Do NRIs Need to File ITR If They Have No Income in India?

If you are a Non-Resident Indian (NRI) and do not have any income in India, you might wonder if you need to file an Income Tax Return (ITR). The answer is simple: NRIs are required to file an ITR only if their total income in India exceeds Rs. 2.5 lakh.

However, it is crucial to declare your NRI status correctly. Failing to do so can lead to unnecessary penalties and legal troubles. Updating your status with the tax authorities and your bank ensures smooth financial transactions. If an NRI continues to file taxes as a resident, they may face double taxation issues and complications when repatriating funds.

The tax laws in India provide exemptions for NRIs, such as tax-free income on NRE accounts and benefits under the Double Taxation Avoidance Agreement (DTAA). Knowing these can help you maximise your savings!

Many NRIs still have savings accounts in India from when they lived there. But can an NRI have a savings account in India?

No, they cannot! According to Reserve Bank of India (RBI) guidelines, NRIs must convert their regular savings accounts into an NRO (Non-Resident Ordinary) or NRE (Non-Resident External) account. Keeping a normal savings account while being an NRI can lead to penalties and account restrictions.

NRE Account – Best for depositing foreign earnings in India. The interest earned is tax-free, and the funds can be fully repatriated.

NRO Account – Suitable for NRIs who have income sources in India (like rent, dividends, pension, etc.). Interest earned is taxable in India.

FCNR Account – Ideal for those who want to hold deposits in foreign currency without worrying about exchange rate fluctuations.

One of the biggest mistakes NRIs make is not converting their savings account into an NRO account. If you fail to do this, banks can impose penalties, restrict transactions, or even freeze your account.

The penalty for not converting to an NRO account can include heavy fines and banking restrictions, making it harder to access your money when needed.

NRIs are liable to pay tax in India only on the income earned or accrued in India. This means that salary received in India, rent from property in India, interest earned on NRO accounts, and capital gains from Indian investments are all taxable. However, income earned outside India is not taxed under Indian laws.

Moreover, certain exemptions apply to NRIs under the Double Taxation Avoidance Agreement (DTAA), allowing them to avoid being taxed twice on the same income in India and their country of residence. It is always recommended to check your eligibility for these exemptions and claim the necessary relief while filing tax returns.

Even if an NRI’s income in India does not exceed the minimum amount chargeable to tax, filing an ITR can be beneficial in various ways:

• Helps in claiming tax refunds if excess TDS has been deducted.
• Maintains compliance records and helps in smoother financial transactions.
• Supports visa and loan applications by demonstrating financial credibility.
• Avoids future legal complications including notice from department due to unreported income or financial transactions.

Therefore, NRIs should file ITR voluntarily even if they are not mandatorily required to do so.

Failure to declare NRI status properly or not converting a resident savings account into an NRO account can attract financial penalties and other serious consequences:

• Interest penalties on non-compliant accounts.
• Heavy fines imposed by banks for failing to update account status.
• Possible freezing or closure of bank accounts by authorities.
• Delays and rejections in repatriating funds to foreign accounts.

To avoid these issues, NRIs must ensure they follow the necessary compliance requirements regarding taxation and banking regulations.

To ensure hassle-free financial management and avoid legal trouble, NRIs should:

• Regularly update their residency status with banks and tax authorities.
• Convert existing resident savings accounts to NRO accounts immediately after moving abroad.
• File ITR even if not mandatory to claim benefits and maintain compliance.
• Keep track of tax-saving opportunities under DTAA.
• Consult a financial advisor to manage tax liabilities effectively.

By following these best practices, NRIs can safeguard their financial interests while staying compliant with Indian tax and banking regulations.

NRIs are taxed in India based on their income slabs. Below are the applicable tax rates:

• Income up to Rs. 2.5 lakh – No tax.
• 2.5 lakh to Rs. 5 lakh – 5% tax.
• 5 lakh to Rs. 10 lakh – 20% tax.
• Above Rs. 10 lakh – 30% tax.

Additionally, NRIs must pay applicable surcharge and cess. It is advisable to plan finances accordingly to minimize tax liability.

For NRIs, staying compliant with Indian tax and banking regulations is crucial. By correctly declaring NRI status, converting savings accounts, and filing ITRs where necessary, NRIs can avoid penalties and maximize financial benefits.

It is always advisable to consult a financial expert to manage tax liabilities efficiently. With proper planning and compliance, NRIs can safeguard their assets and continue investing in India without any legal complications.