Understanding Goods and Services Tax Refunds for Non-Resident Indians in India

Non-Resident Indians (NRIs) are Indian citizens residing abroad for various reasons like business, employment, or education. While visiting India, they often make purchases of goods and services on which Goods and Services Tax (GST) is levied. However, specific types of purchases qualify for a GST refund. This article explores the eligibility criteria for NRIs to claim GST refunds and outlines the application process.

What Constitutes a GST Refund for NRIs in India?

The GST Act of 2017 includes provisions that enable eligible Indian citizens living overseas to reclaim GST paid within India under certain circumstances. It is a common misunderstanding that this provision allows for "GST-free shopping" for all NRI purchases in India; this is incorrect.

NRI GST refunds are exclusively permitted for particular transactions, such as the acquisition of health and life insurance policies. Additionally, eligible transactions must essentially be classified as an "export of services or goods," meaning Indian goods and services purchased using foreign currency.

Criteria for GST Refund Eligibility

Several factors determine an NRI's eligibility for a GST refund on payments made in India:

1. Payment Method: An NRI must ensure that all payments for purchases eligible for a refund are made from a Non-Resident External (NRE) account. Purchases made from a Non-Resident Ordinary (NRO) bank account will not qualify for a refund.
2. Nature of Goods and Services: Generally, two categories of NRI purchases are eligible for GST refunds:
   • Health and life insurance policies bought in India.
   • Goods and services acquired in India by individuals visiting on a tourist visa.

GST Refund on Health Insurance for NRIs

NRIs can claim a refund for GST paid when purchasing health and life insurance policies in India, whether for themselves or their family members. The eligibility conditions for such refunds include:

1. The insurance policyholder must hold NRI status.
2. The policy can cover the NRI themselves or their family residing in India.
3. Premiums for the policy must be paid annually.
4. The NRI policyholder must fulfill all tax obligations in their country of tax residency.
5. During the taxation year, the NRI policyholder claiming the GST refund must not have been present in India for more than 183 days.
6. The GST refund can be sought immediately after premium payment (in the same month) or no later than within the same year of payment.

Required Documentation for NRI GST Refunds:

• A self-declaration affirming NRI status.
• A Tax Residency Certificate (TRC) issued by the foreign country.
• Proof of foreign residential address.
• The last six months' statement of the NRE bank account used for premium payment.
• Scanned copies of passport and Aadhaar for Know Your Customer (KYC) verification.

Essential Terms and Conditions for GST Refunds

Key requirements for NRIs to claim GST refunds on health and life insurance policies include:

• Demonstrating tax residency in a foreign country.
• Ensuring premium payments originate from an NRE account.
• Completing GST registration using Form REG-09 and providing the GST payment receipt.
• Submitting Form RFD-01.

GST Refund for International Tourists in India

Foreign nationals who visit India on tourist visas are eligible to claim refunds for Integrated Goods and Services Tax (IGST) paid on goods purchased within India. The eligibility for these IGST refunds is as follows:

1. The claimant must be recognized as an international tourist under Section 15 of the IGST Act.
2. Their stay in India should not exceed six months.
3. Refunds are only permissible when the tourist is departing India and taking the purchased goods out of the country.
4. The goods must remain "unconsumed" at the time of departure from India.

TDS and GST on Rental Income from Property for NRIs

Tenants occupying a residential property in India owned by an NRI are mandated to deduct a withholding tax, known as Tax Deducted at Source (TDS), at a flat rate of 31.2%. This rate might vary based on tax treaties, such as Double Taxation Avoidance Agreements (DTAAs), between India and the NRI's country of residence.

However, the actual tax liability of the NRI owner on rental income in India could be less than the applied TDS rate. Several deductions can reduce the actual tax liability from rental income, including:

• Standard deductions.
• Local or municipal taxes.
• Interest paid on a residential home loan.

Consequently, an NRI owner can claim a refund for any excess TDS levied if their actual tax liability is lower.

Steps to Claim Refund for Excess TDS:

• Obtain Form 16A: Request this certificate from your residential tenant, confirming the TDS collection and deposit to the government.
• Verify Form 26AS: Check this form on the income tax e-portal using your NRI PAN to confirm that the TDS has been deposited against your PAN.
• File Income Tax Return: It is mandatory for NRIs claiming a refund to file an income tax return using ITR-2 or ITR-3. Under the new tax regime, taxpayers with an annual income exceeding the basic exemption limit of Rs 3 lakh must file an ITR.
• Claim TDS Credit: If the tax liability is less than the TDS deposited against your PAN (as per Form 26AS), you can claim a refund for the excess tax paid within the e-portal.

For NRIs benefiting from DTAA, Form 13 can be filed with the necessary residency certificate and PAN details to request a lower TDS rate, aligning with specific DTAA provisions for withholding taxation.

GST on NRI Rental Income from Property in India:

• Rental income from residential properties is exempt from GST payment in India for both domestic and NRI owners.
• GST is applicable to rent derived from commercial properties. This rule applies to both Indian citizens and NRIs. Therefore, NRIs owning commercial properties in India and earning Rs 20 lakh or more annually are required to collect GST at 18% from their tenants and remit it to the government. This necessitates that NRI property owners register on the GST portal.
• NRI commercial property owners can claim Input Tax Credit (ITC) on expenses related to property maintenance against the GST collected on rent.
• To claim ITC, the NRI owner must file GSTR-1 and GSTR-3B.

Illustrative Example:

Consider Mr. Charan Singh, an NRI residing and working in Singapore, who owns several office spaces in Gurgaon. These properties collectively generate Rs 3 lakh in rental income monthly.

• Monthly rental income: Rs 3 lakh
• Total annual rental income: Rs 3 lakh x 12 = Rs 36 lakh

In accordance with the GST Act, Mr. Singh is obligated to issue monthly rent invoices to his tenants, including an 18% GST charge in addition to the monthly rent.

• Monthly GST collected = (Rs 3 lakh x 18%) = Rs 54,000
• Total monthly invoiced rent = (Rs 3 lakh + Rs 54,000) = Rs 3.54 lakh
• Annual GST collected = (Rs 54,000 x 12) = Rs 6,48,000

Mr. Singh can then claim input tax credits for GST paid on maintenance and other associated property expenses, such as brokerage fees for finding tenants, regular property upkeep, and security services.

Assume the total GST paid on brokerage fees, building maintenance, and security agency services is Rs 50,000. This amount will be adjusted against the GST collected from his commercial property.

• GST collected from tenants annually = Rs 6,48,000
• GST paid on property upkeep = Rs 50,000
• Net GST to be remitted to the Government = (Rs 6,48,000 - Rs 50,000) = Rs 5,98,000

NRI GST Refund Application Procedure

Eligible NRIs seeking a GST refund on specified transactions must follow these steps:

• Step 1: Register on the GST portal. If already registered, log in to the GST portal to initiate refund procedures.
• Step 2: Navigate to Services > Refunds > "Application for Refund."
• Step 3: Choose "Refund on account of excess balance in cash ledger."
• Step 4: File GST RFD-01. Enter the amount to be claimed for refund. The portal will automatically populate the form with the available credit in the Electronic Cash Ledger.

Calculating GST Refunds for NRIs

Under the IGST Act, 2017, NRIs are entitled to substantial GST relief when purchasing life and health insurance. However, eligibility for a GST refund requires the premium to be paid from their NRE accounts.

Let's examine the refund calculation with an example.Suppose Mrs. Arthi, who has been working in Germany for five years, decides to buy a health insurance policy for her parents in India. The policy costs Rs 60,000. Currently, a 18% GST rate applies to health insurance premiums.

• Health insurance premium: Rs 60,000
• GST applicable on the policy: Rs 60,000 x 18% = Rs 10,800
• Total payment made by Mrs. Arthi: Rs 60,000 + Rs 10,800 = Rs 70,800

Mrs. Arthi can claim a refund of Rs 10,800 after completing GST registration and submitting all necessary documents.

Key Aspects of NRI GST Refunds

• Is GST refundable for an NRI? Yes, GST can be refunded to NRIs in specific scenarios, such as GST paid on health and life insurance premiums from an NRE account, and on goods purchased for export back to the NRI's country of residence while visiting India on a tourist visa.
• Who is eligible for a GST refund? Any GST-registered taxpayer is eligible for a refund, provided they comply with the terms and conditions outlined in the GST Act.
• Are services also eligible for a GST refund? Yes. GST paid on services can be eligible for a refund. For instance, an insurance policy is a service-based product, and GST paid on its premiums by NRIs from their NRE account is refundable.
• Where can NRIs claim their GST refund? NRIs can claim their GST refund through the GST e-portal. They need to access Services > Refunds > "Application for Refund" and submit the required forms and documents.
• How is the GST refund amount calculated? For example, Mrs. Arthi, an NRI in Germany, purchased a health insurance policy for her parents for Rs 60,000. With 18% GST, the GST component is Rs 10,800. She can claim this Rs 10,800 back after proper registration and documentation.
• Is there a time limit for claiming a GST refund? The maximum time limit to claim a GST refund is two years from the date of the GST payment.
• Are duty-free purchases included in the GST refund scheme? Purchases made from duty-free shops are exempt from GST liability.
• Does NRI get GST relief on property purchase in India? GST is applicable to the purchase of under-construction property in India, and NRIs are not exempt. However, properties with a completion certificate (CC) do not attract GST for either NRIs or domestic buyers.
• What is the impact of GST on NRIs? Prior to GST, NRIs were exempt from service tax on insurance premiums (then 15%). Under the GST regime, NRIs must pay GST on insurance premiums, but they can claim a full refund following due procedures. The current GST rate is also higher than the service tax rate in FY 2016-17.