"Any return filed by an individual has to have minimum prescribed income/loss details. It must reconcile with the information already available with the department. Remember that the income tax return form is a legal declaration and a binding document in which ignorance or casual mistakes are equivalent to "income concealment". Hence, the minimum return clearance criteria for seamless processing of ITR would be matching data," Sharma concludes.

Tax benefits not available to NRIs

Don't give NRIs a raw deal

Sudhir Kaushik writes: Instead of trying to attract NRIs to invest in India, our tax laws deny them the benefits that are available to resident Indians

The Times of India 2013/08/05

Over the past decade there has been a continuous effort to make income tax laws simpler, consistent and taxpayer-friendly. However, no steps have been taken to reduce the discriminatory treatment meted out to non-resident Indians (NRIs), which could attract higher investments in India from them.

LOWER BASIC EXEMPTION

Resident senior citizens (above 60 years) and super senior citizens (above 80 years) have a basic tax exemption of `2.5 lakh and `5 lakh, respectively. However, for senior citizens and super senior NRIs, this limit is 2 lakh only.

Besides, NRIs cannot adjust their taxable capital gains against the basic exemption limit. If an NRI earns 2 lakh capital gains and no other income, the full amount is taxed at the applicable rate. He cannot adjust this income against the basic exemption limit of 2 lakh.

NOT ELIGIBLE FOR DEDUCTIONS

NRIs are not eligible for certain deductions enjoyed by resident Indians. These include:

Equity investments

NRIs have been denied the benefit of investing in the Rajiv Gandhi Equity Saving Scheme.

Disability

NRIs don’t get any tax benefit if they suffer from a disability. Under Section 80U, a resident Indian can claim deduction of up to 50,000 if he suffers from a disability. The deduction is 1 lakh if the disability is severe. NRIs are again not eligible.

Medical treatment

Under Section 80DDB, resident taxpayers can claim a deduction of up to `40,000 for the treatment of dependants with specified diseases. The deduction is higher at 60,000 in case of senior citizens. Once again, NRIs are not eligible for this tax benefit given to resident Indians.

Royalty income

While resident Indian authors of non-textbooks can claim a deduction for royalty income of up to 3 lakh from their taxable income, this benefit is not extended to NRI authors.

Problems of TDS

NRIs are also subjected to a higher TDS (tax deducted at source) rate and have fewer options to avoid it.

Property deals

When a resident Indian sells a property valued at over 50 lakh, he has to deduct 1% TDS and deposit it with the government. However, if the property belongs to an NRI, the TDS is 20% even if the property is worth less than 50 lakh.

Bank interest

Resident Indians can avoid the TDS on bank interest by submitting the Form 15G or 15H. However, NRIs are not permitted to submit Form 15G for their NRO deposits in banks, and TDS is mandatory. The TDS rate for NRO deposits is 30.9% compared with 10.3% for fixed deposits for resident Indians. The TDS is applicable for a resident Indian if the interest exceeds 10,000 in a year per bank branch. However, this threshold limit does not apply to NRO deposits. The interest earned on all other investments, such as corporate deposits and bonds, is subject to a 20.6% TDS, whereas the rate for resident Indians is a much lower 10.3%.

Capital gains

No TDS is applicable on short-term or long-term capital gains earned by resident Indians when they sell mutual funds or stocks. For NRIs there is a 15% TDS (plus 3% cess) on short-term capital gains from shares and mutual funds if the securities transaction tax has been paid. If no STT has been paid, the TDS rate is higher at 30.9%. They are even subjected to a 10% TDS on long-term gains from shares and mutual funds.

Rental and other income

While resident Indians are liable to pay TDS at the rate of 10% on rental income obtained from land and buildings, this rate is higher at 30%, along with a cess of 3%, for non resident Indians. All other taxable income of an NRI is subject to a 30% TDS, besides the cess.

MORE RESTRICTIONS

Concessions

If an NRI opts for the concessional tax treatment, he is taxed at a flat rate. However, in such a case, he cannot avail of any deduction of expenditure or allowance under any provisions or claim benefit of cost indexation for capital gains.

See also

Direct taxes: India / Income Tax India: Expert advice / Income Tax India: Laws / Income Tax India: NRIs / Wealth tax: India