Income Tax News: According to a report on Tuesday, the Income Tax administration has requested sworn declarations from non-resident Indians (NRIs) regarding the precise number of days they have spent in India. This follows the department’s recent spate of recommendations to NRIs requesting that they confirm high-value transactions from 2022–2023 and take corrective measures about any non-filing of taxes.
Notices to NRIs with FCNR and NRE/NRO Deposits
These notices have also been sent to non-resident Indians (NRIs) who have created foreign currency non-resident accounts (FCNR) and/or NRE/NRO deposits, according to The Economic Times. The assessment years under examination in several notices range from 2014–15 to 2022–23.
NRIs are exempt from paying tax on foreign earnings and are not needed to report their foreign assets, according to provisions in the Income Tax Act of 1961. But, they are subject to the same tax and transparency laws as residents if they overstay, meaning they spend more than 181 days in India annually. When a visitor’s total income (excluding income from outside sources) exceeds Rs 15 lakh throughout the financial year, they may be required to stay for 120 days.
NRI’s Income Tax Determined by Annual Residency
An NRI’s income tax obligation in India is based on whether they were a resident for the entire year. When submitting their ITR, non-resident Indians (NRIs) must ascertain their residence tax status in India based on the length of time they spent there during the fiscal year.
Post-Financial Year Obligation
After the relevant financial year ends, non-resident Indians (NRIs) with total income over the basic exemption limit of Rs. 250,000 under the old regime or Rs. 300,000 under the new regime, before any deductions or exemptions, must file their tax returns in India by July 31 of the following year. The following income is the only ones on which an NRI must pay taxes:
- Income derived from a business relationship in India, income from any asset, property, or source of income in India, including capital gains from the sale of an asset (like shares or real estate) located in India, and salary income received for services provided there
- Dividend income from Indian corporations is regarded as income that has accumulated or originated in India, regardless of where it is received.
- India taxes interest income from savings accounts and fixed deposits kept in Indian bank accounts.
- Similarly, unless they are connected to a business, profession, or other source of revenue that the payer conducts outside of India, royalties or fees for technical services received from a resident are similarly considered income that has accrued or originated in India.
- Taxes on income obtained outside of India do not apply within the country. Taxes do not apply to interest earned on FCNR and NRE accounts. However, non-resident Indians’ interest on NRO accounts is subject to taxation.
Evolution in Residence Standards
The standards for evaluating an individual’s residence status have been modified by the Finance Acts 2020 and 2021. Let’s examine the revised standards for ascertaining Non-Resident Indians’ (NRIs’) residential status.
Until the end of FY 2019–20, those who were outside of India but visited for fewer than 182 days within a fiscal year were considered Non-Resident Indians (NRIs), which covered both Indian citizens and Persons of Indian Origin. This term was shortened to 120 days by the Finance Act 2020 for visitors whose total income during the financial year (excluding income from overseas sources) exceeds Rs 15 lakh. During a fiscal year, a person is deemed to be an Indian resident if:
- If, throughout a given fiscal year, they spend at least six months—or, more precisely, eighty-two days—in India.
- In the event that a taxpayer spent two months (60 days) in India the year before and one year (365 days) in India during the course of the previous four years.
Residence Status Implications for Persons of Indian Origin
A taxpayer who is an Indian national employed abroad or a crew member on an Indian vessel will only be deemed a resident upon spending a minimum of 182 days in India. A Person of Indian Origin (PIO) who travels to India is likewise subject to this requirement. But these people are not covered by the second requirement. Anybody whose parents or grandparents were born in independent India is considered a PIO.
NRIs must pay their taxes in advance if their tax liability exceeds Rs 10,000 in a fiscal year. The application of interest under Sections 234B and 234C will occur for failure to comply.
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