Income Tax filing: Do NRIs need to file ITR if they have no income in India? (2024)

A person living abroad for most of the year but holding Indian citizenship is termed an NRI (Non-resident Indian). Typically, NRIs spend less than 182 days in India during a financial year. They play a crucial role in the Indian economy and maintain various financial ties with their home country.

Mandatory Income Tax Filing for NRIs

NRIs are generally not required to file Income Tax Returns (ITRs) solely based on their non-resident status. However, they must file if they meet certain income thresholds:

• Old Tax Regime (optional): NRIs must file ITR if their total income in India exceeds ₹2.5 lakhs in a financial year.
• New Tax Regime (introduced in 2020): NRIs opting for this regime must file ITR if their total income in India exceeds ₹3 lakhs in a financial year.
  

What happens if no ITR is filed?

Exemption from ITR Filing for NRIs with No Income in India

If an NRI has no income sourced from India, they are generally exempt from mandatory ITR filing. This includes income such as salaries earned abroad, business profits outside India, and rental income from foreign properties.

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Benefits of Voluntary ITR Filing (Even with No Income)

Despite no Indian income, filing an ITR can be advantageous for NRIs in certain situations:

1. Claiming Tax Refunds for TDS: NRIs might have had Tax Deducted at Source (TDS) on payments like interest on bank deposits or rental income in India. Filing an ITR enables them to claim refunds for excess TDS deducted.
2. Carrying Forward Capital Losses: If an NRI incurs capital losses from investments or asset sales in India, filing an ITR allows them to carry forward these losses to offset against future capital gains, potentially reducing tax liability.
3. Documentation for Visa or Loan Applications: Some foreign authorities, financial institutions, or scholarship programs may require ITR as proof of financial status. Filing an ITR, even with no income, demonstrates tax compliance and can expedite these applications.

Additional Scenarios Requiring ITR Filing for NRIs

NRIs may need to file ITR even if their income is below the threshold due to specific financial activities in India:

1. High-Value Deposits: Certain thresholds for deposits in savings or current accounts with Indian banks necessitate ITR filing.
2. Tax Deductions (TDS/TCS): If TDS or Tax Collected at Source (TCS) exceeds ₹25,000 on income received in India, filing an ITR is mandatory.
3. Travel Expenditure: NRIs spending over ₹2 lakh from their Indian bank accounts on travel (excluding specific neighboring countries and pilgrimage destinations) must file an ITR.

What is the 4-year rule of NRI?

Under the Foreign Exchange Management Act (FEMA), the "4-year rule" determines the residency status of individuals of Indian origin:

Resident Indian: An individual qualifies as a Resident Indian if they have resided in India for at least 60 days in the preceding year and at least 365 days in the preceding four years.

Non-Resident Indian (NRI): Conversely, if an individual does not meet the above criteria, they are classified as an NRI.

What happens if you don't declare NRI status?

According to FEMA guidelines, there is no penalty for failing to declare your NRI status. However, it is mandatory to promptly close your current and savings accounts held in India or convert them into Non-Resident Ordinary (NRO) savings accounts upon becoming an NRI.

Consulting a tax professional specializing in NRI taxation is crucial to ensure compliance with tax regulations based on specific financial activities and income sources in India. This approach helps avoid penalties for non-compliance and maximizes benefits under Indian tax laws.

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