Know India’s residency and source rules for taxation. If your stay in India exceeds 182 days in a financial year, you are considered a tax resident.
Over the past few years, the income tax department has been actively issuing numerous notices to Non-Resident Indians (NRIs), citing reasons such as suspected non-filing of income tax returns (ITR), non-disclosure of crucial information, and evaluations of residential status. These notifications arise due to disparities detected by the I-T department. To pre-emptively sidestep such notices, one should to diligently file ITRs in India, especially those with ongoing investments in the country.
Here are pivotal tax tips that NRIs should take into consideration:
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Stay updated
NRIs must ensure that their information is current on PAN and Aadhaar these two documents. Declaring non-residency status on PAN Card and updating the address on Aadhaar is essential. This can be easily done online without applying for new cards.
Pro tip: Opt for changes or corrections on existing cards and do not apply for new cards.
Understand tax laws
Know India’s residency and source rules for taxation. If your stay in India exceeds 182 days in a financial year, you are considered a tax resident. For Indian residents, global income is taxable irrespective of whether the income was generated from India or from outside India. For NRIs, income generated from a source in India, like house property, shares, interest on FDs is subject to taxation. Understand your tax liability for effective financial planning and compliance.
Pro tip: Retain old passports as they can be used to substantiate the number of days spent in India.
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File your ITR
Although filing may not be mandatory for most NRIs, those with income generated in India benefit from filing regularly. This simplifies processes like applying for lower withholding or NIL withholding on income which is subject to higher TDS due to residency status.
Pro tip: Choose the correct ITR form (usually ITR 2 for NRIs) and declare the accurate residential status.
Avoid double taxation
Leverage the Double Taxation Avoidance Agreement India has with over 90 countries. This agreement determines which country has the right to tax specific income and offers tax credits to prevent double taxation. These ensure a particular income is taxed once and credit for tax collected by one country is provided by the other.
Pro tip: Consult a tax professional to navigate international tax obligations.
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Notice the notices
If you get a notice from the I-T department, respond promptly. Notices and replies are issued and filed online on the I-T portal. Treating a tax notice as an inquiry and submitting required documents can prevent prolonged litigation or penalties.
Pro tip: Keep your income tax profile updated on the portal, especially your email address and phone number for communication purposes.
