As the Income Tax Return (ITR) filing season approaches, it's crucial for Non-Resident Indians (NRIs) to ensure compliance with Indian tax laws, particularly if they have income sources or investments in India. The deadline for filing ITR for the fiscal year 2023-24 is July 31, 2024. Here’s why NRIs must prioritize filing their tax returns in India:

Lot of NRIs receive unexpected tax notice demanding a staggering amount. Despite having left India years ago and not earning any income in India, the notices pertains to properties he sold year back. The buyers at times deduct only 1% TDS (Tax Deducted at Source), the rate for residents, instead of the 20% required for NRIs. Moreover, the NRIs don't file an ITR, mistakenly believing that TDS payment is sufficient incase of selling a property in India. This oversight leads to severe penalties and interest, inflating the tax liability significantly.

Mandatory ITR Filing for NRIs

Indian tax laws mandate NRIs to disclose the sale of assets and other income in their ITR, even if TDS has been deducted. Failure to file an ITR can lead to substantial penalties and interest, adding up to 24% annually. Over time, these penalties can exceed the property's sale value, leading to significant financial distress.

Consequences of Non-Compliance

Non-compliance attracts severe penalties, including:

• 1% Monthly Interest: Charged on outstanding taxes.

• Penalty Ranges: From 100% to 300% of the tax amount.

• Additional Interest: If ITR is not filed, an additional 1% monthly interest is imposed.

Ignorance of these laws is not an excuse, and outdated contact information often leads to missed communications from the tax department, exacerbating the issue.

Steps to Resolve Tax Issues

If NRIs receive a tax notice, they should:

1. File an Appeal: Submit an appeal with the Joint Commissioner of Income Tax (Appeals) or Commissioner of Income (Appeals) within 30 days.

2. Pay Initial Deposit: Deposit 20% of the raised tax demand while filing the appeal.

3. Update Contact Information: Ensure all contact information is current to avoid missing future notices.

4. Seek Professional Help: Hire a chartered accountant to navigate the complexities of Indian tax laws.

Responsibility of Buyers

When an NRI sells property, the buyer must deduct 20% TDS for long-term assets or 30% for short-term assets. Failing to do so can result in compliance issues for the buyer, who may receive a notice for short deduction.

Proactive Measures for NRIs

NRIs should also report any investments made in India by filing an ITR. This is particularly important for those living in countries without tax filing requirements, like Dubai. Reporting investments in the ITR can prevent the tax department from questioning the source of funds used to purchase assets.

Conclusion

NRIs must prioritize filing their ITR in India to avoid hefty penalties and legal complications. By staying informed and compliant, NRIs can manage their financial affairs efficiently and avoid unexpected tax liabilities. As the ITR filing season is upon us, NRIs should take proactive steps to ensure they meet all requirements and safeguard their financial interests.