Navigating NRI taxes: What to know about rules, refunds and DTAA perks

From figuring out residency to claiming DTAA benefits, here's how NRIs can avoid common tax mistakes and make the most of concessions on Indian income

Non-Resident Indians (NRIs) earning income from Indian sources such as rent, capital gains, or deposits often face confusion while filing taxes. Good news is that the Indian Income Tax Act offers specific tax concessions to NRIs, along with treaty-based benefits under Double Taxation Avoidance Agreements (DTAAs). However, these benefits come with certain procedural responsibilities.

 

Who is an NRI?

According to the Central Board of Direct Taxes (CBDT), an individual is treated as an NRI if they do not meet the conditions specified for residency under Section 6 of the Income Tax Act, 1961, under it an individual is considered a resident in India for a financial year if they meet either of the following conditions:

 

1.    Stay in India is 182 days or more during the relevant financial year.

 

2.    Stay in India is 60 days or more during the relevant financial year and 365 days or more during the preceding 4 financial years.

 

Exception: For Indian citizens or Persons of Indian Origin (PIO) who come on a visit to India, the 60-day rule is extended to 182 days, unless their total income (excluding foreign income) exceeds Rs 15 lakh, in which case the threshold becomes 120 days.

 

Key tax concessions for NRIs

 

“NRIs are liable to pay tax in India on income earned here,” said SR Patnaik, partner (Head – Taxation), Cyril Amarchand Mangaldas. “But they are also eligible for special tax concessions under Sections 115C to 115-I of the Income Tax Act. For example, if their Indian income comprises only investment income or long-term capital gains and due tax has already been paid, they are not required to file a return as per Section 115G,” he added.

 

NRIs can also benefit from reduced tax rates under DTAAs that India has with many countries. Moreover, interest income on NRE and FCNR accounts continues to be exempt from tax in India, Patnaik confirmed.

 

Documentation and procedural checklist

 

According to Ritika Nayyar, partner, Singhania & Co., “The most critical step is correctly determining your residential status as per the Income Tax Act, since it governs your taxability.”

 

To claim DTAA benefits, both experts highlight the need for the following:

 

·  Tax Residency Certificate (TRC) from the country of residence

 

·  Form 10F, if the TRC lacks required details

 

·  PAN for all tax-related transactions in India

 

·  Choosing the correct ITR Form based on income sources

 

·  Maintaining detailed records of Indian income, TDS certificates, and bank statements

 

·  Timely filing of tax returns and submission of TRC/Form 10F to TDS deductors

 

Avoiding common mistakes

 

NRIs often err in determining their residential status, says Nayyar. “Miscalculating days of stay can result in incorrect classification, affecting tax liability.”

 

Patnaik pointed out delays in submitting TRC and Form 10F as common issues: “These delays often lead to mismatches in Form 26AS and missed DTAA benefits.”

 

Nayyar also stressed the need for record-keeping and filing returns even if tax liability appears nil. “Many NRIs skip ITR filing if they fall below the exemption limit. But filing is essential, especially to claim refunds or report Indian assets,” she advised.

 

Key takeaway: Follow timelines, keep documentation ready, and seek professional help if needed to make the most of tax concessions as an NR