- Date : 31/08/2021
- Read: 6 mins
As an NRI, if your tax liability is less than the TDS deducted from your income, you can file an income tax return to claim a refund. Here’s how to go about it.
As a responsible citizen, you would no doubt have paid your income tax before the due date. You would also have submitted the necessary documents to your employer to look into your TDS (tax deducted at source). But what if your tax liability is less than the TDS? You need not worry as you can now claim a refund for the excess amount deducted under TDS.
Related: Should you stick to the old tax regime or move to the new one? [Premium Article]
TDS for NRIs
As an NRI, you may have to pay tax based on the type of income you earn in India, such as on your salary income, if your services are rendered in India. However, for other incomes there are different rates according to type.
Where the total income of an assessee, being an NRI, includes any income from investment or income from LTCG of an asset other than a specified asset.
Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual funds (*) or units of a business trust, which are transferred on or after 1-10-2004 through a recognized stock exchange and such transaction is liable to securities transaction tax (STT).
Related: NRIs will no longer qualify to invest in Public Provident Fund
Save on TDS through DTAA
If you are residing in a country that has a Double Taxation Avoidance Agreement (DTAA)with India it can help you reduce your tax liability considerably.
What is DTAA?
DTAA is an agreement signed by two countries – in this case, India and the country you reside in. The DTAA agreement for Indian citizens is arranged in a manner so that taxpayers do not have to pay tax twice for the same income, in the country of residence and source country. India currently has DTAAs with 80 countries worldwide. DTAA emerged due to the imbalance in tax collection on the global income of individuals. For individuals who wish to start a business in a foreign country, they may end up being taxed in both cases, i.e., the country where they earn income, and the country where they hold citizenship or residence. In order to avoid individuals from paying twice the tax over the same income, DTAA was introduced to taxpayers.
How DTAA works
DTAA allows you to reduce your tax implication on the income earned in India. The primary objective behind DTAA agreements with numerous countries is to minimize any scope for tax evasion for taxpayers in either or both countries where the DTAA has been signed. The rate of TDS to be deducted is fixed as per the DTAA on your income earned in India. Moreover, provisions of DTAA override those of the IT Act.
Related: 8 Incomes you shouldn't miss while filing your IT returns
Documents required for DTAA
To avail of benefits from the DTAA for your tax concessions, submit the following documents:
- Tax Residency Certificate (TRC): Obtain the Tax Residency Certificate from the country you are residing in. It is issued when you submit necessary documents and prescribed fees, and contains basic information such as name, status (individual, company, firm etc.), address, nationality, country, tax identification number in the country of residence, tax status, period for which the tax certificate is issued, etc.
- Self-declaratory cum indemnity form: This form is a declaration by the government of the country you reside in. It contains details such as your account number, country of residence, the period during which the TRC was submitted, tax rate applicable under DTAA, etc.
- Additionally, you are required to submit attested copies of your passport, visa, and PAN.
Related: Top 6 Most Common Mistakes to avoid when filing IT returns
The process of claiming your refund is simple; let’s take you through the steps:
Steps to file for an IT refund
1. Collect your documents
Collect all the relevant documents needed to file your return. These include your PAN, passport, and bank details. Form 26AS provides you with necessary details of the TDS deducted during the year. In addition, Form 16 would determine your TDS if you are a salaried individual. You would also need details of income earned from the head ‘Income from other sources’ such as interest income and TDS certificates.
2. File the IT return
- Go to the e-filing portal (https://portal.incometaxindiaefiling.gov.in) and log in with your user ID (your PAN) and password.
- Download the ITR form applicable to you – either ITR-2 or ITR-3, depending on the nature of the income you are receiving in India. If you have a business income, you will be required to file ITR-3. In case there is no business income, ITR-2 would be applicable.
- Fill in the basic details and then click on the 'Pre Fill' button.
- Enter all relevant data and click on 'Calculate' to determine your tax and interest liability.
- Once you have filled all relevant details click 'Validate' by entering the one-time password (OTP) sent to your registered number.
- Generate and save the XML file. Save this file on your computer.
- Revisit the portal and upload the saved XML file. Add your Digital Signature (DSC) to it. (Digital Signature is used to electronically sign documents and forms)
Related: A dummy's guide to form 26AS
3. Verify your return
After you have filed your IT return you will be required to verify it. Once you have uploaded the XML file, a form known as ITR-V will be generated. This form is for the purpose of verification, so download it. You can also receive this form on your email address from the IT Department.
Once you upload the ITR with DSC, your filing is complete. Alternatively, you can print a copy of the form, sign it, and submit the ITR-V within 120 days from the date of e-filing to the Centralised Processing Centre (CPC) at the following address: CPC, Post Bag No 1, Electronic City PO, Bengaluru 560 100, Karnataka.
Once your form has been received by the IT department, your return will be processed.
Conclusion
You need not worry about excess TDS deducted by your employer. You can claim it by filing an IT return. You just need to be aware of the TDS deductions applicable to you, depending on the various incomes you receive. As an NRI, you also have to conform to the tax laws of two countries at once, which may increase your tax liability.
Fortunately, if you reside in a country with which India has a DTAA, you can reduce your tax liability to an extent. So keep yourself updated about the information mentioned above.
As a responsible citizen, you would no doubt have paid your income tax before the due date. You would also have submitted the necessary documents to your employer to look into your TDS (tax deducted at source). But what if your tax liability is less than the TDS? You need not worry as you can now claim a refund for the excess amount deducted under TDS.
Related: Should you stick to the old tax regime or move to the new one? [Premium Article]
TDS for NRIs
As an NRI, you may have to pay tax based on the type of income you earn in India, such as on your salary income, if your services are rendered in India. However, for other incomes there are different rates according to type.
Where the total income of an assessee, being an NRI, includes any income from investment or income from LTCG of an asset other than a specified asset.
Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual funds (*) or units of a business trust, which are transferred on or after 1-10-2004 through a recognized stock exchange and such transaction is liable to securities transaction tax (STT).
Related: NRIs will no longer qualify to invest in Public Provident Fund
Save on TDS through DTAA
If you are residing in a country that has a Double Taxation Avoidance Agreement (DTAA)with India it can help you reduce your tax liability considerably.
What is DTAA?
DTAA is an agreement signed by two countries – in this case, India and the country you reside in. The DTAA agreement for Indian citizens is arranged in a manner so that taxpayers do not have to pay tax twice for the same income, in the country of residence and source country. India currently has DTAAs with 80 countries worldwide. DTAA emerged due to the imbalance in tax collection on the global income of individuals. For individuals who wish to start a business in a foreign country, they may end up being taxed in both cases, i.e., the country where they earn income, and the country where they hold citizenship or residence. In order to avoid individuals from paying twice the tax over the same income, DTAA was introduced to taxpayers.
How DTAA works
DTAA allows you to reduce your tax implication on the income earned in India. The primary objective behind DTAA agreements with numerous countries is to minimize any scope for tax evasion for taxpayers in either or both countries where the DTAA has been signed. The rate of TDS to be deducted is fixed as per the DTAA on your income earned in India. Moreover, provisions of DTAA override those of the IT Act.
Related: 8 Incomes you shouldn't miss while filing your IT returns
Documents required for DTAA
To avail of benefits from the DTAA for your tax concessions, submit the following documents:
- Tax Residency Certificate (TRC): Obtain the Tax Residency Certificate from the country you are residing in. It is issued when you submit necessary documents and prescribed fees, and contains basic information such as name, status (individual, company, firm etc.), address, nationality, country, tax identification number in the country of residence, tax status, period for which the tax certificate is issued, etc.
- Self-declaratory cum indemnity form: This form is a declaration by the government of the country you reside in. It contains details such as your account number, country of residence, the period during which the TRC was submitted, tax rate applicable under DTAA, etc.
- Additionally, you are required to submit attested copies of your passport, visa, and PAN.
Related: Top 6 Most Common Mistakes to avoid when filing IT returns
The process of claiming your refund is simple; let’s take you through the steps:
Steps to file for an IT refund
1. Collect your documents
Collect all the relevant documents needed to file your return. These include your PAN, passport, and bank details. Form 26AS provides you with necessary details of the TDS deducted during the year. In addition, Form 16 would determine your TDS if you are a salaried individual. You would also need details of income earned from the head ‘Income from other sources’ such as interest income and TDS certificates.
2. File the IT return
- Go to the e-filing portal (https://portal.incometaxindiaefiling.gov.in) and log in with your user ID (your PAN) and password.
- Download the ITR form applicable to you – either ITR-2 or ITR-3, depending on the nature of the income you are receiving in India. If you have a business income, you will be required to file ITR-3. In case there is no business income, ITR-2 would be applicable.
- Fill in the basic details and then click on the 'Pre Fill' button.
- Enter all relevant data and click on 'Calculate' to determine your tax and interest liability.
- Once you have filled all relevant details click 'Validate' by entering the one-time password (OTP) sent to your registered number.
- Generate and save the XML file. Save this file on your computer.
- Revisit the portal and upload the saved XML file. Add your Digital Signature (DSC) to it. (Digital Signature is used to electronically sign documents and forms)
Related: A dummy's guide to form 26AS
3. Verify your return
After you have filed your IT return you will be required to verify it. Once you have uploaded the XML file, a form known as ITR-V will be generated. This form is for the purpose of verification, so download it. You can also receive this form on your email address from the IT Department.
Once you upload the ITR with DSC, your filing is complete. Alternatively, you can print a copy of the form, sign it, and submit the ITR-V within 120 days from the date of e-filing to the Centralised Processing Centre (CPC) at the following address: CPC, Post Bag No 1, Electronic City PO, Bengaluru 560 100, Karnataka.
Once your form has been received by the IT department, your return will be processed.
Conclusion
You need not worry about excess TDS deducted by your employer. You can claim it by filing an IT return. You just need to be aware of the TDS deductions applicable to you, depending on the various incomes you receive. As an NRI, you also have to conform to the tax laws of two countries at once, which may increase your tax liability.
Fortunately, if you reside in a country with which India has a DTAA, you can reduce your tax liability to an extent. So keep yourself updated about the information mentioned above.
