Protecting your Wealth: How Non Resident Indians can avoid financial losses through proper income tax filing for Indian Investments?

When an NRI (Non-Resident Indian) sells a property in India, the buyer is required to deduct TDS (Tax Deducted at Source) at the rate of 20% of the sale value if the property was held for more than 24 months. In addition, surcharge and cess will be added to this amount. The buyer must deposit this TDS with the Income Tax Department and provide proof of the TDS deduction to the NRI seller. The NRI seller can also file Form 13 with the Income Tax Department to request a reduction in the TDS rate, but this process can be complicated. It is worth noting that if the NRI files an income tax return before the due date, they may be eligible for a substantial refund due to the 20% TDS calculation based on the sale value.

Rental income earned in India by non-resident Indians (NRIs) or person of Indian origin (PIO’s) is taxable in India. The tenants, or payers of the rent, are responsible for deducting taxes at the source. They must obtain a TAN (Tax Deduction and Collection Account Number) and deduct 30% ( plus applicable cess and surcharge) as tax on the rental income. The tenants are also required to provide the NRIs with a certificate of the tax deducted at source. Yes, NRIs are eligible to file a tax return in India to claim a refund of the excess TDS paid.

TDS, or tax deducted at source, will be applied to the interest earned from an NRO account at a rate of 30% ( plus applicable cess and surcharge). There is no threshold for TDS on NRO interest, meaning the entire amount is subject to TDS.  However, if your total income is below the taxable limit, you can submit Form 15H to the bank at the beginning of the financial year to request that they not deduct any TDS. If TDS is still deducted, the only way to claim a refund is by filing your tax return. Interest from NRE and FCNR accounts are tax free.

If you sell equity shares or mutual funds that you have held for less than 12 months, the profit you make is considered as short-term capital gain and it is taxed at 15%. TDS at the same percentage will also be taken out of the profit before you receive it. If you hold the investment for longer than 12 months, the profit is considered a long-term capital gain and it is taxed at 10% if it is over Rs 1 lakh. The TDS at the rate of 10% will also be taken out before you receive the profit.

For debt mutual funds, if the investment is held for less than 36 months, it is considered as short-term capital gain and taxed at normal tax slab rates with TDS at 30%. If the investment is held for more than 36 months, it is considered a long-term capital gain and taxed at 20% with TDS at same rate.

Non-Resident Indians (NRIs) can take advantage of the lower tax rates established in Double Taxation Avoidance Agreements (DTAAs) if they reside in a country that has such an agreement with India. To access the lower tax rate under a DTAA, an NRI must present a Tax Residency Certificate (TRC) to the bank or the Income Tax Department. This is because the standard tax rate is higher, so the TRC is required to verify the NRI’s eligibility for the lower rate. If an NRI does not provide a TRC and tax is not withheld at the lower rate, they can still claim the benefit of the DTAA when filing their tax return and request a refund for any excess tax that was withheld.

In conclusion, as a non-resident Indian, it is important to be aware of the taxes that apply to your investments in India, such as TDS on the sale of property, rental income, NRO fixed deposits and saving accounts, and the sale of shares and mutual funds. TDS rates can be substantial and can result in financial losses if not handled properly. However, by filing your taxes before the deadline and utilizing double taxation avoidance agreements, if applicable, you may be eligible for a refund of the excess TDS paid.

Filing income tax returns in India is relatively straightforward and can be done online, making it easy for non-resident Indians to complete the process without needing to be physically present in India. Non-residents can file their own returns or work with a tax consultant for assistance, at a reasonable cost. It is important to consult with a tax professional to ensure proper compliance and to avoid any financial losses.