Sunday 11 May 2014

Income Tax Procedures for NRIs

According to the Income Tax Act of 1961, an annual tax is levied on income by the Central Government of India. This is known as Income Tax. According to the rules applicable to the NRIs under the tax laws of the Indian Government, an NRI is not exempted from paying income tax. Although a majority of the NRIs continue to take the benefit of income without paying income tax, this is illegal in the eyes of Indian tax laws. This tax, however, is held valid, only if your source of income is India. If not, you don’t need to pay any tax. Only if you have directly or indirectly earned anything from India, do you need to pay income tax.


The following are taxable:

1. Any income from a business, property, an asset, fees for technical or professional services, direct services rendered in India, royalties, salaries paid by the Indian government to Indians for services provided outside India and dividends paid by an Indian company abroad are all taxable.


2. Some interest payments are also included and listed. Any pension, no matter where paid, is taxable if the pensioner provided his services in India. Basically, an NRI's income consists of his salaries, income from his property, profits from his business (es), profession, capital gains and other listed 'sources'. NRIs engaged in business in India with Indian partners come under 'a business connection'. This term covers different business activities such as a branch office, a local subsidiary to sell imported products, an agent for buying or selling, building a factory for exports and a financial association between a resident and a non-resident company.


NRIs do not have to pay tax on interest income on bonds or premium on redemption of bonds or securities, interest on Non Resident External Bank Accounts in foreign currencies, and Non-Resident Non-Repatriable Rupee Deposit Accounts and interest on Savings Certificates issued before June 1, 2002.


Income tax returns for NRIs are generally accepted on their face value and without scrutiny. The vast majority of NRI cases, over 95 % are accepted normally without calling for an examination of the books of accounts or supporting documents. Thus, an NRI must be very careful in filling his tax return to avoid any tax evasion and avoidance.


While tax evasion is illegal, tax avoidance is not. Typically, it involves failing to report income, or improperly claiming deductions that are not allowed. Courts have ruled that taxpayers can plan their affairs to pay the minimum amount of tax possible and the taxpayer may use any legal means to do so. This can only be done with the maximum and correct amount of information about income tax laws and regulations and thus it is worth paying your accountant or tax lawyer for their professional services rendered.


The income tax return form involves self-assessment of taxable income. Thus, the due tax must be paid before filing the return and a copy of the receipt must be enclosed with the return. The income tax forms are available free of cost at the major offices in the metros or through some commercial enterprises authorized to sell them for a small fee.



An NRI can also get an advance ruling about his income tax liability by filing an application with a fee of Rs.2,500. The ruling is then binding on both the NRI and the IT department. The applicant must be a Non-Resident in the previous year preceding the financial year in which the application is filed.

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