NRI Taxation – Imperative to File Returns

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NRI Taxation - Imperative to File Returns
NRI Taxation - Imperative to File Returns

NRI Taxation – Imperative to File Returns

Why it’s Imperative for NRI’s who are buying, selling and leasing properties in India to file regular income tax returns.

A lot of NRI’s across the world fail to regularize their Income Tax Returns in India every year and the issues become worse when they have to sell a property or compute capital gains etc.

Issue 1

If you are an NRI and you are selling a property, it is mandatory for the Buyer to deduct 30% TDS, which means if you sell the property for example for 1 CR an amount of Rs.30 Lacs will be deducted by the Home Buyer and in turn, you will only get Rs.70 Lacs. You will get a Rs.30 Lacs Income Tax Certificate, which you could then claim a refund in your Income Tax Returns with calculations of your Capital Gains Tax based on Indexation and Re-Investment etc.

Issue 2

Typically, when you will sell a property in Mumbai after you have held for more than 3 years, it qualifies under Long Term Capital Gains.

Your Direct Tax Liability is 20% Capital Gains under Long Term Capital after indexation. But as per the Income Tax laws, the 30% TDS is deducted on the Total consideration amount.

The problem begins here, for example, you have bought the property for 1 Cr and you sold it for 1.50 Cr. Typically, speaking your Capital Gains should be Rs.10 Lacs or even less after indexation after the calculation of the Capital Gains. But the Income Tax department, clubs your base Capital Value Invested and your Capital Gain and after that it wants the buyers to deduct 30% which means 45 Lacs, which means your entire Profit or Capital Gain is gone to the government.

For this, you will apply for a lower Tax deduction certificate, which is available through the NRI Cell of Income Tax. To obtain this certificate, you have to first regularize your returns so that the Tax man knows that there are no outstanding tax dues on your name etc.

So, it is imperative to file your Tax Returns. Now with everything getting totally connected on Computers, you may have funds lying in your NRE or NRO account and you may have earned some interest on the same. The Bank by default will deduct the TDS and it will typically go unnoticed by you. But the amount is credited to your account and only once you file your income tax returns, that is the time you will find that you may have a credit in your account.

Also, if you have bought any Stocks or mutual funds, then also you are liable to pay the Capital Gains and like shares and mutual funds, the capital gains are liable to tax and, hence, the return must be filed. The due date for filing returns by NRIs is 31 July.

When to file

The returns have to be filed if the income exceeds the taxable limit, or to claim a refund if the tax deducted at source is more than the tax payable, or to claim the amount set off against capital losses.

Documents

The documents to be submitted include the passport to show the number of days spent outside India to qualify as an NRI. Besides this, the NRIs need to provide the statements for the Demat accounts, for the transactions and bank accounts held in India, as well as the TDS certificates, received from other parties.

Exemptions

The NRIs can also claim exemptions available to individuals under the Income Tax Act (unless specifically not applicable to NRIs), such as Section 80C, with respect to certain investments, payment of principal on housing loan, etc. The taxable income can be reduced by availing of these exemptions.

Filing alternatives

The NRIs can file their tax returns online on the Income Tax Department e-filing portal. Alternatively, they can use other private, paid e-filing portals to do so, or even take the help of tax advisers.

Points to note

It is not necessary for an NRI to file tax returns if the total income during the relevant financial year consists only of investment income or long-term capital gains, or both, and the tax has been deducted at source from such income.

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