Budget 2024: AIS, avoidance of double taxation are positives, but NRIs need more reforms

Reducing Tax Litigation: The CII recommended reducing tax litigations by improving dispute redressal mechanisms such as the Faceless Appeals, Advance Pricing Agreement (APA) mechanism, Board for Advance Ruling (BAR), and Dispute Resolution Scheme (DRS).

The Indian Government has introduced many provisions to ease the tax burden on non-resident Indians (NRIs) who have unique needs and circumstances.

Apart from rolling out multiple Centralised Processing Centres (CPC), which process tax returns faster, measures such as pre-filled returns and single informative tax statements have significantly reduced the time and effort of NRIs to fulfil tax obligations.

Several new Double Taxation Avoidance Agreements have been signed with foreign countries to ensure there is no duplicity of taxes.

There is a need in Budget 2024 to enhance digitalisation of procedures such as changing residency status, assessments and even alternate tax return verification systems linked to NRIs.

Also read: Not disclosing foreign assets to taxman can cost you dearly

The hits

AIS helps

There is better tax compliance among NRIs due to the Form 26 AS and Annual Information System (AIS). Income-tax experts say that much of that income had been escaping the system earlier.

But forms should be shared earlier than June 15 as currently observed. “Timelines for submitting belated returns have been shortened and so the AIS should be shared earlier or half yearly,” says Paras Savla, partner at KPB and Associates. The returns that were due in July 2023, can be filed belated only up to December 31, 2023, instead of March 31, 2024 permitted earlier.

Also read: Budget 2024: Filing tax returns now easier but capital gains tax rules continue to be a pain point

Dual taxation avoided

A major concern for NRIs has been income being taxed both in India and the country of residence. Multiple Double Taxation Avoidance Agreements (DTAA) between India and different countries have been signed to help NRIs avoid paying dual taxes.

“The clarity and scope of DTAA provisions have been improved. However, the interpretation and application of these agreements can be complex,” Sujit Bangar, Founder of Taxbuddy.com says.

NRIs are also eligible for tax deductions on their investments made in India, namely life insurance, provident funds, and so on. “Income earned abroad by NRIs is exempted from taxation in India, which relieves NRIs from the burden of paying taxes on income that has already been taxed,” Bangar adds.

Also read: Interim Budget 2024: Tax compliance improves, but process glitches remain

Exceptional gestures induced faith

To qualify as an NRI, you should stay in the country for not more than 182 days (6 months) during a financial year. But due to flight cancellations during the Covid-19 pandemic, there was a relaxation offered to NRIs who couldn’t return to their country.

The Misses

Pardon ITR acknowledgement delays

There is another area that needs relaxation too in Budget 2024 – that of submitting the physical income tax acknowledgement, which has been shortened from 120 days to 30 days after filing the return.

Although the online Aadhar based e-verification mechanism helps verify returns immediately after filing, NRIs are unable to use the facility as many do not have Aadhar cards. “They cannot generate the OTP as they don’t have an Indian phone number. Even if you need to e-verify using the bank account, there is a need to get the bank account validation, which is an annual affair,” says Karan Batra, Founder, CharteredClub.com.

Submitting a manual ITR-V isn’t possible in this short duration of 30 days for NRIs. “Since many NRIs do not have Aadhar and need to physically send the ITR-V for verification to India, CPC should be given the power to condone the delay in physical verification. They had this power in the past,” points Savla.

Shift manual to digital

The process to alter your PAN to an NRI status is manual. You need to apply physically for a request to change the status from Domestic to NRI and there are no specified timelines for this conversion. “Ideally, once a person files a return as an NRI or does it for two or three consecutive years, the status should change to NRI,” says Batra.

Additionally, faceless assessment systems are not available currently for NRIs. The chartered accountant has the option to represent them, but that too is not faceless and you don’t know in which city the officer is placed.

“A major aspect where NRIs need help is taking lower deduction certificates, when they sell any property or  make an investment in India. Issuance of these certificates shall be automated based on online data check,” suggests Bangar.

Create NRI Database to avoid erroneous notices

Due to digitisation and data mapping, many NRIs are getting sundry notices from the income tax department.

Savla says, “There is no tagging of a particular PAN stating that it is the tax return of an NRI. As a result, many NRIs who have merely done property purchase in India or purchased shares receive re-assessment notices. Purchase of property is not indicative of having a taxable income in India or not.”

There needs to be a better mechanism to indicate that a person captured in the system is an NRI.

The “Income tax department can create a live database of NRIs and do one level of auto screening before issuing such notices. This will reduce unnecessary issuance of notice and reduce the anxiety and compliance burden of NRIs,” says Bangar.

Re-assessment notices for such individuals should be done sporadically and not in all cases. This, says Savla, is important because, “the re-assessment window is open merely for three years for someone having a taxable income of less than Rs 50 lakh. The period of re-assessment is higher at 16 years, for those owning foreign income and assets.”

Karan Batra, Founder, CharteredClub.com