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NRI Corner – Part I - Filing income tax returns

Have you filed your income tax return in India before July 31?
If anyone has earned an income of over Rs.100,000 in the last Indian financial year, he/she must file his tax return and pay whatever tax due at a uniform rate of 20 percent.

Indian income tax regulations have many special provisions for NRIs. If NRIs have to file their returns, they would be well advised to engage the services of a qualified accountant who knows the complex laws and regulations.

NRIs can also authorise the accountant to file his return on his behalf to make life simple. It is worth paying the professional fees as the accountants know the procedures and can also claim tax refund on his behalf, if needed, and deal with any tax matters that arise. The accountant can also appeal against any ruling by income tax department, if required.

In addition to an accountant, NRIs can appoint an 'agent' to deal with these matters. The persons who qualify as an 'agent' is listed in the income tax rules. Since these persons are not qualified accountants, it is advisable to obtain the services of a professional.

All NRIs do not know that their income tax liability does not depend on their nationality but on their residential status. If anyone spends less than 182 days in India during the financial year, he/she is a non-resident. This means that any income he earns outside India is not taxed in India. The return is for income received in India in the previous year.

Basically, he should know what makes up an NRI's 'income' as there are a great many exceptions for NRIs.

Any income from a business, property, an asset, fees for technical or professional services, direct services rendered in India, royalties, salaries paid by the Indian government to Indians for services provided outside India and dividends paid by an Indian company abroad are all taxable.

Some Interest payments are also included and listed. Any pension, no matter where paid, is taxable if the pensioner provided his services in India. Basically, an NRI's income consists of his salaries, income from his property, profits from his business(es), profession, capital gains and other listed 'sources'.

NRIs engaged in business in India with Indian partners come under 'a business connection'. This term covers different business activities such as a branch office, a local subsidiary to sell imported products, an agent for buying or selling, building a factory for exports and a financial association between a resident and a non-resident company.

NRIs do not have to pay tax on interest income on bonds or premium on redemption of bonds or securities, interest on Non Resident External Bank Accounts in foreign currencies, and Non Resident Non-Repatriable Rupee Deposit Accounts and interest on Savings Certificates issued before June 1, 2002. Many other forms of interest paid for different types of deposits are also listed for exemption.

The income tax return form involves self-assessment of taxable income. Thus the due tax must be paid before filing the return and a copy of the receipt must be enclosed with the return. The income tax forms are available free of cost at the major offices in the metros or through some commercial enterprises authorized to sell them for a small fee.

An NRI can also get an advance ruling about his income tax liability by filing an application with a fee of Rs.2,500. The ruling is then binding on both the NRI and the IT department. The applicant must be a Non-Resident in the previous year preceding the financial year in which the application is filed.

Income tax returns for NRIs are generally accepted on their face value and without scrutiny. The vast majority of NRI cases - over 95 percent - are accepted normally without calling for an examination of the books of accounts or supporting documents. Thus a NRI must be very careful in filling his tax return to avoid any tax evasion and avoidance.

While tax evasion is illegal, tax avoidance is not. Typically, it involves failing to report income, or improperly claiming deductions that are not allowed. Courts have ruled that taxpayers can plan their affairs to pay the minimum amount of tax possible and the taxpayer may use any legal means to do so. This can only be done with the maximum and correct amount of information about income tax laws and regulations and thus it is worth paying your accountant or tax lawyer for their professional services.

All complex income tax regulations cannot be presented in a single article but only the general guidelines. Considering all these better to engage a professional 'This way, it's much simpler!'

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