Filing Your Indian Tax Return When You Are Residing in the U.S.?

It has often been a question for many Indian citizens living in the U.S. whether they should file their Indian Income Tax Return or not. Actually, taxability in India is predominantly based on your residence, not on your citizenship. Hence, you have to identify your residential status first before you determine if you are liable to file your Indian ITR.

So how do you determine your residential status?
Basically, your residential status depends on the length of time of your physical stay in India within a given financial year. It helps if you check your passport and take note of the immigration stamp dates, including the dates of departure and arrival.

If you meet any of these two criteria, then you are considered an Indian resident for a financial year:

  • You reside in India for at least six (6) months, or 182 days, during the financial year
  • You have stayed in India for at least 60 days or 2 months in the previous financial year

If you do not meet any of the above-mentioned criteria, then you are considered an NRI (non-resident Indian). As such, your Indian income tax largely depends on the income that you earn in India for the entire financial year. On the other hand, if your status is “resident,” then your global income is taxable in India.

If I am living in the U.S., do I still need to file my Indian income tax return?

Yes, but on certain conditions.

Just because you are an NRI does not necessarily mean that your obligation to file your tax returns in India is no longer there. In fact, as July 31st of every year–which is the deadline for filing returns–looms, you must already be gearing up to file your returns if your income in India goes above the basic exemption limit.

Any salary you receive or earn in India, including income from a residential property located in India, income coming from fixed deposits or interest on savings bank account, as well as capital earnings on the transfer of properties in India, are just some of the many examples of income accrued within India. Such incomes are taxable for an NRI. It follows then that any income earned outside the bounds of India is not taxable in India.

It is also important to note that any interest you earn on an NRE account and FCNR account is free of tax, while interest on an NRO account is taxable for an NRI. Simply put, if you are an NRI and you have performed your job in India, your salary income will be taxable in India, regardless of where your salary is credited to your account. On the other hand, if you have worked abroad but have received your salary in India, then your salary will be included in your taxable income in India.

When does filing my Indian income tax return become mandatory?

The question of whether you should file your Indian income tax return or not is irrespective of your being an NRI or not. If you have lived in the U.S. long enough to be considered an NRI but still have income coming from India, you are required to file your Indian income tax return when your income exceeds the basic exemption limit. As an NRI, filing your income tax return in India is mandatory in the following cases:

  • The total of your taxable income from all sources goes above the basic exemption limit of Rs 2.5 lakh.
  • You have either long term capital gain (LTCG) or short term capital gain (STCG) from selling your investments or assets in India, even if your income goes below the exemption limit.
  • You wish to claim a tax refund, in cases when TDS has already been deducted.

Are there tax deductions available to NRIs?

NRIs are also entitled to tax deductions, just like ordinary Indian residents. Most of the common deductions under the Chapter VIA of the Income Tax Act of India are available whether you are a resident or not, except for those that have to do with maintenance, treatment of disabled dependent, medical treatment of certain diseases for both self and dependents, as well as specified investments like five-year post office deposit, senior citizen savings scheme and investment in Rajiv Gandhi Equity Savings Scheme.

If I am in the U.S., can I also enjoy the benefits of the Double Tax Avoidance Agreement (DTAA)?

Currently, India has a DTAA with around 90 countries around the world, and one of them is the U.S. As an NRI, one of the first things that you need to determine is whether your income is taxable in India. Then, if you are living in the U.S., you must furnish a tax residency certificate (TRC) issued by the tax authorities in the U.S. Aside from that, you may also have to provide a self-declaration by filling out Form 10F.

Getting relieved under DTAA depends on your type of income. In fact, under the DTAA, certain incomes may be entirely exempted or may be taxed at a lower rate. If under this agreement your income is taxable, then you are required to pay your tax in India and claim credit for your paid tax in the U.S. against the tax liability in your home country.

For you to claim a lower tax rate under the agreement, being an NRI, you must have provided your PAN number earlier on to avoid being charged with higher withholding tax of 20 percent, as stipulated in Section 206AA. Under rule 37BC issued by the Central Board of Direct Taxes (CBDT), NRIs like you are allowed to furnish alternative information or documents instead of PAN so as to avoid high withholding tax. These include your name, email, address, contact number, TIN and TRC.