How NRIs File Tax Returns from the UAE

Jain said that while most Indians living in the UAE are likely to have some form of investment in India, whether through property rentals or returns from mutual funds, it is important to check whether the income is “taxable”.

“To be taxed on income, certain criteria need to be met. For example, if you accrue interest from a non-resident external (NRE) account, the account is tax-free. However, if you have a non-resident ordinary account (NRO), then Accrued interest is part of taxable income,” Jain said.

“Again, there are multiple sources of income that may be taxed or exempt,” he added.

India’s Income Tax Act of 1961 defines taxable income in a very specific way and also provides for a “basic tax exemption limit” of 250,000 rupees (AED 11,506).

This means that any NRI with more than Rs 250,000 taxable income in India must file an income tax return.

Also, it is important to note that some incomes will be taxed even if they are below Rs 250,000, the most common of which is stock trading income.

Certain criteria need to be met in order for income to be taxable. For example, if you accrue interest from a non-resident external (NRE) account, the account is tax-free. However, if you have a non-resident ordinary (NRO) account, accrued interest is part of your taxable income. Likewise, there are multiple sources of income that may be taxable or exempt.

– Dixit Jain, founder of The Tax Experts, a Dubai-based tax consulting firm

The amount of tax you pay on the income you generate depends on two factors:

1. Flat system, the tax rate is determined according to the taxable income.
2. The type of income you generate, as certain income—such as short- or long-term stock trading—is not included in the tablet system and has a special tax rate.

If you receive a capital gain from the sale of property or interest on your NRO account, you will be taxed at the flat rate.

income: 250,000 to 500,000 rupees
Tax: 5%

income: 500,000 to 1,000,000 rupees
Tax: 20%

income: over Rs 1,000,000
Tax: 30%

In the above system, you can claim certain deductions that may apply to you.

“In this flat system, you can get deductions for certain investments, such as life insurance premiums, home loans, mutual funds, initial public offering (IPO) investments or provident funds (PPF) – which is a long-term fixed income savings Scheme. If you have any of these investments in India, you can get a deduction of up to Rs 150,000 under Section 80C of the Income Tax Act, 1961,” Jain said.

However, in India’s 2020 budget, a new system with more staggered flat tax rates was announced, which could benefit taxpayers. You can also choose to pay taxes under this new tablet system. However, if you do choose this option, it is important to note that you will not be able to claim any deductions for other investments you make in India.

The announced prices for the new slabs are as follows:

income: 250,000 to 500,000 rupees
Tax: 5%

income: 500,000 to 750,000 rupees
Tax: 10%

income: 750,000 to 1,000,000 rupees
Tax: 15%

income: 1,000,000 to 1,250,000 rupees
Tax: 20%

income: 1,250,000 to 1,500,000 rupees
Tax: 25%

income: over Rs 1,500,000
Tax: 30%

“A person has to decide which system is better for them, where they might get a lower tax rate, or save more by claiming a deduction, and then decide which tablet system they want to choose,” Jain said.

That’s why it’s always advisable to speak to a tax advisor or a chartered accountant for help filing your tax return to make sure you don’t overstate or understate your income, according to Jain.

For individuals who invest their money in the stock market, any capital gains they receive from the sale of the shares will become part of the taxable income even if it is below the limit of Rs 250,000.

“For taxation of this income, there is no flat rate involved. Capital gains are taxed when you earn the income. If you sell shares for Rs 100, even in less than a year (this will be considered short-term income) ), you also have to pay tax on it even if it does not exceed Rs 250,000,” Jain said.

Tax rates on short-term and long-term capital gains will vary depending on the type of capital asset. Therefore, the tax rates are different for the sale of property, sale of shares, etc.

Once you know the tax you must pay, there are two steps to keep in mind when filing your tax return:

1. Submit your tax return.
2. Electronic verification of tax returns.

When it comes to filing tax returns, the first thing to note is that India’s Income Tax (IT) department has now introduced two digital systems – AIS (Annual Information Statement) and TIS (Taxpayer Information Statement) that Indians can use to track their investments and income.

“A lot of times, people make investments, but they don’t really remember all the details. The AIS and TIS systems are linked to PAN (permanent account number) cards, so whenever you complete a transaction, it’s noted in your tax records,” Jain said.

In order to start filing your tax return, follow these steps:

– Visit https://eportal.incometax.gov.in/iec/foservices/#/pre-login/register
– Enter your PAN card, contact number and email address to register as a “Taxpayer”. You will also be asked to set a password.
– Once you have registered as a new user, please log in with your account details.
– On your dashboard, click Electronic File, then “Income Tax Return”, then “Submit Income Tax Return”.
– Select the assessment year and click “Continue”.
– Select “Online” for “Archive Mode” and click “Continue”.
– If you are filing taxes on personal income and investments, select “Status” as “Individual”.

– According to the official IT tax return website www.incometax.gov.in, you have two options to choose the type of income tax return (ITR). If you are not sure which ITR to submit, you can select Help me decide which ITR form to submit and click Continue. Once the system helps you determine the correct ITR, you can proceed to submit your ITR.
If you are sure which ITR to submit, select “I know which ITR form I need to submit”. Select the applicable income tax return from the drop-down list and click “Proceed to ITR”.
– The system will then provide you with a list of documents you need to prepare, which are necessary to complete the process. After making sure you have the required files, click Let’s Get Started.
– Next, enter the details of your taxable income. As the system is centralized, most of the data will be pre-populated for you, which you can update as needed.
– Enter your income and deduction details in separate sections. After completing and confirming all sections of the form, click Continue.
– You will see a summary of tax calculations based on the details you provided. If there is tax due based on the calculation, you’ll see “Pay Now” and “Pay Later” options at the bottom of the page. The IT website advises applicants to choose the “Pay Now” option, as choosing the “Pay Later” option allows you to pay after filing your income tax return, which may result in the risk of being considered a defaulter with liability for interest on tax payable .
– After paying the tax, click ‘Preview Return’. If there is no tax due, or if there is a refund based on the tax calculation, you will be taken to the “Preview and Submit Your Return” page.
– On the Preview and Submit Your Return page, enter Place, select the Declarations checkbox, and click Proceed to Validation.
– After verification, on the Preview and Submit Return page, click Continue Verification.

“Getting verified” is the second step you need to complete when submitting your tax return.

After submitting your tax return, you will also need to electronically verify your return. This can be done with multiple options.

1. Internet Banking
2. Adhar Card
3. Indian digital signature. Digital signatures or electronic signatures can be used in India for various government tasks.
4. Demat account or bank account.

“If you don’t have any of these options at your disposal, you can also physically send an Income Tax Return Verification (ITRV) confirmation by mail,” Jain said.

Documentation for ITRV can be downloaded from the IT Portal. Once completed, you can visit the post office and send the ITRV to the Income Tax Department Central Processing Centre (CPC) in Bangalore. The full address is also available on the website.

Should you still file a “zero tax return” if your income doesn’t exceed the tax-required limit? According to Jain, doing this is not a bad habit as the process is simple and when expats are relocated back to India, it can be helpful to run the file with the IT department.

“Whenever you go back to India forever, the IT department will know your income details and know that you have been an NRI for many years, so your records will be updated with the tax department. It is also easier to get a home loan because the bank will ask you Provide tax details. I strongly recommend that everyone file a tax return, even if you incur a loss on your investments in a particular year. Losses in one year can be carried forward to the next, if they are on your records, to offset your possible future losses Any profits that need to be taxed,” he said.