NRI Alert: Should NRIs in UAE File IT Returns Before July 31 Deadline of 2024 in India?

In recent years, the landscape of Non-Resident Indian (NRI) taxation has witnessed significant changes, especially concerning the filing of income tax returns in India. As we approach the filing season for the financial year 2022-2023, it becomes imperative for NRIs to understand their tax obligations and the implications of not complying with the regulations set forth by the Indian tax authorities.

For NRIs, the determination of tax liability in India is primarily based on their residential status as per the provisions of the Income Tax Act, 1961. An individual is considered a resident in India for a particular financial year if they satisfy either of the following conditions:

•  They have stayed in India for 182 days or more in the financial year.
•  They have stayed in India for 60 days or more during the financial year and 365 days or more during the preceding four financial years.

If an individual does not meet any of these criteria, they are deemed to be an NRI for that financial year.
While NRIs are not taxed in India for income earned abroad, they are liable to pay taxes on income generated within India or received in India. The sources of income that are taxable in India include but are not limited to:

• Income from salary or wages earned in India.
•  Income from house property situated in India.
•  Capital gains arising from the transfer of assets located in India.
•  Interest, dividends, or any other income earned from investments made in India.

Filing income tax returns in India is mandatory for NRIs if their total income exceeds the basic exemption limit, which is Rs2.5 lakh for the financial year 2022-2023. Additionally, even if the income falls below the exemption limit, NRIs are required to file a return if they wish to claim a refund or if they have incurred a loss that they want to carry forward.

Moreover, NRIs must be aware of the various forms prescribed by the Income Tax Department for filing returns based on the nature of their income and residential status. For instance, NRIs with income from salary or house property may need to file Form ITR-1 (Sahaj) or Form ITR-2, depending on their circumstances.

There are three main types of NR accounts:

Non-Resident External (NRE) Account: An NRE account is a rupee-denominated account where NRIs can deposit their foreign earnings that are repatriable. Funds in an NRE account can be freely repatriated both in principal and interest, and the interest earned is tax-free in India. This account can be in the form of savings, current, recurring, or fixed deposit accounts.
Non-Resident Ordinary (NRO) Account: An NRO account is also a rupee-denominated account, but it is meant for managing income earned in India, such as rent, dividends, or pension. Funds in an NRO account are not freely repatriable, meaning there are restrictions on transferring the funds abroad. The interest earned on an NRO account is taxable in India, subject to applicable rates and deductions.
Foreign Currency Non-Resident (FCNR) Account: FCNR accounts allow NRIs to hold foreign currency deposits in India. These accounts can be maintained in major currencies like USD, GBP, EUR, JPY, etc., and the funds are freely repatriable. Interest earned on FCNR deposits is tax-free in India.
Let us discuss how tax rules apply to these accounts:
Taxation of NRE Account: Interest earned on NRE accounts is tax-free in India. NRIs are not required to pay any tax on the interest income earned on funds held in NRE accounts. However, NRIs may have to report the interest income earned in their country of residence and comply with tax regulations applicable there.
Taxation of NRO Account: Interest earned on NRO accounts is taxable in India. NRIs are required to pay tax on the interest income earned from funds held in NRO accounts at the applicable rates as per the Income Tax Act. TDS (Tax Deducted at Source) is applicable on interest income exceeding specified thresholds and NRIs can claim deductions and avail themselves of benefits under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence.
Taxation of FCNR Account: Interest earned on FCNR deposits is tax-free in India. Similar to NRE accounts, NRIs are not required to pay any tax on the interest income earned on funds held in FCNR accounts.

However, NRIs should check the tax implications in their country of residence and comply with the relevant tax laws there.

It's essential for NRIs to understand the tax implications of maintaining different types of non-resident accounts in India and ensure compliance with both Indian tax laws and the tax regulations of their country of residence. Consulting with a tax advisor or chartered accountant can help NRIs navigate the complexities of tax planning and optimise their tax liabilities.

List of Documents Needed to File ITR in India

To file income tax returns (ITRs) in India for the financial year 2023-2024 as a Non-Resident Indian (NRI) residing in the United Arab Emirates (UAE), several documents are required to ensure accurate reporting of income and compliance with Indian tax laws. Here's a list of documents typically needed:

Passport: A copy of the passport, which serves as proof of identity and nationality.
PAN (Permanent Account Number) Card: If you have a PAN card, provide a copy as it is a mandatory requirement for filing income tax returns in India.
Form 16/Income Certificate: If you have earned income from employment in India, you need Form 16 issued by your employer or an income certificate indicating details of salary, allowances and taxes deducted at source (TDS).
Bank Statements: Copies of bank statements for all NRI accounts held in India and abroad during the financial year. This includes NRE (Non-Resident External), NRO (Non-Resident Ordinary), FCNR (Foreign Currency Non-Resident) and any other accounts.
Investment Proofs: Documents supporting investments made in India, such as receipts for purchases of mutual funds, stocks, bonds, or other securities, as well as proof of investments made under various tax-saving schemes like PPF (Public Provident Fund), ELSS (Equity Linked Savings Scheme), NSC (National Savings Certificate), etc.
Property Documents: If you own property in India, provide copies of property documents, including sale deed, purchase agreement, rental agreements, property tax receipts, and details of rental income earned.
Capital Gains Statements: If you have sold any assets like stocks, mutual funds, property, etc., provide statements showing capital gains or losses incurred from such transactions.
Interest Certificates: Certificates from banks or financial institutions showing interest earned on savings accounts, fixed deposits, or other financial instruments held in India.
Tax Residency Certificate (TRC): Obtain a Tax Residency Certificate from the UAE tax authorities to claim benefits under the Double Taxation Avoidance Agreement (DTAA) between India and the UAE.
Foreign Income Documents: If you have earned income in the UAE or any other foreign country, provide documents such as salary slips, employment contracts, tax statements and any other relevant documents related to foreign income.
Proof of Tax Paid in the UAE: If you have paid taxes in the UAE on income earned there, provide proof of tax paid, such as tax payment receipts or statements.
Foreign Exchange Declaration Form (FEMA Form 15CA/CB): If applicable, provide Form 15CA/CB as required under the Foreign Exchange Management Act (FEMA) for remittance of funds outside India.

Conclusion

Understanding the taxation regulations and filing requirements for Non-Resident Indians (NRIs) in India is crucial for ensuring compliance with the law and optimising tax liabilities. As NRIs residing in the UAE prepare to file their income tax returns for the financial year 2023-2024, they must gather a comprehensive array of documents, including passports, PAN cards, bank statements, investment proofs, property documents and tax residency certificates.

By meticulously compiling these documents and seeking guidance from tax advisors or chartered accountants, NRIs can navigate the complexities of tax planning, accurately report their income, and fulfil their tax obligations in both India and their country of residence.

Additionally, staying informed about changes in tax laws and leveraging available tax-saving opportunities can contribute to a transparent and compliant tax ecosystem, ultimately fostering financial stability and compliance among NRIs.

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