NRIs living abroad may be required to file ITR in India either due to their taxable income in India exceeding Rs 2.5 lakh (Rs 3 lakh for new tax regime) or in case they meet any of seven conditions specified under section 139 (7) of the Income-tax Act, 1961.
Filing ITR is mandatory for those meeting these 7 conditions. for example: If the person pays electricity bill of more than Rs 1 lakh per annum or if the person incurs expenditure on foreign travel in excess of Rs 2 Lakhs per annum. They may also want to file their ITR in India to claim tax deducted at source (TDS) appearing in their Form 26AS, as a refund, or they may want to file their ITR voluntarily for various other reasons.
However, due to certain complexities involved in the ITR filing processes, they may end up skipping the ITR filing in India or delay the process. While they can get assistance from tax consultants in India to complete the ITR filing processes, there are certain difficulties faced by NRIs in completing the end-to-end filing process and receiving the income tax refund claimed in their ITR.
Broadly, the following processes are involved in completing the income tax return filing and getting the tax refund claimed:
1. Preparation of the ITR (currently simplified Form ITR-1 is not applicable to NRIs).
2. Payment of taxes (if any) on the taxable income in India.
3. E-filing of the ITR within the due date (normally July 31).
4. Verification of the ITR filed within 30 days from the date of filing.
5. Validation of their bank account on e-filing portal so that the income tax refund (if any) claimed in the ITR gets credited to the validated bank account.
Challenges faced by NRIs and how the processes can be simplified is as follows:
- Simplification of the ITR Form
Currently, individuals qualifying as non-resident in India (not having income from business or profession) are required to file their income tax return in ITR-2 Form. The ITR-2 Form is an exhaustive document covering all the income heads, except income from business and profession in a detailed format. This makes it time-consuming and complex, especially for NRIs with minimal sources of income in India.
For example, an NRI who has only bank account interest income taxable in India needs to fill the exhaustive ITR-2. The government can consider designing and introducing a simplified ITR form for NRIs who have tax return filing requirement only to report certain kind of income, such as interest income or house property income similar to simplified ITR-1 Form for resident individuals. This will help to reduce the difficulty faced by NRIs in preparing their returns and enable faster preparation of the tax return.
- Enabling tax payments from overseas bank accounts
The income tax portal allows to tax payments to be made only through certain authorised banks located in India. It is possible that NRIs may have a bank account in India that is not listed for tax payment on the e-filing portal. This will make it difficult for them to make the tax payment arising on their taxable income in India. To overcome the difficulty in payment of taxes, the government can consider allowing the tax payment for NRIs through their overseas bank account as well, to ensure timely and hassle-free tax payments.
- Enabling receipt of income tax refund in overseas bank accounts
There is a specific field in the ITR-2 and ITR-3 Forms, to furnish overseas bank account details for persons who do not have a bank account in India. The field was inserted by the tax department to ensure that tax refund is duly paid to such persons in the foreign bank account. However, practically, the refund gets credited only to a validated bank account in India. Thus, NRIs who do not have a bank account in India often find it difficult to receive the income tax refund claimed in their ITR.
In such a case, they may need to open a bank account in India to receive the refund. This could be a difficult task considering the NRIs may have to be physically present in India to open a bank account, though, some banks do offer to open virtual bank accounts.
Hence, the tax department should initiate tax refunds in the foreign bank accounts reported in the ITR-2 and ITR-3 Forms, to avoid practical difficulties as mentioned above.
- Simplification of the verification process
It is necessary to verify the income tax return within 30 days from the date of filing. Verification of income tax return can be done through any of the following modes-
- OTP on mobile number registered with Aadhaar or
- EVC generated through pre-validated bank account or pre-validated demat account or ATM
- Verification through Net Banking (facility available for some authorised banks)
- Digital Signature Certificate
For online verification of ITR, the NRI must have an active India mobile number to receive a one-time password (OTP). It may happen that NRIs who are settled abroad, do not have an active India mobile number to receive the OTP. Also, their India mobile number may not be linked with Aadhaar or with the Indian bank account or demat account.
Due to this, online verification may not be possible for them. The government can consider allowing the OTP to be sent to an overseas mobile number as well, so that NRIs who do not have active, linked Indian mobile numbers, are able to smoothly e-verify their ITR. Another alternative can be sending the OTP on email linked to NRI’s account on the income tax portal for ITR verification.
Where an individual wishes to verify the ITR through offline mode, they need to sign the ITR acknowledgement and send the original to the Centralised Processing Centre (CPC), Income Tax Department located in Bengaluru, through ordinary or speed post. NRIs who stay abroad may not be able to send the original through post, and they may need to send it through courier services which entails a cost. To help overcome these difficulties, the government can consider providing some concession to NRIs by accepting the scanned copy of ITR acknowledgement through e-mails.
(The article is written by Homi Mistry, Partner, Deloitte Haskins & Sells LLP, Monil Gangar, Manager, Deloitte Haskins & Sells LLP, Nikita Malkan, Deputy Manager, Deloitte Haskins & Sells LLP.)