ITR Filing: Know about taxable income, exemptions and refund process for NRIs in Gulf countries

With the workforce becoming increasingly global and mobile, filing Income Tax Return could become more complex for many employees, especially for those working abroad in regions like the Gulf countries. Among these expatriates, Non-Resident Indians (NRIs) working in the Gulf need to be aware of their specific Income Tax Return (ITR) obligations and exemptions as mandated under the Income Tax Act 1961.

In India, an individual's residential status, categorized as Resident, NRI, or Resident but Not Ordinarily Resident (RNOR), is based on their stay duration within a financial year. Factors such as employment abroad, citizenship, income, and tax liabilities play a role in determining the tax liability for such individuals.

NRIs are taxed solely on their Indian income, which encompasses salary received or accrued in India, income from house property in India, income from business or profession set up in India, and capital gains on transfer of assets in India.

Tax obligations and exemptions

According to the Income Tax Act, any NRI earning above the 'basic exemption limit' of Rs 2,50,000 under the new tax regime must file ITR and pay taxes in India. Despite certain incomes being tax-exempt, like interest from a Non-Resident External (NRE) account, others such as interest from a Non-Resident Ordinary (NRO) account are part of taxable income. An amendment in the Finance Act, 2021, initially caused confusion among Indian citizens working in the Gulf. However, it was clarified that the salary earned by Indian workers in Gulf countries such as Saudi Arabia, UAE, Oman, and Qatar remains exempt from Income Tax in India.

Mandatory ITR filing

NRIs, including Gulf workers, must file their Income Tax Returns in India if they meet certain criteria, irrespective of whether some of their income is tax-exempt. For instance, if an Indian resident has a foreign bank account, owns foreign company shares/bonds/mutual funds, or pays over one lakh for electricity on rented premises during the year, they are obligated to file an ITR in India, regardless of the account balance or Tax Deducted at Source (TDS) deductions. It's also essential to note that NRIs can file for a tax refund using the appropriate Indian bank details if the TDS amount is higher than the total tax liability .

Gulf taxation overview

In stark contrast to many countries, the Gulf's tax system, especially in the UAE, does not impose income tax. However, individuals and businesses could face other taxes, such as corporate tax, VAT, property transfer tax, and inheritance tax. Awareness of these various taxation norms and implications is crucial for individuals working in the Gulf countries. As an NRI, you can also avail certain deductions and exemptions, with gifts from relatives or those valued under Rs 50,000 not taxable.