NRIs filing of the income tax returns (ITR) is a statement of your income across different sources, tax liabilities, the tax that has been paid and the refunds (in case any) that the government is supposed to give. NRIs filing of the income tax provides proof for your income as legal and disclosed. It helps NRIs in many ways such as getting refunds, applying for loans, applying for tenders, startup funding etc. An Income tax return is an NRIs self-assessment of their income for a particular financial year. The Income Tax department leaves it to the NRI individual to declare his or her income for the year by reporting the incomes from all avenues such as Income from Salary, Interest or Fixed Deposit income, Income from Shares, Capital Gains, and income from House Property and Business Income. The individual NRI has to calculate the total of all the incomes and report them in the various sections, along with deductions such as 80C and 80D. NRI also have to declare the amount of tax that may have been deducted from these incomes so as to get the appropriate tax credit. You then have to calculate your income tax based on the prevalent tax slabs and compare that to the taxes that you have already paid via TDS or Advance taxes and then check if you still owe more tax or if you have a refund. The declaration of your income, deductions and taxes is an Income Tax Return of NRIs.
Who Should file Return of Income?
In any of the following situations, it is mandatory for you to file an Income Tax Return in India:
- Your gross total income (before claiming any deductions under section 80C to 80U) exceeds INR 2.5 lakhs in the FY 2017-18. This limit is INR 3 lakh for senior citizens (aged above 60 but less than 80) or INR 5 lakhs for super senior citizens (aged above 80). For NRI senior citizen, there is no special benefit. The limit of INR 2.5 lakhs is applicable to them.
- You have exempt long-term capital gains from – sale of equity shares in a company OR sale of unit of equity oriented mutual funds, or sale of a unit of a business trust, of more than INR 2.5 lakhs in a financial year. Even though these gains are exempt from tax, such persons have to mandatory file an income tax return. [effective FY 2016-17, AY 2017-18]
- You want to claim an income tax refund
- You want to carry forward a loss under a head of income
- You are a company or a firm irrespective of whether you have income or loss during the financial year
- Return filing is mandatory if you are a Resident individual and have an asset or financial interest in an entity located outside of India. (Not applicable to NRIs or RNORs)
- If you are a Resident and a signing authority in a foreign account. (Not applicable to NRIs or RNORs)
- You are required to file an income tax return when you are in receipt of income derived from property held under a trust for charitable or religious purposes or a political party or a research association, news agency, educational or medical institution, trade union, a not for profit university or educational institution, a hospital, infrastructure debt fund, any authority, body or trust
- If you are a foreign company taking treaty benefit on a transaction in India
- A proof of return filing may also be required at the time of applying for a loan or a visa
Thus, if you don’t have any income which is chargeable to tax, you are not required to file Return of Income. Also, if you have only Investment Income or Income from Long Term capital gains or both (as explained above) and the tax has also been deducted at source from such income, then you are not required to file Return of Income. However if you have short term capital gains on equity shares or units of equity oriented mutual fund (even if less than INR. 2,50,000/-i.e. the basic exemption limit ) yet you are liable to file Return of Income.
Impact of non-filing of Return of Income:
Under section 271F, the assessing officer may levy a penalty of INR 5.000 when you have not filed your return. (applicable until FY 2016-17). From FY 2017-18 onwards, penalties for non-filing an income tax return are as follows.
a. Penalty of INR 5,000 is applicable if Return for FY 2017-18 is filed after the due date (31st August 2018) but by 31st December 2018
b. Penalty of INR 10,000 is applicable if Return for FY 2017-18 is filed after 31st December 2018 but by 31st March 2019
Note: Penalty is limited to INR1,000 for those with income up to INR 5 lakhs. These provisions are covered under a new Section 234F.
If you have missed the due date to file your return, you can still file it before 31 Dec 2018 by paying a fee of INR 5,000. If you are filing after 31 December 2018, you will have to pay a fee of INR 10,000. Also to note that the time limit for filing a return late for FY 2017-18 expires on 31 March 2019.