Why the NRI should file the ROI?
The tax deduction at source for NRI is prescribed at maximum rate in the Income –tax Act (11% to 34%). However, the actual liability to tax for the year computed in accordance with the provisions of the Act is generally lower for following reasons.
i. Income up to the basic exemption limit of Rs.1,50,000/- (other than capital gains) earned by NRI is not liable to taxation.
However, the tax is deducted at source at 33.99% from such income.
ii. The income earned may not be liable to tax but the Payer in following cases deducts the tax.
a) The Capital losses can be set off against Capital Gains but tax is deducted at source from capital gains without setting off the losses.
b) The rate of TDS on NRO Account is 33.99 % (for Financial Year 2008-09) but tax chargeable on Income as per Double Taxation Avoidance Agreements (DTAA) with the country where NRI resides, may be lower.
c) The reinvestments of capital gains, as prescribed may exempt it from tax but the tax may have been deducted from the capital gain received.
In view of above, NRI should file Return of Income if his tax deducted at source is more than his actual tax liability. He is entitled to claim refund of Tax with interest at 6 %p.a.
Sometimes, NRI may incur short-term or long term capital loss on sale of investments. He can setoff such loss against long term capital gain from sale of investments in subsequent year or years provided he has filed Return of Income within the prescribed time for the year in which he has incurred loss. Hence the NRI should file the return of Income declaring loss in such a situation.
NRI may file Return of Income in some years and may not file in some years .But if he receives a notice from the Tax Department to file the Return of Income, he must respond by filing return of Income.
The updated tax information / records helps NRI to comply with the procedural documentations for repatriation of Income and Assets held in India. It also helps him to have ready records as & when he returns to India.