Income Tax Liability of NRI and Complying with Undisclosed foreign income and assets act

An NRI’s (Non-Resident Indian) income taxes in India would depend on the residential status for the respective year. If the residential status is ‘Resident’ then the foreign income would be taxable in India. In case the status is ‘NRI’ then the income that is accrued or earned in India would be taxable in India and accordingly NRI needs to pay taxes. Income Tax Liability of NRI is calculated as follows

The salary which is received in India or the salary received for the services provided in India, income from house property which is situated in India, any capital gains from transfer of  assets which is situated within India, incomes derived from FDs (Fixed Deposits) or the interest on the savings bank account are the examples of income which is accrued or earned in India.

Income Tax Liability of NRI


Income Tax Liability of NRI
Income Tax Liability of NRI

Income Not Taxable in Hands of NRI

Incomes that are not taxable in hands of a NRI include-

  •  Income that is accrued or earned outside the country is not taxed in India.
  • The interest which is earned on the NRE account or the FCNR account is not taxable.
  • However, the interest on an NRO account is taxable for the NRI.

Method of Reporting Income by NRI

The income tax authorities have modified the detail and manner in which such income needs to be reported in the ITR which is used for filing the tax returns. A new schedule known as FSI is introduced in ITR forms, where the individuals are required to report their income that is earned abroad.

  1. An individual needs to report the break-up of his income earned abroad under various the heads viz. income from salary, income from house property, capital gains income, business income and income from other sources.
  2. Such income is also required to be split into foreign income to which the provisions of any specific tax treaty that may apply.
  3. A TIN (Tax Identification Number), where any tax that has already been paid in any foreign country, needs to be provided. Also, the passport number is required to be reported in case the TIN is not been assigned in that respective foreign country.
  4. Furthermore, individuals who qualify as ROR and having foreign assets needs to report such assets in relevant ITR; they use ITR-1. Foreign assets can include immovable property, foreign bank accounts, assets held for investment purposes and financial interest in any entity.
  5. Moreover, any individual having assets abroad is required to file a return of income even in cases where there is no income taxable in India.

Provisions of Undisclosed Foreign Income and Assets Act

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, is pertinent and applicable to every Indian resident.

As per the said Act, undisclosed foreign assets or income would be taxable at a flat rate of 30 percent. Further, the penalty for such non-disclosure would be 3 times the tax payable i.e., 90 percent of the value of the undisclosed asset or the undisclosed income. It is in an addition to the tax that would be payable at 30 percent.

Moreover, failure in furnishing the return with respect to the foreign assets or income would draw a penalty of Rupees 10 lakhs.

Related Read- Tax Liability of Non Residents Working Abroad