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DO NRIS NEED TO FILE INCOME TAX RETURNS IN INDIA?

Common Scenarios Explained

 

For Non-Resident Indians (NRIs), managing tax responsibilities across borders can be complex. A common question we encounter is:

 

“Am I required to file an income tax return (ITR) in India?”

The answer depends on the nature and quantum of income earned or received in India.

This article outlines the key scenarios that determine whether ITR filing is necessary and why, in many cases, it’s advisable—even when not mandatory.

When Is Filing an ITR Mandatory for NRIs?

Under Indian tax laws, NRIs must file an income tax return in India if any of the following conditions are met:

 

1. Income Exceeds Basic Exemption Limit

If the total income earned or received in India during a financial year exceeds ₹2.5 lakhs, filing an ITR is mandatory.
This includes:

• Rental income from property located in India
• Interest income from NRO accounts or fixed deposits
• Pension received from Indian sources
• Capital gains on shares, mutual funds, or property

Note: The exemption limit does not increase for NRIs based on age (unlike resident senior citizens).

 

2. Capital Gains Are Incurred

Regardless of the amount, if an NRI has earned capital gains in India—such as from the sale of shares, mutual funds, or property—an ITR must be filed to report such income, even if tax was already deducted.

 

3. Claiming a Refund

If tax has been deducted at source (TDS) but the NRI’s total income is below the taxable limit, an ITR must be filed to claim a refund of excess TDS.

 

4. Holding Specific Positions or Investments

ITR filing becomes compulsory if the NRI:

• Is a director in an Indian company
• Holds unlisted equity shares in an Indian company

When Is Filing Not Mandatory?

NRIs are generally not required to file an ITR in India if:

• Their total Indian income during the year is below ₹2.5 lakhs
• There are no capital gains
• They are not claiming a refund

However, even in such cases, filing a return is recommended for the following reasons:

1. To maintain a clear financial track record
2. For facilitating home loan applications, visa approvals, or repatriation of funds
3. To avoid scrutiny or notices from tax authorities

Practical Examples

Scenarios - ITR Filing Required?

1. ₹1.8 lakhs interest income from NRO FD 

                        No, unless refund is claimed

2. Sale of a flat in India 

                        Yes

3. ₹3 lakhs rental income from Indian property

                        Yes

4. No income from Indian sources

                        No

 

Conclusion

Filing an income tax return in India is not always mandatory for NRIs, but it often becomes necessary based on income types and financial activities. With increasing cross-border compliance norms and digital data matching by tax authorities, maintaining transparent tax records is both prudent and beneficial.

Whether you are unsure of your filing obligations or looking to optimize your tax position in India, professional advice can help ensure full compliance while avoiding unnecessary complications.