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NRI Tax Return Filing and Use of DTAA

NRI Tax Return Filing and Use of DTAA

Income tax Return

Like Resident Indians, Non Resident Indians are also liable to pay taxes on income earned in India as well as File their NRI Tax return in India.


In India, the taxability of any person under Income Tax Act depends upon his/her residential status. Further, such person would be liable to file Income tax Return in India only if He/She is taxable in India.

There are 3 categories of person in India i.e. Resident, Non Resident and Resident but not ordinary resident (RNOR).


In case of Resident, any income earned in India or outside India both would be taxable in India.

In case of Non Resident, only income earned or accrue or arise in India would be taxable and not the income earned or accrued or arise outside India.

In case of RNOR, apart from the income received or accruing or arising in India, even income from a business controlled in India or profession set up in India is taxable.


Therefore, if any NRI has business operations outside India and His status is RNOR, in such case, He would be liable to pay tax in India on such overseas income since such business is controlled in India.

Accordingly, NRIs and Person of Indian Origin always plan their number of days of stay in India in such a manner that they remain Non Resident in any particular year in order to avoid payment of tax on overseas income in India as well as to avoid filing NRI Tax Return in India.


However, owing to COVID Pandemic across the globe, some NRIs were forced to stay in India during FY 2020-21 for longer period, which might change their residential status for the purpose of NRI tax return filing in India.

Use of DTAA in avoiding double taxation

Normally, the right to tax on income is with the country where the person is resident (residence rule) and source country, where source of income lies, has limited right to taxation on such income (source rule).

Therefore, there may be a case that income of NRI is subject to double taxation, firstly owing to residence rule and secondly, owing to source rule. DTAA assists in avoiding such double taxation on taxpayers based in multiple jurisdictions. As per provisions of DTAA, such double taxation can be avoided by providing foreign tax credit in the country of residence.

If an individual is Resident in India both as per DTAA as well as domestic law, then right to tax on such income would be of India and limited right of taxation will be with the other country.

However, if an individual is tax resident of some other country with which India has DTAA, He can claim treaty benefit and his liability to tax in India will be limited to taxing rights to source country under the treaty.

Foreign Tax Credit in India

NRI and PIO, if becomes tax resident of India, can claim credit of taxes paid in foreign countries while doing ITR Filing in India, subject to the fulfillment of prescribed conditions and also furnishing of prescribed documents.

In order to claim foreign tax credit, NRI need to provide a statement or certificate which specifies the nature of income and TDS amount deducted or paid by the assessee. This certificate may be obtained from anyone of the following:

a)     From the person making the payment and responsible for deduction of TDS or

b)     From the income tax authority of the foreign country or

c)      Self-attested copy of declaration signed by the assessee (along with an acknowledgement of online payment or bank counter foil or challan for payment of tax where the payment has been made by the assessee or proof of deduction where the tax has been deducted).

It may be noted that FTC will be limited to the extent of amount of taxes payable in India.


Therefore, from the foregoing, it may be concluded that DTAA assist in avoiding double taxation in case a person is liable to pay taxes in multiple jurisdiction.

This need to be kept in consideration at the time of NRI Tax Return filing as well as filing of Income tax Return of Residents.

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