Non-Resident Indians (NRIs) often wonder if they need to file an Income Tax Return (ITR) in India. The answer depends on their income sources in India, their overall income level, and other financial activities.
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This blog covers the essential details NRIs need to know about filing ITR, tax rules, and how term and life insurance can benefit NRIs managing finances across borders.
NRIs are required to file an ITR in India only if they earn income in India that exceeds the basic exemption limit, currently set at ₹2.5 lakh. This income includes earnings from sources like rental property, interest on savings, capital gains from investments, or business income. If an NRI has income solely from foreign sources with no earnings in India, they are generally not required to file an ITR.
An NRI must file an ITR in India if they have any of the following types of income:
Income from Property: Rental income from property in India is taxable. NRIs must pay tax on this income and file an ITR if it exceeds the exemption limit.
Capital Gains: Gains from selling property, mutual funds, or stocks in India are taxable and require filing an ITR.
Interest Income: Interest earned on NRO (Non-Resident Ordinary) accounts is taxable, whereas interest on NRE (Non-Resident External) accounts is tax-free.
Business Income: Income from a business established in India is taxable and requires ITR filing.
By filing an ITR, NRIs can also claim refunds for any TDS (Tax Deducted at Source) paid, if their total income is below the exemption threshold.
Term Plans
For NRIs with family and financial obligations in India, term insurance and life insurance play an essential role in securing their loved ones. Here’s how these insurance types benefit NRIs:
Term Insurance: Term insurance offers a straightforward way to protect the financial well-being of NRI families in case of unexpected loss. By providing a lump-sum payout, term insurance for NRI ensures that family members have adequate support to cover expenses, including tax liabilities on inherited property, education costs, and daily expenses.
Life Insurance: Life insurance policies, especially those that build cash value over time, offer a dual benefit. NRIs can accumulate savings while also securing financial protection for their family in India. Life insurance policies can also help manage inheritance and estate planning, offering tax advantages that benefit both NRIs and their beneficiaries.
These policies can also be leveraged to meet tax requirements. For instance, if an NRI has substantial income in India, holding term insurance and life insurance can provide a structured plan for the family’s financial future.
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NRIs can hold term insurance and life insurance policies in India, but understanding the tax treatment of these policies is important:
Premiums: Premiums paid toward term or life insurance policies in India are eligible for deductions under Section 80C of the Income Tax Act, even for NRIs, up to ₹1.5 lakh annually.
Payouts: Payouts from term insurance are tax-free for the beneficiaries under Section 10(10D) if the premium doesn’t exceed 10% of the sum assured.
Wealth Building: Life insurance policies with investment components help NRIs accumulate tax-free savings, ensuring that funds grow without additional tax burdens.
Here are the steps to file an ITR as an NRI:
Determine Residential Status: First, check if you qualify as an NRI under Indian tax laws, typically determined by the number of days spent in India.
Gather Financial Documents: Collect necessary documents, including Form 26AS, TDS certificates, and income proofs.
Choose the Appropriate ITR Form: Depending on income sources, the correct form for NRIs is generally ITR-2 or ITR-3.
Use Digital Filing: NRIs can e-file their returns via the Income Tax Department’s website or authorized e-filing portals.
Claim Deductions: NRIs can claim deductions for life insurance and term insurance premiums under Section 80C, medical insurance under Section 80D, and interest on education loans under Section 80E, if applicable.
Filing an ITR can benefit NRIs by creating a clear tax record, aiding in financial planning, and helping claim refunds on excess TDS.
NRIs are eligible for various tax exemptions and deductions:
Section 80C Deductions: Deductions up to ₹1.5 lakh are available for certain investments and expenses, including term insurance and life insurance premiums.
Section 80D: Deductions on health insurance premiums for self, spouse, or dependent parents.
Section 80E: Deductions on interest paid on education loans.
Tax-Free NRE Interest: Interest earned in NRE accounts is tax-free, providing a beneficial way for NRIs to earn interest without additional tax burdens.
NRIs are only required to file an ITR in India if they have income from Indian sources above the basic exemption limit. With proper tax planning, including term insurance and life insurance, NRIs can secure their family’s financial future and maximize tax benefits. Whether it’s rental income, capital gains, or business income, NRIs must stay informed of tax regulations to ensure compliance. Consulting with a tax advisor or insurance specialist can help NRIs make the most of deductions, exemptions, and secure their family’s financial future across borders.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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