You might be asking whether or not you need to file taxes as an Indian who is not a resident of the UAE if you are an Indian living there (NRI). Do you have to pay taxes on the money you receive from interest on your Indian bank account or from renting out a property? What about instances in India where you receive absolutely no income? Do you still need to submit “zero tax returns”? And how do you file taxes if you reside in the United Arab Emirates?
Who needs to pay taxes in India?
Even though the majority of Indians residing in the UAE may have investments in India, whether, through mutual fund returns or rental income from real estate, it is crucial to determine whether the income is “taxable”.
The income must fulfill a number of requirements in order to be taxable. For instance, an interest that has accrued from a Non-Resident External (NRE) account is not subject to taxes. The interest earned on a Non-Resident Ordinary (NRO) account, however, is included in your taxable income.
Similar to this, there are other sources of income that might be tax-free or taxable.
The 1961 Income Tax Act in India establishes a “basic exemption limit” for tax, which is fixed at Rs. 250,000, and defines a ‘basic exemption limit’ for tax, which is set at Rs250,000 (Dh 11,506).
This implies that any NRI with a taxable income of more than Rs250,000 in India must file income tax reports.
Additionally, it is crucial to remember that some revenues, including the most typical one—profit from share trading—will be taxed even if it is less than Rs250,000.
The income must fulfill a number of requirements in order to be taxable. For instance, an interest that has accrued from a Non-Resident External (NRE) account is not subject to taxes. The interest earned on a Non-Resident Ordinary (NRO) account, however, is included in your taxable income. Similar to this, there are other sources of income that might be tax-free or taxable.
How much tax does one have to pay on this income?
Your ability to pay taxes on the income you earn is influenced by two things:
- A slab system is where the amount of taxable income determines the tax percentage.
- The kind of income you are producing because some incomes, such as those from short- or long-term share trading, are subject to different tax rates and are not included in the slab system.
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Slab system for tax rates
You must pay tax on capital gains at a slab rate if you sold property or received interest on an NRO account.
The slab is as follows:
Income: Rs250,000 to Rs500,000
Tax: 5%
Income: Rs500,000 to Rs1,000,000
Tax: 20%
Income: More than Rs1,000,000
Tax: 30%
You may be eligible to claim various deductions using the system stated above.
You can receive deductions under this slab system for specific investments, including life insurance premiums, mortgage payments, mutual fund investments, IPO (Initial Public Offering) investments, and Public Provident Fund (PPF) contributions, which are long-term guaranteed income savings plans. According to Section 80C of the Income Tax Act of 1961, you are eligible for a deduction of up to Rs150,000 if you have any of these investments in India.
Another slab option for taxpayers
However, a new system with a more staggered slab rate was announced in the Indian budget for 2020, which would be advantageous to taxpayers. You have the option of paying your taxes via the new slab system. However, it’s crucial to keep in mind that if you go this route, you won’t be able to write off any of your other Indian investments.
The new slab rate which was announced is as follows:
Income: Rs250,000 to Rs500,000
Tax: 5%
Income: Rs500,000 to Rs750,000
Tax: 10%
Income: Rs750,000 to Rs1,000,000
Tax: 15%
Income: Rs1,000,000 to Rs1,250,000
Tax: 20%
Income: Rs1,250,000 to Rs1,500,000
Tax: 25%
Income: More than Rs1,500,000
Tax: 30%
Which slab system should one choose?
Before choosing which slab system they want, a person must determine whether the system would be more advantageous for them, where they might be earning a lower tax rate or saving more by claiming deductions.
To avoid under or over-reporting your income on your tax returns, it is always wise to consult a tax consultant or chartered accountant before filing your tax returns.
Special tax rate
Even if a person’s capital gain from selling stocks is less than Rs250,000, it is still considered taxable income for those who have invested money in the stock market.
No slab rate is applied to the tax on this income. The taxation of capital gains occurs at the time of income generation. You must pay tax on any short-term income, such as the sale of a share for Rs100, even if it occurs in less than a year and is less than Rs250,000 in value.
Depending on the type of capital asset, there will be a difference in the tax rate for short- and long-term capital gains. Therefore, the tax rate varies depending on the type of sale—real estate, stock, etc.
How can one file taxes from the UAE?
When filing taxes, there are two procedures to bear in mind once you have calculated your tax liability:
- File your tax returns.
- eVerify the tax return.
The first thing to keep in mind when it comes to filing your tax returns is that the Income Tax (IT) department of India has now launched two digital systems, called AIS (Annual Information Statement) and TIS (Taxpayer Information Statement), that Indians can use to keep track of their investments and income.
People frequently make investments but don’t fully recall all the details. Every transaction you make is recorded in the tax record since the PAN (Permanent Account Number) card is connected to the AIS and TIS systems.
In order to start filing your taxes, follow these steps:
– Visit https://eportal.incometax.gov.in/iec/foservices/#/pre-login/register
– Enter your PAN card, phone number, and email address to register as a “taxpayer.” Also required is the creation of a password.
– After signing up as a new user, log in with your account information.
– Click e-File, followed by Income Tax Returns and then ‘File Income Tax Return’ from your Dashboard.
– Choose the assessment year, then press “Continue.”
– Click “Proceed” after selecting “Online” as the “Mode of Filing”.
If you are submitting taxes for your personal income and assets, choose “Status” as “individual.”
According to the official IT tax return website, www.incometax.gov.in, there are two options available to you when choosing the kind of Income Tax Return (ITR). Select “Help me decide which ITR Form to file” and click “Proceed” if you are unsure which ITR to submit. You can proceed with filing your ITR after the system assists you in determining the correct ITR.
Select “I know which ITR Form I need to file” if you are certain which ITR to submit. Click “Proceed with ITR” after selecting the relevant Income Tax Return from the selection menu.
– The system will then provide you a list of the documents you’ll need to have on hand in order to finish the process. Click “Let’s get started” once you have verified that you have all the required paperwork.
– Next, enter the specifics of the income for which you are filing taxes. Since the system is centralised, you will have access to pre-filled information that you can edit as needed.
– Fill out the various areas with information about your income and deductions. Click “Proceed” once you’ve finished filling out and verifying all of the form’s sections.
– Based on the information you provided, a summary of your tax computation will be displayed to you. You have the choice to “Pay Now” or “Pay Later” at the bottom of the page if the computation indicates that there is a tax liability that must be paid. The IT website advises applicants to select the “Pay Now” option because selecting the “Pay Later” option, which allows you to make the payment after filing your Income Tax Return, can increase your risk of being flagged as a defaulter and subjecting you to interest charges on the tax that is still owing.
– Click “Preview Return” after making your tax payment. You will be sent to the “Preview and Submit Your Return” page if there is no tax liability due or if there is a refund based on tax computation.
– Enter Place, select the declaration checkbox, and click Proceed to Validation on the Preview and Submit Your Return page.
– Click “Proceed to Verification” on your “Preview and Submit your Return” page after your return has been validated.
The next action you must do after “Proceed to Verification” is to file your tax returns.
eVerify your Tax returns
You must also eVerify the return after you have filed your tax returns. There are several ways to accomplish this.
- Net banking
- Adhar card
- Digital signature in India. A digital signature or eSignature can be used in India to complete various government tasks.
- Demat account or bank account.
If none of these solutions are accessible to you, you may also physically mail the Income Tax Return Verification (ITRV) acknowledgment.
You can obtain the ITRV documents from the IT portal. After completing them, you can go to a post office and transmit the ITRV to the Bengaluru-based Income Tax Department Centralized Processing Center (CPC). The webpage also includes the full address.
Should one file ‘zero tax return’?
Should you still file a “zero tax return” if your earnings are below the threshold for reporting taxes? As the process is simple and keeping a running file with the IT department can be useful when ex-pats relocate back to India, it is not a bad practice to do it.
The IT department will have information about your earnings and will be aware that you have been an NRI for a long time, therefore your records will be updated with the tax department if you permanently return to India. Housing loans are also simpler to obtain because banks ask for your tax information. Even if you had investing losses in a certain year, I would strongly advise everyone to file tax returns. If you have losses from one year on your record, you can carry them over to the following year to use as a credit against any future profits that may be subject to taxation.