Navigating TDS and ITR Filing for Non-Ordinary Residents in India
Understanding the intricacies of tax-related matters in India can be quite challenging, especially when dealing with individuals who are classified as residents but not ordinary residents. This article aims to clarify the concepts of Tax Deducted at Source (TDS) and which Income Tax Return (ITR) forms to file, based on your residence status and income nature.
Understanding TDS Deductions
TDS, or Tax Deducted at Source, refers to taxes withheld from various sources of income before the payment is actually made. There are two distinct provisions within the Indian tax laws that govern TDS:
Section 194J: Deduction at Source for Payments to Individuals
Section 194J of the Income Tax Act, 1961, mandates that certain payments made to individuals, such as certain types of interest, rent, and other specified incomes, are liable for TDS. If you are an individual on whom such payments are made, your employer or the payer is required to deduct the applicable TDS and deposit it into the government treasury.
Section 195: Deduction at Source for Certain Basic Income Races
Section 195, on the other hand, applies to the deducting agents who are required to deduct TDS from specified payments to individuals who hold an Indian Permanent Account Number (PAN) but are residents of a country with which India has entered into a tax treaty. This is typically applied in situations where the payment is a part of the taxable income from which TDS is mandatory.
Understanding ITR Filings for Non-Ordinary Residents
Indian residents are categorized into various categories for tax purposes, and non-ordinary residents fall under a specific category. While many confuse residency status with ITR filing, it is important to know that the nature of your income determines which ITR form you should file.
Understanding Residency Status
A non-ordinary resident is an individual who is resident in India but does not have a residential status as ordinarily resident. This status is typically applicable to individuals who reside in India for less than 182 days in a financial year. Your status as a non-ordinary resident does not affect the TDS deductions applicable to your income.
ITR Filing Options for Non-Ordinary Residents
Based on the nature of your income, you may be required to file one of the following ITR forms:
ITR-3 (House Property): This form is for taxpayers who earn income from house property. ITR-4 (Business and Professional): This form is for taxpayers who earn income from business and profession, and who do not have a spouse and dependents. ITR-7 (Investment in Notional Option Scheme): This form is for taxpayers who invest in notional option schemes.Importantly, if you are a non-ordinary resident and you earned income from a business or profession, you can select the 'Resident and Not Ordinarily Resident' (RNOR) category while filing ITR-4. This category is particularly useful for taxpayers who have met the criteria of a non-ordinary resident for the current financial year.
Key Takeaways
1. TDS deductions under Section 194J and Section 195 are based on the payer's obligations and do not depend on your residency status.
2. ITR filing for non-ordinary residents is determined by the nature of their income. Choose the appropriate form based on your income sources and residency status.
3. As a non-ordinary resident, you can file ITR-4 if you earned income from business or profession and meet the RNOR criteria.
By adhering to these guidelines and understanding the differences between TDS and ITR filing, you can ensure that you comply with Indian tax laws effectively, both as a resident and a non-ordinary resident.