What Indians living in the UAE should know about tax returns – News

NRIs could be required to submit returns in certain scenarios even if there is no tax payable

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Published: Fri 4 Nov 2022, 06:00

Last update: Fri, Nov 4, 2022, 8:07 PM

If you are an Indian living in the UAE and you have a PAN card, you might be wondering whether or not you should submit tax returns?

Deepak Bansal, Associate at Ask Pankaj Tax Advisors, UAE explains the process in detail and what can and cannot be done.

Are NRIs holding PAN cards required to submit tax returns?

There is a general misunderstanding that a tax return need not be submitted if there is no taxable income in India. A Non-Resident Indian (NRI) may be required to submit a tax return in certain scenarios even though there is no government tax payable (Ref: Income Tax Rule 12AB) .

>Scenario I

For example, when the total deposits in a financial year in the NRI savings bank account (including the NRE/NRO account) exceeds Rs 5 million, he/she is required to submit a tax return. Deposits can come from any source like remittances from UAE or sale of property in India etc.

>Scenario II

Another scenario covers a situation where the tax withheld at source (TDS) during the financial year is Rs 25,000 or more. It is important to note that the TDS on an NRO account is deducted at 30%. NRIs think they are paying extra to the government by not submitting tax returns and not claiming tax refunds. However, the “no harm, no fault” philosophy may not work here.

>Scenario III

In another scenario, an NRI may have sold a property for a value of more than Rs 250,000. He can save tax by reinvesting the sale proceeds in another property or in selected funds. Even though there is no income tax payable in such cases, it is mandatory to submit a tax return as the total income before tax deductions has crossed the threshold of Rs 250,000.

>Scenario IV

Similarly, in some cases of overseas travel expenses as well, a tax return might be mandatory.

When are NRIs exempt from tax reporting?

If an NRI’s income from India is zero or less than Rs 250,000, there is no need to submit a tax return.

Also, a tax return is not required if an NRI’s income from India, even if it exceeds Rs. adequate have been deducted. The prescribed items cover dividends, interest income from specified bonds and/or debt funds, mutual funds purchased in foreign currencies, etc.

However, if there is other income in addition to the prescribed items, such as interest on a savings account or time deposits, a tax return may be required.

What are the penalties for not submitting the tax return?

If the total taxable income is more than Rs 500,000, the penalty for non-submission of tax return is Rs 5,000. Otherwise, the penalty would be Rs 1,000.

What are typical tax filing errors/misunderstandings?

Not having a permanent account number (PAN) is not decisive for the obligation to submit a tax return. The requirement to obtain the PAN is a consequence of a person’s requirement to submit a tax return, not the other way around.

Similarly, the threshold of Rs 250,000 for income from Indian sources must be calculated before any tax deduction. To illustrate, an NRI can earn Rs 300,000 of income and be eligible for a tax deduction of Rs 75,000 on account of home loans, life insurance or medical insurance premium. When the gross income exceeds Rs 250,000, a tax return is mandatory even if the taxable income after deductions is less than Rs 250,000. The most common mistake is to believe that a tax return is not necessary if no tax is payable.

Special provisions apply to NRIs carrying on business or professional activity in India which they must assess in detail.

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