NRI comes with a bundle of increased responsibilities. You need to comply with both Indian and international taxation laws.
After leaving India, many people do not have any income source in India other than Interest Income from NRO account. The next question that comes to one’s mind is “Is NRI having Interest income from NRO account required to file income tax return in India?” Well, the answer to this question is both yes and no.
Let’s discuss in detail..
Our discussion will be sub-categorised into sequential series of questionnaire, namely,
- Who is NRI?
- Different accounts NRI can open in India and their tax implications.
- Taxability of NRO Interest Income in India?
- Are there any income tax deductions available to NRI?
- And finally, Is NRI having Interest income from NRO account required to file Income Tax Return in India?
Who is NRI?
What a silly ques, you will say!! Any Indian going abroad/living in foreign country is NRI. You are right we generally term such people as Non Resident Indians but, for taxation purpose it depends on your residential status. As per Income Tax Act 1961 normally, any person who is Indian Resident or person of Indian origin, living in India for less than 182 days in relevant financial year is NRI.
The words “Relevant Financial Year” signify that your residential status may differ from year to year. Therefore it is always checked at the time when you desire to ascertain your tax liabilities in India.
Example :
For Financial Year 2017-18 you will be NRI if you stayed in India during Financial Year 2016-17 in India for less than 182 days i.e. approx lesser than 6 months.
Different accounts NRI can open in India and their tax implications.
NRI can open different accounts with banks in India. These are
- Foreign Currency Non Resident account (FCNR)
- Non Resident External account (NRE)
- Non Resident Ordinary account (NRO)
The tax liability in India from such accounts depends on the interest amount you earn and type of account you hold.
The first two type of accounts i.e. FCNR and NRE are tax free accounts in India. Yes, you read it right!! No interest amount earned on these two accounts is taxed in India. But when you become a Resident then interest earned on NRE accounts (now converted to Resident Foreign Currency account) shall be taxable for you.
Taxability of NRO Interest Income in India?
Tax implication comes on the interest you receive from NRO account. TDS, irrespective of amount you earn @30.9% (30% being tax rate + Education cess & surcharge) is deducted on such income. The TDS so deducted gets reflected in your form 26AS.
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Are there any income tax deductions available to NRI?
YES!! Income tax deductions like
- Deduction under Section 80C
(eg. investment in Life Insurance Policy, ULIP, Tuition Fee etc is allowed as deduction upto Rs.1.5 lakhs in each Assessment Year)
- Deduction under Section 80D
(for medical insurance policies taken for self, family or dependents. Deduction is allowed amounting to Rs. 25,000 if the policy holder’s age is below 60 years & Rs.30,000 for senior citizens above the age of 60 years. Also preventive health check up benefit of Rs. 5,000 is available)
- Deduction for Loans
(Deduction is admissible for principal and interest repayment done for housing or education loan taken in India)
- Section 80G Deduction
(Any qualifying donations made in India are eligible for being deducted from income taxable in india)
- Deduction under Section 80TTA
This deduction forms integral part of our discussion. Deduction u/s 80TTA is available to individuals on “saving” bank a/c interest, upto Rs.10,000/- during one financial year.
The interest is tax free for a resident individual, whereas, any interest credited to NRI, irrespective of amount is already net of TDS. Which means an NRI having interest income from NRO account as the only source of income, will get refund of taxes for income upto Rs.10,000/-.
However, some tax saving investments routes are expressly prohibited for NRI’s . these are
- PPF
- NSC
- SCSS (Senior citizen saving scheme)
- 5 year deposits with post offices
- Deduction u/s 80DD, 80DDB and 80U.
Is NRI having Interest income from NRO account required to file Income Tax Return in India?
The minimum requirement of mandatorily filing ITR in India attracts on income of Rs.2.5 lakhs or more during the relevant FY, before considering any income tax deductions. NRI having income above such limit is required under income tax law to file his return of income.
Rs. 2.5 lakhs limit is known as Basic Exemption Limit (BEL). Taxes, if deducted on any taxpayers income till BEL (including NRI) shall be refunded back to him. Hence, NRI earning upto this threshold in India, should file ITR to get refund of his TDS amount deducted.
In case NRI is not willing to get his refund back and has an income below the limit explained above. No consequences have been prescribed in law for not filing ITR.
On earning no income in India, there is no liability to file ITR for the relevant Assessment Year.
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