Non-resident Indians (NRIs) often wonder about their income tax filing obligations in India, especially when they have no income sourced from the country. Here’s a breakdown of what NRIs need to know:

NRIs and Income Tax Filing Obligations

NRIs are required to file Income Tax Returns (ITRs) in India if their income in the country exceeds certain thresholds. Under the old tax regime, NRIs must file ITR if their total income in India exceeds Rs.2.5 lakhs in a financial year. For those opting for the new tax regime introduced in 2020, filing is mandatory if their income exceeds Rs.3 lakhs annually.

Penalties for Non-Compliance

Failure to file ITR when required can lead to penalties under Section 276CC of the Income Tax Act, including imprisonment and fines. This emphasizes the importance of complying with Indian tax laws to avoid legal repercussions.

Exemption for NRIs with No Income in India

NRIs who do not earn any income from India are generally exempt from mandatory ITR filing. This exemption covers income sources like salaries earned abroad, business profits outside India, and rental income from foreign properties.

Benefits of Voluntary ITR Filing

Even if an NRI has no income from India, filing an ITR voluntarily can be advantageous:

Tax Refunds: NRIs can claim refunds for excess Tax Deducted at Source (TDS) on payments like interest on bank deposits or rental income in India.
Capital Loss Carryforward: Filing ITR allows NRIs to carry forward capital losses from investments in India to offset against future capital gains.
Documentary Proof: Some institutions abroad may require ITR as proof of financial status for visa applications, loans, or scholarships.
When to File ITR Despite Low Income

NRIs may still need to file ITR under specific circumstances, such as:

Deposits exceeding specified thresholds in Indian bank accounts.
TDS or Tax Collected at Source (TCS) exceeding Rs.25,000 on income received in India.
Significant travel expenditures from Indian bank accounts.
Understanding NRI Status under FEMA

According to the Foreign Exchange Management Act (FEMA), NRIs are defined based on the "4-year rule." This rule determines residency status concerning the duration of stay in India over the preceding four years.

While there are no penalties for not declaring NRI status under FEMA, it is mandatory to close or convert Indian bank accounts to Non-Resident Ordinary (NRO) savings accounts upon becoming an NRI.

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