non-resident indians and foreign nationals with indian income must file tax returns. the rules are different from resident filing. the forms are different. the tax treatment is not the same.
the first step is checking residency status. for tax purposes, an individual is non-resident if they stay in india for less than 182 days in a financial year. the 60-day test also applies. a stay of 60 days or more in the current year combined with 365 days or more in the preceding four years can trigger resident status. exceptions exist for indian citizens visiting india and those leaving for employment.
what income is taxable
non-residents are taxed only on income from india. foreign income is not taxable.
taxable indian income includes:
- salary received in india or for services rendered in india
- rental income from indian property
- capital gains from sale of indian assets
- interest from nro accounts
- dividend income from indian companies
- business or professional income earned in india
income not taxable:
- foreign salary earned abroad
- overseas business income
- interest on nre accounts and fcnr deposits
which itr form to use
non-residents cannot file itr-1 or itr-4. only itr-2 and itr-3 are available.
itr-2. for individuals with income from salary, house property, capital gains, and other sources. bank interest and mutual fund gains. no business income. most non-residents file itr-2.
itr-3. for individuals with business or professional income in india. intraday trading, f&o income, freelancing, and business income require itr-3.
documents required
the following documents should be collected before filing:
- pan card (mandatory)
- passport with travel dates
- form 26as and ais
- nre and nro account statements
- property documents, rent receipts, and loan interest certificates
- capital gains statements from brokers or mutual funds
- tax residency certificate and form 41 for dtaa benefits
step-by-step filing process
step 1. check residency status. determine if the individual is non-resident, rnor, or resident. this is the foundation for all tax calculations.
step 2. update profile on the portal. the residential status on the e-filing portal should be changed to non-resident before filing.
step 3. reconcile form 26as and ais. all tds credits and financial transactions should be checked. mismatches must be resolved before filing.
step 4. compute taxable income and tax. indian income should be aggregated. deductions under section 80c, 80d, and other eligible sections can be claimed. rebate under section 87a is not available to non-residents.
step 5. choose the tax regime. both old and new regimes are available. the new regime is the default. deductions like 80c are available only under the old regime. tax under both regimes should be compared.
step 6. claim dtaa benefits. if the country of residence has a dtaa with india, a lower tax rate or credit may be available. this requires a tax residency certificate, form 41 filed online, and proof of beneficial ownership. under section 90(2), the more beneficial provision can be applied.
step 7. select the correct itr form. itr-2 or itr-3 should be chosen based on the nature of income.
step 8. enter bank account details. a validated indian bank account is required for refunds. nro or nre account details should be entered.
step 9. report foreign assets if applicable. if total earnings exceed ₹50 lakh, assets and liabilities must be reported. schedule fa applies only if foreign assets are held.
step 10. file and verify. the return can be filed online. verification must be completed within 30 days using aadhaar otp, digital signature, or by sending a signed itr-v to cpc bangalore.
tds rates for non-residents
tds rates are higher for non-residents.
| income type | tds rate |
|---|---|
| rental income | 30% |
| nro fd interest | 30% |
| property sale | applicable rates plus surcharge |
| dividends | 20% |
non-residents can apply for a lower or nil tds certificate under section 197. this is useful when actual tax liability is lower than the proposed tds deduction.
filing deadlines
the standard due date for individuals is july 31. belated returns can be filed up to december 31. late filing fees and interest may apply.
frequently asked questions
1. is itr filing mandatory for non-residents?
filing is mandatory if taxable indian income exceeds the basic exemption limit (₹2.5 lakh under old regime, ₹4 lakh under new regime). it is also required if tds exceeds ₹25,000, capital gains arise, or certain high-value transactions occur. filing is also necessary to claim a refund.
2. which itr form should an nri use?
itr-2 for most individuals without business income. itr-3 for those with business, freelancing, or trading income. itr-1 and itr-4 cannot be used.
3. how are mutual fund gains taxed for non-residents?
equity fund gains held over 12 months are long-term, taxed at 12.5% above ₹1.25 lakh. gains within 12 months are short-term, taxed at 20%. debt fund gains are taxed at slab rate for units bought after april 1, 2023.
4. what is the dtaa benefit and how is it claimed?
dtaa prevents double taxation. it can provide a lower tax rate or foreign tax credit. a tax residency certificate, form 41, and proof of beneficial ownership are required.
5. can non-residents claim deductions under section 80c?
yes, deductions under section 80c, 80d, and other eligible sections can be claimed under the old tax regime. section 87a rebate is not available to non-residents.
