Summary:
- Tax is deducted at source for NRI investments (banks, mutual funds). Normally the tax is deducted at a high rate.
- Many NRIs are unaware of this. As they are not necessarily required to file tax in India, they end up giving up the taxes that have already been deducted at source.
- NRIs can file income tax here in India. If their taxable income arising from India is below the income tax threshold (5 lacs), they can reclaim the tax deducted in India.
Evading taxes by hiding income is crime. The government can prosecute tax evaders. At the same time, paying taxes when you are not required by law to do so, is also a crime. A crime against your family because you are essentially depriving your family.
A few years ago, I was myself an NRI. Every year, I used to get statements from banks, mutual funds etc. about the taxes deducted at source. Amounts were not that big. Filing income tax while being away was also not very easy. So, I used to ignore. However, filing income tax in India has become quite easy. Most of the details are easily available. If you don’t have enough taxable income in India, you can claim the TDS. All you have to do is file your income tax return. I am going to talk about how tax that has been deducted can be reclaimed.
Which income is taxed in India?
Tax is deducted at source for income arising from India. So, tax is deducted in India on your mutual fund investments, fixed deposit in NRO account, rental income etc. As NRIs have the same tax exemption and tax saving option (barring a few) as the resident India, a NRI can reclaim any excess tax deducted at source. For example, if the TDS amount is 1 lacs and you have a taxable income of less than 5 lacs in India, you can reclaim the entire TDS amount.
Check how much tax was deducted at source?
The first step in getting back the TDS amount is to know how much was actually deducted. For this, you need to see your 26 AS statement. This has details of all the taxes that have been deducted against your PAN. You can visit the Traces system in following two ways:
- Through your bank account: If your PAN is connected with your bank account, you can simply log on to the internet banking. Look for menu option like “Tax credit statement” or view “26 AS Statement”. This link will take you to the TRACES system (TDS reconciliation Analysis and Correction Enabling System).
- Through Income Tax e-filing website: Income tax e-filing website is used for filing income tax in India. If you have a log-in id and password, you can log on to the website. If you don’t have log-in id and password, the same can be created. Once you log-in, you can see a link to 26AS in the “My Account” menu item. Once you click on this , it will take you to the traces website.
File income tax return to claim tax deducted at source
In the income tax e-filing website, you can go the menu item called “Dashboard”. Once you click on the Dashboard, you can choose the “Filing of Income Tax Return” option. NRIs can not file the simple ITR 1 form as this is for resident Indians only. As you need to file ITR2 or other forms, you might need to download the java utility and fill the ITR form. This will take couple of hours. Alternatively, if the TDS amount is large, you can use one of the tax filing website which might be more user friendly. Personally, I don’t like sharing my details on other website, so I use the java utility of IT department. This can be downloaded from here:
https://www.incometaxindiaefiling.gov.in/downloads/incomeTaxReturnUtilities?lang=eng
Once you file the appropriate ITR form and e-verify your return form, income tax department will process and refund the appropriate amount into your specified bank account.
Disclaimer: The above content is just for information and should not be construed as an offer to buy or sell or recommendation. Contact your financial advisor for guidance on any investment related query.
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