Tax Talk: NRIs/Residents must update status on PAN

Most of the NRIs and Resident Indians have received income-tax notices in the last two to three years. It could be for TDS (withholding of tax) or non-filing of income-tax returns or mismatch in information appearing in the annual information statement.

The Income Tax (I-T) Department has sent out advisories to non-resident Indians (NRIs), telling them to confirm their high-value transactions in 2022­-23 and 2023-24, and for non­-filing of their income tax returns (ITRs), reported Business Line.

Most of the NRIs believe if they do not have income in India, they need not file an income tax return. However, many of the times, the income-tax department do not know your residential status - primarily because:

• You are yet to convert your savings bank account to NRO or

• You have not yet updated the residential status on the income-tax portal

For the income-tax department, it is very crucial to determine your residential status, because:

• If you are an Indian resident - global income needs to be taxed in India

• If you are a Non Resident Indian - only income accrued or received in India needs to be taxed.

Stay Updated:

First things first, ensuring your information is current on both your PAN and Aadhaar is crucial. The modern digital era allows you to update your non-residency status on your PAN Card and your address on Aadhaar easily online, without the need to apply for new cards. Pro tip: Always opt for changes or corrections on existing cards to avoid unnecessary complications.

Understand Tax Laws:

Understanding India’s residency and source rules for taxation is paramount. If you spend more than 182 days in India within a financial year, you're considered a tax resident, making your global income taxable. However, for NRIs, only income sourced within India is taxable. Pro tip: Keep your old passports handy; they're invaluable for proving the number of days you've spent in India.

File Your ITR:

Though not always mandatory, filing your ITR, especially if you have income generated in India, is beneficial. Regular filings can aid in applications for lower or NIL withholding on incomes subject to higher TDS due to residency status. Pro tip: Ensure you select the correct ITR form (usually ITR 2 for NRIs) and accurately declare your residential status.

Avoid Double Taxation:

Thanks to the Double Taxation Avoidance Agreement (DTAA) India has with over 90 countries, you can avoid being taxed twice on the same income. These agreements also provide for tax credits, ensuring income is taxed only once. If you are residing in Dubai, any capital gain on mutual funds could be tax-free if you submit the requisite forms. Pro tip: Engage a tax professional to help navigate these international tax obligations effectively.

Notice the Notices:

Should you receive a notice from the I-T department, prompt response is key. All notices and replies are managed online via the I-T portal. Viewing a tax notice as an inquiry rather than a penalty and submitting the required documents can help avoid prolonged litigation or penalties. Pro tip: Keep your income tax profile on the portal updated, especially your contact information, for seamless communication.

Some points for Resident Indians specifically:

• Credit Cards: High spending on credit cards is now being tracked by the income-tax department by mapping the expense incurred against the income disclosed. If you are booking flights/trips/making a purchase via your credit for your dear ones, you can receive a notice if the amount goes substantially high.

• Crypto Transactions: The government may ask crypto exchanges to share the transaction details of an individual and if you have not reported the transactions while filing the income-tax returns, you may get a notice.

• HRA Receipts: Many individuals were claiming the benefits of HRA exemption by showing the receipts in the name of their family members. The income-tax department has started mapping these against the recipient to check if incomes are reported.

Step-by-step Guide to Check Income Tax Notice Online

There are a few things you can do to make dealing with notices easier. 

• First, keep good records of your taxes and filings. This will make it easier to respond to a notice and to identify any mistakes that may have been made. 

• Second, use registered mail when sending any correspondence to the tax department. This will provide proof that you sent the requested information and can help to avoid delays. 

• Finally, consider hiring a professional tax advisor to help you deal with notices and to ensure that your tax affairs are in order.

For the first time:

The first step is to go to the e-filing website of the Income Tax Department of India at https://www.incometax.gov.in/iec/foportal/

• Click on the 'Login Here' button on the homepage.

• On the next page, select the 'I am a New User' option.

• Enter your PAN number, email address, and mobile number.

• Create a strong password and select the 'Submit' button.

• You will now receive an activation link on your registered email address and mobile number.

• Click on the log-in and log in to your account.

For old and new user:

• Go to pending actions

• Check the worklist - “For your Action” and “For your information”

• Check “Respond to outstanding demand

• Check “e-proceedings”

• On each of these sections, there would be notices/letters if something is for your information or action.

You can click on any of the notices to view the details. The details will include the nature of the notice and the amount of tax that is due. If you have any queries, you can get in touch with the department by calling the helpline number or by sending an email.

Conclusion:

Staying ahead in the tax game as an NRI or even Resident Indian doesn't just save you from potential legal hassles; it ensures peace of mind and financial health. By keeping your PAN and Aadhaar updated, understanding the tax laws, filing your ITR judiciously, leveraging DTAA, and responding promptly to I-T notices, you're setting yourself up for success. Remember, when in doubt, consulting with a tax professional can provide tailored advice for your unique situation. Here's to making tax compliance a breeze!

We'd love to hear about your experiences or challenges you would have faced and resolved. Share your stories and let's help each other navigate these waters more effectively.

Warm regards,

Tejas Lakhani