NRIs Beware: Know the Consequences of Not Filing Tax Returns
- Ready to navigate tax complexities with guidance from seasoned chartered accountant Mr. Sriram V. Rao?
- Dive into essential tax insights for NRIs, including when to file tax returns, obligations from equity share sales, deposit thresholds, understanding TDS/TCS, and responding to tax notices.
Embark on a journey through taxation intricacies with guidance from seasoned chartered accountant, Mr. Sriram V. Rao, as we delve into key issues affecting the NRI community and unravel common tax queries.
When Should NRIs File Tax Returns?
Any individual, whether NRI or resident, must file tax returns in India if their income exceeds the basic exemption limit. For NRIs, additional conditions apply. Apart from exceeding the basic exemption, filing becomes mandatory if:
- Income includes special rates like capital gains (10%, 15%, 20%), or dividends taxed at 20%.
- Double tax avoidance benefits are claimed, reducing tax on certain incomes.
- Benefits like Section 54, 54EC, or 54F are claimed on capital gains.
Moreover, specific monetary thresholds trigger filing requirements, such as depositing ₹1 crore in a current account or ₹50 lakhs in a savings account, spending ₹2 lakhs on foreign travel, or having turnover exceeding ₹60 lakhs from business activities or ₹10 lakhs from professions. Aggregate TDS/TCS exceeding ₹25,000 annually also mandates filing.
Tax Obligations from Equity Share Sales
Consider this scenario: You sell listed equity shares, a long-term asset held over a year. There’s no tax on the first ₹1 lakh of gains; beyond that, it’s taxed at a flat rate of 10%. If your gains stay below ₹1 lakh, no tax filing is required. However, exceeding this limit by even ₹1,000 necessitates filing taxes. This threshold applies only to long-term capital gains from equity shares, not other incomes taxed at special rates.
Deposits in Savings Accounts and NRIs
Regarding deposits exceeding ₹50 lakhs in any savings account, including NRE accounts, the law is clear: all credits, whether via cash, NEFT, RTGS, or cheque, count towards the threshold. NRIs depositing over ₹50 lakhs into NRE accounts must file returns, irrespective of whether the interest is tax-free.
Understanding TDS/TCS for NRIs
Many NRIs overlook TDS/TCS obligations due to busy lives and investments. For instance, purchasing a car exceeding ₹25 lakhs in India incurs 1% TCS, while interest earnings over ₹75,000 are subject to TDS. Checking your Annual Information Statement (AIS) on the IT portal post-March 31 each year clarifies TDS/TCS details, ensuring compliance.
Filing Taxes: A Prudent Approach for NRIs
If an NRI has any financial links or transactions in India, it’s advisable to file taxes. Proactive filing reduces the likelihood of tax notices and shows compliance, fostering goodwill with tax authorities. Conversely, failure to file taxes, whether from negligence or oversight, invites penalties or, in severe cases, criminal proceedings for tax evasion.
Responding to Tax Notices
Receiving a tax notice, whether as a filer or non-filer, typically stems from information mismatches or unreported incomes. NRIs should promptly respond with documented proof—passport copies, employment certificates, visa details—to establish non-resident status and justify financial activities, like investments or FDs linked to NRE accounts.
Maintaining Financial Records
Maintaining transaction records is crucial, irrespective of residency status. Authorities can review transactions up to three years old routinely, extending to ten years for significant tax evasion cases. Documentation—annual bank statements, remittance records, salary certificates—is vital for proving income sources and tax liabilities over time.
Final Thoughts: Upholding Tax Compliance
Embrace financial prudence by preserving transaction records electronically. Whether for insurance payments, remittances, or employment incomes, keeping comprehensive records safeguards against future tax challenges. By ensuring transparency and adherence to tax laws, NRIs secure their financial interests and foster trust with regulatory authorities.
Ready to file your taxes hassle-free and ensure compliance? Contact NRI Money Clinic today for expert guidance and stay on the right side of the law! Let’s navigate your tax responsibilities together. Click here to send us a message on WhatsApp. You can also get in touch with us through our website, LinkedIn, or Instagram.
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