Income Tax 2025

Appearance

Return of income not to be furnished in certain cases. ​

216 ​

It shall not be necessary for a non-resident Indian to furnish a return of his income under section 263(1), if—

  • (a) his total income during the tax year consisted only of investment income or income by way of long-term capital gains or both; and
  • (b) the tax deductible at source under the provisions of Chapter XIX-B has been deducted from such income.
Explanation

Section Summary: ​

Section 216 of the new income tax law in India provides an exemption for non-resident Indians (NRIs) from filing an income tax return under specific conditions. This section applies when an NRI's total income for the tax year consists solely of investment income or long-term capital gains (or both), and the tax on such income has already been deducted at source (TDS) under Chapter XIX-B of the Income Tax Act.

Key Changes: ​

  • Exemption for NRIs: Previously, NRIs were generally required to file income tax returns if they earned income in India, regardless of the nature of the income or whether TDS was deducted. This section introduces a relaxation for NRIs whose income is limited to investment income or long-term capital gains and where TDS has been applied.
  • Simplification for NRIs: The new provision simplifies compliance for NRIs by reducing the need to file returns in cases where the tax liability has already been discharged through TDS.

Practical Implications: ​

  • Reduced Compliance Burden: NRIs earning only investment income or long-term capital gains, and where TDS has been deducted, no longer need to file an income tax return. This reduces paperwork and compliance efforts for eligible NRIs.
  • Clarity on Eligible Income: NRIs must ensure their income falls strictly under the categories of investment income or long-term capital gains. If they have other types of income (e.g., salary, business income), this exemption does not apply, and they must file a return.
  • TDS Compliance: NRIs must verify that the correct TDS has been deducted and deposited by the payer (e.g., banks, mutual funds, or other financial institutions). If TDS is not deducted or is insufficient, the NRI may still need to file a return to settle any tax liability.

Critical Concepts: ​

  • Non-Resident Indian (NRI): An individual who qualifies as a non-resident under the Income Tax Act, typically based on the number of days spent in India during the financial year.
  • Investment Income: Income derived from investments, such as interest on fixed deposits, dividends, or rental income.
  • Long-Term Capital Gains (LTCG): Gains arising from the sale of assets held for more than a specified period (e.g., 24 months for immovable property, 12 months for listed securities).
  • Chapter XIX-B: Refers to the provisions of the Income Tax Act dealing with TDS on income payable to non-residents.

Compliance Steps: ​

  1. Determine Eligibility: NRIs must confirm that their total income for the year consists only of investment income or long-term capital gains.
  2. Verify TDS Deduction: Ensure that TDS has been deducted and deposited by the payer on the income earned.
  3. No Return Filing Required: If both conditions are met, the NRI is not required to file an income tax return for that year.

Examples: ​

  • Scenario 1: An NRI earns ₹5 lakh as interest from fixed deposits in India and ₹3 lakh as long-term capital gains from selling shares. The bank and broker deduct TDS on these amounts. Since the NRI's income consists only of investment income and LTCG, and TDS has been deducted, they do not need to file an income tax return.
  • Scenario 2: An NRI earns ₹4 lakh as rental income and ₹2 lakh as salary from a part-time job in India. Even if TDS is deducted on the rental income, the presence of salary income disqualifies them from this exemption, and they must file a return.

This section aims to streamline tax compliance for NRIs with limited and specific types of income, provided the tax liability is already addressed through TDS.