Learn how to file an ITR as an NRI

Life as a non-resident Indian (NRI) has its fair share of advantages, but the approaching tax season in 2024 brings a different thrill that is filled with concerns. You and many other NRIs often struggle with the burning question – do NRIs need to file ITR? As per the Income Tax Act, you must file an ITR (income tax return) when your income exceeds ₹2.5 lakhs. Filing an ITR is also necessary to claim a refund of excess tax deductions or carry forward or set off any losses.

Now, with this sorted, the next question that arises is how to file an ITR. Let’s break it down step by step.

A comprehensive breakdown of the ITR filing process for NRIs
 

Although it can seem complex, filing your ITR doesn’t have to be. Just follow this five-step process on how to file an ITR.

Step 1 – Determine your residential status
 

Your residential status is important in understanding how to file an ITR, as it determines the taxability of your income. If you are a non-resident, only your income generated in India will be taxable. However, your global income will be taxable in India if you are a resident.

You are a non-resident when you satisfy both of these conditions –

• Present in India for less than 182 days (120 days when your income is more than ₹15 lakhs)
• Present in India for less than 60 days during the year and less than 365 days within the last four years

Also read - Discover IDFC FIRST Bank NRI Banking Service under 3 minutes!

Step 2 – Calculate your taxable income and tax liability
 

Identify and add your income earned in India from various sources. It can include –

• Salary received directly into an Indian bank account or earned for services rendered in India
• Rental income from your property in India, against which you can claim the following deductions –

- A standard deduction of 30%

- Payment made for property tax

- Interest paid on the housing loan

• Capital gains when you sell your assets and investments in India
• Interest and dividend income on investments in India
• Income from Business or Profession carried on in India

You should reconcile your income with Form 26AS and AIS. You can also determine the tax deducted at source (TDS) on such income.

Furthermore, you can reduce your taxable income by taking advantage of the deductions available, as follows –

*Note: The deduction cannot exceed the total taxable income.

With your taxable income now finalised, you can compute the tax as per the relevant income tax slabs. If your tax liability exceeds TDS, you can pay the remaining tax amount through challans.

Step 3 – Claim DTAA (Double Taxation Avoidance Agreement) relief
 

Seek relief from the Double Taxation Avoidance Agreement (DTAA) if your income is taxable both in India and in your country of residence. If your income is subject to tax in India, you can pay taxes in India and as per the provisions of the DTAA with country of tax residence,  claim a tax credit against your tax liability in your resident country.

Step 4 – File your ITR
 

Now, proceed to file your ITR. The form can be ITR-3 if you have business income and ITR-2 in other cases.

Here are some points you need to consider –

• Mention your exempt income in India, like the interest income from a non-resident external (NRE) bank account
• If your income in India exceeds ₹50 lakhs, disclose your assets and liabilities in India
• Select a validated bank account to receive a refund of income tax
• But if you do not have a bank account in India to claim a refund, you can provide the details of your foreign bank account
• Remember to file your ITR before 31 July 2024 for FY 2024 to avoid any late fees or penalties.

Step 5 – Verify your ITR
 

Don’t forget to verify your submitted return within 30 days to authenticate your return. You can do the same by the following options –

• By sending a duly signed ITR V to the Income-tax CPC, Bengaluru
• Through a net banking account in India

With these five steps on how to file an ITR, submitting your returns as an NRI will be a breeze!

Tax rebates and latest updates on ITR for NRIs
 

Now that you have understood how to file an ITR, let’s discuss the eligibility of tax rebates.

As an NRI, you are ineligible for the tax rebate under Section 87A or a standard deduction of ₹ 50,000 under Section 16 of the Income Tax Act. You are only eligible for the basic exemption limit, as follows –

• ₹3 lakhs in case of a new tax regime
• ₹2.5 lakhs in case of new tax regime

Moreover, when it comes to recent tax updates in income tax regulation, you need not worry about how to file an ITR correctly. There have been no major changes to tax rates for NRIs in the 2024 budget.

Optimising tax returns and financial planning for NRIs
 

Filing your ITR isn’t just about compliance and meeting the deadlines; it’s smart financial planning. Here are some tips.

• Leverage tax-saving instruments for investments, like Equity Linked Tax Saving Schemes (ELSS) or Unit Linked Insurance Plans (ULIPs), rather than FDs (Fixed Deposits) whose interest is taxable
• Protect your investments from currency fluctuations through hedging strategies or foreign currency accounts

Challenges NRI face while filing ITR
 

The ITR filing for NRIs may seem complex, but you can tackle these challenges with the right approach.

Challenge –

The onus of calculating the days you spent in the previous five years to determine your residential status in India.

Solution –

To do so, start keeping track and maintaining records of when you come and leave India. Retain old passports or refer to your flight booking tickets to calculate the days.

Challenge –

The income tax portal only accepts tax payments through specific authorised banks in India. If you have a foreign bank account, it could complicate your tax payments for income earned in India.

Solution –

To address this concern and pay your taxes directly, open an NRI bank account in India.

Introducing IDFC FIRST Bank NRI Banking
 

Whether paying your tax or verifying your return, an NRI bank account simplifies the process of how to file an ITR. But an account from IDFC FIRST Bank sweetens the deal by offering the following benefits –

Supercharge your savings –

Earn up to 7% p.a. on your bank account, compounded monthly! Watch your money flourish even while you are abroad. Plus, lock in up to 7.75% p.a. on fixed deposits for bigger goals.

Bank charges? Not here –

With IDFC FIRST Bank, you can enjoy 28 essential savings account services for free. It’s your money; keep more of it!

Banking on the go –

Open and manage your NRI accounts, investments, and transfers seamlessly using the IDFC FIRST Bank Internet Banking platform and mobile banking app

Send money home easily –

Transfer funds to your loved ones back home in 13 different currencies swiftly and securely.

By choosing IDFC FIRST Bank as your NRI banking partner, you gain access to a comprehensive suite of services designed to make your ITR filing and financial journey in India smooth and rewarding.

Also read - What NRIs visiting India must know about the gift tax rules and the right banking services

The takeaway
 

Successful tax compliance begins with understanding the fundamentals of how to file an ITR accurately and punctually. You can make the most of your NRI journey in India with IDFC FIRST Bank, with all the NRI banking services—NRI savings accounts, deposit accounts, investments, or insurance—just a few clicks away.

Start your seamless NRI banking journey with IDFC FIRST Bank today!