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NRI TAXTATION

OVERVIEW

Tax Metrica dedicated to providing exclusive professional services to Non-Resident Indians (NRI) for NRI Taxation and FEMA Compliance since 2017.

We understand that there are lots of challenges are coming in compliance with Taxation and FEMA of Non-Resident Indians. Whether in terms of filing of Indian Income Tax Return, Getting back the TDS Refund, Repatriation of Funds in FEMA Act, the process of Buying and Selling an Immovable Property, or Addressing the Income Tax Scrutiny Letters received &Other consulting work.

To address the issues/challenges faced by NRI, that’s where we can help you out. Tax Metrica is to serve as a trusted advisor. We help you on each and every step on your issues/ challenges by your compliance and growth your financial aspect.

Income tax for NRI

If your residential status is categorized as an NRI in the current financial year, only the following income earned or accrued in India will be taxable as per the rules for NRI taxation:

Salary received

If NRI earning income from salary in India then this income will be taxable. If you living abroad but your salary credited to your resident savings account in India, the income will be liable for taxation. If you’re a government of India employee (apart from a bureaucrat), then your income will be taxable regardless of where you render your services.

Income from a business/startup or any controlled in India

If Any NRI has and earning from business setup or control of business situated in India is liable for income tax as per the appropriate tax slab.

Income from capital gains

If NRI is involved in transactions related to the transfer of capital assets then capital gains from such transactions would be liable to tax. Capital assets include shares and securities will also include in Capital gain tax further there is a case of property transaction buyers have to deduct mandatory TDS 20% on such transaction.

Rental income from residential property owned in India.

If an NRI has given property on rent in India is liable to pay tax on their income. NRI can claim a standard deduction of 30 on rental income, but the exceeding rent amount will be taxable as per the appropriate tax slab. For a tenant, it is mandatory to deduct TDS at 30% before they pay the rent. After deduction of TDS reaming amount can deposit or transfer to the NRI Indian account or any other account they may hold.

Income from other sources

If any income is being generated from fixed accounts or savings accounts that also liable for income tax. However, income is generating from Indian origin accounts is taxable.

If any income source is outside of India then NRI is not liable for tax in India.

The same income tax slab is applicable to the NRI and pays tax accordingly. However, if NRI is a senior citizen then also benefit of the senior citizen is not available to the NRI

Further NRI is liable to pay advanced tax according to income tax provision if their tax liability exceeds Rs.10, 000 in the given financial year.

An NRI has to file an Income Tax Return if any of the following conditions:
1. The taxable income in India exceeds Rs.2,50,000.

2. Claim an income tax refund.
3. If any loss incurred and want to carry forward of such loss   incurred on sale on investment.
4. The due date for an Income tax return is 31/07/ of a particular year.

Exemption and deduction

 

An NRI has to file an Income Tax Return if any of the following conditions:

The taxable income in India exceeds Rs.2,50,000.

Claim an income tax refund.

If any loss incurred and want to carry forward of such loss incurred on sale on investment.

The due date for an Income tax return is 31/07/ of a particular year.

 

 

Just like any other individual taxpayer citizen, the income of NRI also eligible for exemptions and deductibles. An NRI can claim the following deductions under Section 80C, 80D, 80E, 80TTA.

Deductions U/s 80C

A maximum limit of Rs.1,50, 000 can be a deduction from the gross annual income under Section 80C. Any amount exceeding the upper limit is not liable for deduction. Some of the following possible deductions under Section 80C of the Income Tax Act, 1961:

Payment of life insurance premium

NRI’s can claim the insurance premium paid for himself or his spouse or his dependent child’s name. There is the limit in insurance premiums; it should be less than 10% of the insurance amount.

  1. Child’s tuition fee

Payment of child education fee school, preschool, college, higher education within the territory of India can be claimed as a deduction. Only two children can claim this deduction for full-time education.

  1. Repayment of home loan

If NRI has taken a home loan for the purpose of purchase or builds a residential property then he is eligible to claim a deduction on the principal repayments of a home loan. Apart from home loan repayment, he can claim expenditures like registration fees, stamp duty, and other expenses incurred for such property transfer to the NRI.

  1. Unit-linked insurance plan

A ULIP Mean unit liked insurance plan, it provides you insurance as well as investment opportunity while all money of this ULIP is an investment in equity share and debts. Amount paid towards ULIP are covers u/s 80C.

  1. Equity Linked Savings Scheme

ELSS is a type of mutual fund that equity shares, an NRI can do invest in ELSS can be claimed as a deduction. The nature of investment is Exempt-Exempt-Exempt status.

Deduction under Section 80D

Section 80 D deal with deduction of health insurance premium payments, The maximum deduction of Rs.50,000 for health insurance for parent(s) who is senior citizens, and a maximum of Rs.25,000 if the parent(s) is not a senior citizen. An NRI can claim these deductions for self, spouse, or dependent children, the maximum deduction is Rs.25, 000 unless the NRI is a senior citizen in which case the maximum deductible amount is Rs.50, 000. A maximum of Rs.5, 000 can be claimed as a deduction for preventive health check-ups done for self, spouse, children, or parents.

Deduction under Section 80E

This section deal with the deduction of interest paid on an education loan for higher studies, but not for principal repayment of the education loan amount. Principal repayment considers in 80C. The availability of this deduction to NRI for their spouse, children, or a minor that they are the legal guardian of. The lock-in period of the deduction is a maximum of 8 years or till the interest is paid off, whichever is earlier. In this deduction, there is no limit on the interest amount that can be claimed as deductible.

Deduction under Section 80G

NRI Can claim this deduction U/s 80G for donating an amount to a Charitable organization (NGOs/Trust etc. having 12AA& 80G certificate.

 

Deduction under Section 80TTA

This deduction deal with interest on saving bank accounts an NRI includes the interest earned on Savings Account they can claim the same.

Exemption on long-term capital gains

For NRI a long-term capital gain is exempt only if assets held more than 3 years it’s considered as long-term capital. Any profits from such long-term capital are eligible for NRI tax exemption.

Some of the following section allows the exemption.

  1. Section 54 provides exemption on the sale of residential property,
  2. Section 54F allows for exemption on the sale of an asset apart from a residential property.
  3. Section 54 allows an exemption if capital gains are reinvested into specific bonds such as those issued by the (NHAI) National Highway Authority of India.

Some exemptions are not available to the NRI

NRI Can claim above mention deduction only, they cannot claim the following deduction or exemption

  1. Investment in Public Provident Fund (unless the account was opened when the NRI was still a Resident Indian.
  2. Investments in National Saving Certificates.
  3. Five-Year Deposit Scheme with a post office.
  4. Senior Citizen Savings Scheme.
  5. Investment under the Rajiv Gandhi Equity Savings Scheme (Section 80CCG).
  6. Deduction for the differently-abled under sections 80DD/ 80DDB/80U.

Avoiding double taxation

It is an agreement or treaty that the Indian Government signs with another country. So that individual person avoids double taxation.
In India lot of NRIs are facing a problem they are parting tax twice on the same declared in f country of residence and once from India. To avoid such type of conflict Indian government has sign agreement or treaty with over 80 centuries, there are two type relief can be taken by NRI as below:-

1. Tax credit method: The NRI can claim tax relief in their country of residence.

2. Exemption method: The income tax for NRI is payable in only one country- either the place of residence or India.

To avoid double taxation, NRI must have proof of residence and tax payment of tax paid taxation.

All about NRI.

Tax Metrica dedicated to providing exclusive professional services to Non-Resident Indians (NRI) for NRI Taxation and FEMA Compliance since 2017.

We understand the challenges of Non-Resident Indians complying with the Taxation and FEMA woes. Whether it is filing Indian Income Tax Return, Getting back the TDS Refund, Repatriation of Funds, Procedures for Buying and Selling an Immovable Property, or Addressing the Income Tax Scrutiny Letters received.

To address the issues/challenges faced by you, that’s where we can help you out. The sole purpose of our firm is to serve as a trusted advisor. We do this by helping you cut through the red tape, viewing the big picture, and understanding the options. This makes your financial and compliance peace move forward and grow.

 

Budget 2020: Impact of Budget vis-a-vis Budget of Impact, NRIs Happy or Unhappy?

The budget was presented by the Finance Minister under the leadership of Prime Minister Narendra Modi Led the NDA government by Nirmala Sitharaman on 1st February 2020 saying the budget in line with achieving a 5 trillion dollar economy by 2025.

Considering tax revenue collection from NRIs and wrong mechanism being used by High Networth Individuals by evading taxes by not being residents of any country. Budget 2020 has laid the foundation to tax NRIs who are not liable to pay tax anywhere, rather in other words, where they are not citizens as well. A couple of wrongs or misunderstood articles to garb attention took the NRI community taken away especially being in UAE. There is a big difference between Non-Resident Indian (NRI) in UAE and NRI in any other part of the world. Difference iso getting citizenship, unless in counties like the US, UK, Australia, or Singapore where staying for a particular period of time gives you citizenship. It’s certain for people in the UAE to travel back to India for good post-retirement.

Assuming the interpretation in another way, it was misunderstood to include NRIs in the Gulf who eventually don’t get citizenship as per the rules of the country and get residence permits only will have to pay taxes in India on foreign income just because there is no direct taxation system in UAE. The department came out with a clarification, saying “It is clarified that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession,” the Central Board of Direct Taxes (CBDT) said in a statement on Sunday. “The new provision is not intended to include in tax net those Indian citizens who are bona fide workers in other countries.”

The words of the budget document read that it’s possible for an individual to arrange his affairs in a manner where he is not liable to tax in any country or jurisdiction during the year. This issue bothers major in countries around the world. Being an Indian Citizen and taking foreign country residency to claim NRI status and thus avoid taxation liability bothers because the world countries are taking efforts for double taxation avoidance agreements are being written to stop the problem.

Indians who are able to evade tax by planning their travel across multiple countries would be impacted by the proposed amendment. Such NRIs would not be able to completely escape taxation anywhere in the world now.

The government has also lowered the threshold for being deemed a resident of the country to 120 days from 180 days in a year for Indian citizens or persons of Indian origin. Consequently, anyone who stays in India for 120 days or more in a financial year will now be deemed as a resident liable to pay tax. The earlier noon was 182 days. The whole agenda is to tighten noose who were planning for tax evasions by calculating their number of days to have stayed outside India. It’s now very important for bonafide NRIs now to be careful in a number of days travel to India to define their NRI status.
This amendment will come into force from FY 2020-21.

Tax metrica Team, NRI Tax Expert was one of the quick ones to issue the clarification that bonafide workers living in countries where there is no taxation system will not have an impact of this amendment.

Taking the write up now on point by point changes made in the budget, from NRIs perspective

  1. Definition of Resident and Non-Resident:

The number of days increased from 182 days now to 240 days, So if now an individual who stays outside India for more than 240 days cumulative in the preceding previous year becomes Non-Resident India.

  1. Resident but Not Ordinary Resident:

The earlier conditions were:
If you have been an NRI in 9 out of 10 financial years preceding the year.
OR
You have during the 7 financial years preceding the year been in India for a period of 729 days or less.

Now it has been changed to only one condition, which reads as:
If you have been an NRI in 7 out of 10 financial years preceding the year.
RNOR status is beneficial for those people who are NRI and are going back to India for good. Their Indian income is only taxable in such cases and foreign income is not taxed for over a period of the next 2 financial years

  1. Removal of Dividend Distribution Tax (DDT)

The Clamour for removal of DDT had been on for a while due to cascading taxation. India was levying a total of 20.56 percent DDT on a company declaring dividends. This is over and above the corporate tax that companies pay on their taxable profit. The decision is likely to benefit small as well as non-resident taxpayers. Also doing away with this tax can give a major push to investment.
Under the present scenario, Domestic companies are required to pay DDT on dividends distributed to the investors, and such dividend is exempt in the hands of investors under Section 10(34) of the Act. But if such dividend income exceeds Rs. 10 Lakhs then the receiver is required to pay tax at the rate of 10% on such dividend income. Under the proposed amendment, such Dividends will no longer be brought to tax under DDT and now it will be taxed in the hands of the receiver as per their applicable tax rate. However, if the receiver has incurred any interest expense in order to earn such dividend then the deduction of interest will be allowed as deduction u/s 57 of the Act which will not, in any case, go beyond 20% of the Dividend earned. Further Company distributing Dividend now required to deduct TDS at the rate of 10% if such dividend payment exceeds Rs. 5000/-.

  1. Changes in Tax Rate Slabs:

The Income-tax slab rates applicable under the new tax regime would be:

Total income (Rs) Simplified Tax Rate
Up to Rs 2.5 lakh Nil
Rs 2,50,001 to 5,00,000 5%
Rs 5,00,001 to 7,50,001 10%
Rs 7,50,0001 to 10,00,000 15%
Rs 10,00,001 to 12,50,000 20%
Rs 12, 50,001 to 15,00,000 25%
Above Rs 15,00,000 30%

The new slab rates are optional and you need to forego deductions to avail of the benefit. Individuals who would prefer to have deductions claimed can opt for the old scheme as well. Cess and surcharge on income tax payable in the new proposed personal tax regime remain the same as in the existing tax regime. The slab rates benefit are not available to Non-Resident Indians and the income up to Rs 2.50 lacs will be exempt for all be it super or super senior citizen.

  1. Gift from Non-Relative:

A Non-Resident Indian receiving a gift from Non-Blood Relative exceeding Rs 50,000 in a financial year will now be taxable as part of his total income. How this is relevant can be understood by an example as follows: Your friend from India comes to Dubai and needs AED for shopping saying will return in India equivalent in rupees. The moment it’s done it becomes now part of your income because this transaction is not going to be settled in the future as it’s already done.

The changes being made are to make rules friendly and compliance easy. It’s been a challenging situation.

Disclaimer: The contents of the document are solely for information purposes. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Comments on misinterpretation and mistakes are wholeheartedly invited. For more, please connect at [email protected]

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How to manage Assets/liabilities of NRI in India without being present?

Indians planning to immigrate from India are normally worried as to how their affairs in India would be handled in their absence from India.  They may appoint someone to act for and on their behalf, during their absence from India and ensure the smooth running of the day-to-day affairs in connection with their assets and liabilities in India. The obvious question, which comes to mind, is as to the meaning and implications of a ‘power of attorney’ and the modalities for its execution.

1) What is a Power of Attorney?

A power of attorney is an instrument in writing empowering a specified person to act for and in the name of a person executing it. In other words, a power of attorney (POA) is an authorization to act on someone else’s behalf in a legal or business matter. The person authorizing the other to act is the grantor/principal of the power and the one authorized to act is the attorney/agent. It is a unilateral document signed and executed only by the grantor or principal. A power of attorney may be revoked at the instance of the grantor or due to his death or incapacity. A power of attorney is usually construed very strictly.

A power of attorney conferring on the agent the authority to act in a single transaction in the name of the principal is a Special Power of Attorney. If the power of attorney authorises the agent to act generally or in more than one transaction in the name of a principal, it is a General Power of Attorney.

A single act or transaction is meant to imply either a single act or acts so related to each other as to form one judicial transaction for example power of attorney for sale of a particular property.

2) How to Execute a Power of Attorney, If you are within India or Outside India?

  • The name of the person executing the power of attorney should reveal his identity. In case he is an individual, the father’s name and address should be given. In the case of a corporation, the power of attorney should mention the place of incorporation and the address of the principal place of business/registered office of the company.
  • The date and place of execution of the power of attorney are to be mentioned.
  • The power of attorney should be duly signed by the person executing the same. Where the same is being executed by a company, it should bear the signature of the authorised signatory and the common seal of the company
  • The power of attorney may be accepted by the person in whose favor it is drawn. Where the same is being accepted by a firm, the Partners/individuals so authorised on behalf of the firm should sign individually.
  • The power of attorney should be duly attested by two witnesses.
  • In case the power of attorney is drawn in favor of the firm it should mention the constitution of the firm i.e. partners/specific individuals authorised on behalf of the firm.
  • The power of attorney should be duly executed on a non-judicial stamp paper per prescribed stamp duty if executed within India. The power of attorney is chargeable to stamp duty at the time of its execution in India as per the Indian Stamp Act, 1899. A power of attorney executed outside India, but which relates to any property situated in India or to any matter or thing to be done in India or received in India is chargeable to stamp duty under the Indian Stamp Act, 1899. The power of attorney is executed outside India on a plain paper without any stamp. The same is required to be stamped within three months after it is received in India by the Collector of Stamps.
  • The power of attorney should be duly executed before and authenticated by a Notary Public, or any court, Judge, Magistrate, Indian Consul or Vice-Consul or representative of the Central government in case executed within India. `Authentication’ implies that the above-mentioned persons i.e. Notary Public, court, Judge, Magistrate, Indian consul, or Vice-Consul or representative of the Central government assure themselves of the identity of the person who has signed the attorney as well as the fact of its execution. The act of authentication creates a presumption under the Indian Evidence Act, 1872 that the document purporting to be an attorney was so executed and is valid.
  • A power of attorney executed outside India has to be executed before and authenticated by a Notary Public and also consul raised/apostilled by the Indian Consulate present in the country of execution. In international law, consularisation is the act of authenticating any legal document by the consul office of the country in which it is to be used, by the consul signing and affixing a red ribbon to the document for it to be acceptable in the country of use. Foreign countries, who are party to the Hague Convention, require the bearer of a document to obtain an apostille from authorities of the country in which the document was issued. An apostille involves the addition of a certificate, either stamped on the document itself or attached to the document. It certifies the country of origin of the document, the identity and capacity in which a document has been signed, and the name of any authority which has affixed a seal or stamp to the document. The apostille enables the presenter to bypass further certification and immediately send or take the documents to the country of intended use. Only certain countries will accept the apostille. Such a power of attorney so authenticated is recognised as valid under the Indian Evidence Act, 1872. The same will also be valid / recognisable under the Registration Act, 1908 for purpose of registration of a document by an agent of a person, or a representative, or an assign (where the person executing the document cannot be present for registration).
  • A power of attorney to be used for the specific purpose of registration of a document in respect of an immovable property of value more than R. 100 by an agent of a person, or a representative, or an assign (where the person executing the document cannot be present for registration) has to be executed before or authenticated by the Registrar or Sub-Registrar within whose district or sub-district the principal resides. This is as per the requirements of the Registration Act, 1908. This being an exception, no other power of attorney, either special or general requires registration under the Registration Act, 1908.

3) Other Noteworthy Points

Sometimes the process of notarization and consularisation may be cumbersome in the case of attorneys executed outside India, but it is important to note that only a “valid power of attorney” can validate the act performed by the agent/attorney on behalf of the principal/grantor. The governments may think in terms of easing the process of consularisation as many a time, an Indian consulate maybe thousands of miles away from the place of execution of a power of attorney thus causing unnecessary delays and costs for the grantor.

As cross-border business and legal transactions increase, the delays caused by such cumbersome requirements need to be addressed and reduced. Perhaps the governments would take some much-needed steps and define a simpler procedure for the execution of documents outside India

 

 

TDS on Sale of Immovable Property (Sec 194IA)-Detailed Overview

The provisions of this section state that TDS on sale of Immovable Property should be deducted at source from payment on transfer of immovable properties (other than agricultural land) where the total consideration paid or payable is more than Rs 50,00,000/-. Earlier, there was no such deduction in the case of immovable properties, as it is in the case of salary, interest, rent, etc.

Any person responsible for paying to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), is liable to deduct tax at source under section 194-IA.

Where the total consideration is less than Rs 50,00,000 /-, the liability to deduct tax at source will not arise.

The rate at which TDS shall be deducted:
Tax is deductible at the rate of 1% of the consideration payable to a resident transferor. If a valid PAN is not provided by the seller, the tax rate would go up to 20%.

Obtaining TAN:
Purchaser is not required to obtain a TAN for deduction of tax.

Payment and Return of TDS:
Tax shall be deducted at the time of payment or at the time of giving credit to the transferor, whichever is earlier. If advance payment is being made then TDS would be required to be deducted at the time of advance payment itself. And if installment payment is made, the TDS would be required to be deducted at each such installment. The tax deducted shall be paid to the credit of the Central Government within a period of seven days from the end of the month of deduction. Online payment u/s 194IA is mandatory and the tax should be deposited on challan-cum-statement on Form No.26QB. Form No 16B (TDS Certificate) will be issued by the deductor within fifteen days from the due date of depositing tax.

The new Form No. 26QB, which is a challan-cum statement of deduction of tax under section 194 IA contains certain important details which are required to be filled up while making payment of TDS in respect of the purchase of the property for the value of Rs. 50 Lakhs or above.

Some of the important columns in the new Form No. 26QB which is a challan-cum statement for deduction of tax are as under:
• Full name of the transferee/payer/buyer
• Complete address of the transferee/payer/buyer
• Full name of the transferor/payee/seller
• Complete address of the transferor/payee/seller
• Complete address of the property transferred
• Date of agreement/booking
• Total value of Consideration Rupees
• Payment in instalment or lump sum
• Amount paid/credited
• Date of payment/credit
• Rate at which tax deducted
• Amount of tax deducted at source
• Date of deduction
• Date of payment of tax deducted at source
• TDS (Income-tax) Credit of tax to the deductee shall be given from this amount.

The above-mentioned columns should more particularly be filled up carefully in the challan-cum statement for deduction of tax under section 194IA. Likewise, once the tax has been deducted at source, the purchaser should also prepare Form No. 16B which will be generated electronically on the Government’s website should be downloaded and sent to the seller.

This Form No. 16B being certificate for tax deducted at source from the seller contains the various details relating to the name and address of the deductor, name, and address of the deductee, the PAN Number of the deductor, and the deductee as also a summary of the transaction.

All those persons who are deducting tax at source in respect of payment made to the seller for the purchase of property of the value of Rs. 50 Lakhs or above should ensure that the TDS certificate is given in this new Form No. 16B only and not in any of the earlier existing forms for TDS certificates.

Applicability of section:
Section 194IA is only attracted for the transactions on or after 1st June 2013.
For example, a Sale agreement is made before 1st June 2013 but consideration received after 1st June 2013 – Sec 194IA is not applicable. Advance consideration of Rs 50,00,000 or more is received before 1st June 2013 but sale agreement made after 1st June 2013. – Section 194IA is not applicable.

Where property is held by Joint-Owners: In the case of joint owners, the threshold limit of Rs 50,00,000/- is to be determined property-wise and not transferee-wise. The number of buyers or sellers would not matter at all. The value of the property should be more than Rs 50 00,000/- for applicability of deduction of tax.

For example A, B and C jointly purchased an immovable property. The purchase price for each owner is Rs 20lakhs, Rs 15 Lakhs, and Rs 35 Lakhs respectively. In this case, the individual purchase price is less than Rs 50,00,000 but the aggregate value of the transaction exceeds Rs 50,00,000. Thus section 194-IA would be applicable.

Scope: Section 194-IA is applicable to all including relatives, minors, senior citizens, etc. However, if the transfer is made without payment of any consideration like in the case of a gift, then this section will not apply.

Provisions for Non-Resident Indian: If payment is made to a Non-Resident then section 194-IA will not be applicable. Rather section 195 will be attracted and TDS is required to be deducted @ 20% + EC & SHEC on the sale consideration. Surcharge @ 10% will be applicable if the amount paid exceeds Rs 1 crore. The limit of Rs 50,00,000/- is not applicable in case of payments made to NRI’s.

Non Compliance: In case of failure to comply with the provisions, interest, and penalty would be imposed on the purchaser. Interest will be charged @ 1% p.m or part of the month for failure to deduct tax or short deduction of tax from the date the tax was deductible till the date the same is deducted. Interest will be charged @ 1.5% p.m or part of the month for tax deducted but not paid to the government from the date of deduction till the date of actual payment.

Tax implications for NRI’s returning to India

It is a well known fact, that most of the Indians are returning to their homeland to explore new avenues, but coming back is not the only thing on their minds, they need solutions for their taxes as well. Basically, most of them want to know what implications will their Non-Resident Indian (NRI) status would have on their tax liability in India.

Under Indian tax provisions, the residential status in India is based on the physical presence of the person in India during the tax year and if the person is not physically present in India for more than 182 days then he is considered to be a Non-Resident of India (NRI). The tax year is calculated from April 1 to March 31. However, when a citizen of India or a person of Indian origin who is outside India visits India in any year, he would be regarded as Non-Resident if his total stay is less than 182 days in the relevant tax year.

The individual can also file is his existence as Not Ordinarily Resident (NOR) which will be based on his stay in India in the past years. But the glitch in NOR is he/she should be a non-resident in India in nine out of the ten years preceding the previous years. Taxability is completely dependent on whether an individual qualifies as a Resident, NOR, or Non-Resident. A NOR or Non-resident is taxed on the income he earns in India.

An NRI can reap his tax benefits until he claims that he is a Non-Resident, but once he/she pronounces his residential status he will avail no benefits and will be considered as a full-time resident of India and will have to follow the regular tax format. There are some special provisions under Indian tax laws wherein NRIs can opt for special tax rates for specific investment incomes or capital gains from foreign exchange assets (e.g.: Shares in Indian companies purchased in convertible foreign exchange).

Of course, NRI’s do not come empty-handed, they will be carrying some wealth tag behind them. But they don’t have to panic, as assets located outside India owned by NRI’s shall not come under the tax bracket. NRI’s are also allowed to file an exemption for the assets brought by them to India or assets acquired by such money. Up to seven years from the day of they return to India, they are exempted from the assets.

Further, Income earned from the assets brought to India or funds parked in bank accounts or investments made in India will be taxable subject to the limits specified by the Indian Income Tax Laws for the relevant year. Since the NRI is returning back all for good, he does carry a handsome amount with him as a return for all the hard work been put over the years on foreign land. It’s but obvious that the sum would be invested some or the other way in India or put in as expenditure. Looking at this, it’s possible to receive an inquiry letter from the tax authorities for the know-how of the source of the funds. Here comes the challenge for NRI to explain, since the records maintained are very poor especially if living in counties like UAE where there are no tax laws. The bank statements these days are provided for a maximum of 2-3 years. The advice here is since there is no tax as such if the source of income is justified, but to state, the records correct one should have a habit of maintaining financial records for all the years in India and as well on Foreign Land.

Tax Implications for NRIs Who Want to Sell Property in India

Non-Resident Indians have been builders favorite in India for years to come, the reason being their pay capacity to buy and easy closures. The buying process has been made pretty easy for NRIs but when it’s about selling, there is a fair amount of confusion about tax implications for NRIs who want to sell any house property that they may have in India. In this blog, we will discuss how much tax is payable and TDS deductible in the case of NRIs who want to sell property in India.

NRIs who are selling house property which is situated in India have to pay tax on the Capital Gains. The tax that is payable on the gains depends on whether it’s short-term or long-term capital gains.

When a house property is sold, after a period of 2 years (Reduced from 3 years to 2 years in Budget 2017) from the date it was owned – there is a long-term capital gain. In case it held for 2 years or less – there is a short-term capital gain.

Tax implications for NRIs are also applicable in the case of inheritance. In case the property has been inherited, remember to consider the date of purchase of the original owner for calculating whether it’s a long-term or a short-term capital gain. In such a case the cost of the property shall be the cost to the previous owner.

How much tax is payable?

Long-term capital gains are taxed at 20% and short-term gains shall be taxed at the applicable income tax slab rates for the NRI based on the total income which is taxable in India for the NRI.

TDS Deductible

When an NRI sells the property, the buyer is liable to deduct TDS @ 20%. In case the property has been sold before 2 years (reduced from the date of purchase) a TDS of 30% shall be applicable.

How to save tax on capital gains?

NRIs are allowed to claim exemptions under section 54 and Section 54EC on long-term capital gains from the sale of house property in India.

Exemption under Section 54

It is available when there is a long-term capital gain on the sale of house property of the NRI. The house property may be self-occupied or let out. Please note – you do not have to invest the entire sale receipt, but the amount of capital gains. Of course, your purchase price of the new property may be higher than the amount of capital gains.

However, your exemption shall be limited to the total capital gain on the sale. Also, you can purchase this property either one year before the sale or 2 years after the sale of your property. You are also allowed to invest the gains in the construction of a property, but construction must be completed within 3 years from the date of sale.

In the Budget for 2014-15, it was clarified that only ONE house property can be purchased or constructed from the capital gains to claim this exemption. Also starting from the assessment year 2015-16 (or financial year 2014-15) it is mandatory that this new house property must be situated in India. The exemption under section 54 shall not be available for properties bought or constructed outside India to claim this exemption. (Do remember that this exemption can be taken back if you sell this new property within 3 years of its purchase).

If you have not been able to invest your capital gains until the date of filing of return (usually 31st July) of the financial year in which you have sold your property, you are allowed to deposit your gains in a PSU bank or other banks as per the Capital Gains Account Scheme, 1988. And in your return claim this as an exemption from your capital gains; you don’t have to pay tax on it.

Exemption under section 54F

It is available when there is a long-term capital gain on the sale of any capital asset other than a residential house property. To claim this exemption, the NRI has to purchase one house property, within one year before the date of transfer or 2 years after the date of transfer or construct one house property within 3 years after the date of transfer of the capital asset. This new house property must be situated in India and should not be sold within 3 years of its purchase or construction.

Also, the NRI should not own more than one house property (besides the new house) and nor should the NRI purchase within a period of 2 years or construct within a period of 3 years any other residential house. Here the entire sale receipt is required to be invested. If the entire sale receipt is invested then the capital gains are fully exempt otherwise the exemption is allowed proportionately.

The exemption is also available under Section 54 EC

You can save the tax on your long-term capital gains by investing them in certain bonds. Bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) have been specified for this purpose. These are redeemable after 3 years and must not be sold before the lapse of 3 years from the date of sale of the house property. Note that you cannot claim this investment under any other deduction. You are allowed a period of 6 months to invest in these bonds – though to be able to claim this exemption, you will have to invest before the return filing date. The Budget for 2014 has specified that you are allowed to invest a maximum of Rs 50 Lakhs in a financial year in these bonds.

The NRI must make these investments and show relevant proofs to the Buyer – to make sure TDS is not deducted on the capital gains. The NRI can also claim excess TDS deducted at the time of return filing and claim a refund.

Filing of Income Tax Return by Non-Resident Indian

There has always been a question in the mind of NRIs whether to file an income tax return, is it mandatory to file, only income earned in India is to be disclosed and many other questions. With this article, a fair picture would be made available on filing status. Non-resident Indians (NRIs) earn their living abroad; their obligation to file tax returns in India doesn’t end with this fact. With the July 31 deadline for filing returns coming near, NRIs need to gear up to file their return if they have income in India that exceeds the basic exemption limit as specified every year by the government.

An NRI first needs to determine his tax residency status, that is, whether he falls in the category of Resident or Non-resident Indian (NRI) for tax purposes. While there may be no ambiguity regarding the status of an NRI who has lived abroad for a long time, those who have moved abroad recently or have returned to India after a long stay abroad needs to ascertain their residency status properly.

If you have moved out however stayed more than 182 days in India during the last financial year you need to be careful about tax implications on income earned outside India. Residency status for tax purposes is decided by the number of days of physical stay in India during a financial year. According to tax laws, an individual is considered to be a non-resident if he meets the following criteria:

  • He should have been present in India for less than 182 days in a year; or,
  • He should have been present in India for less than 60 days in a year or cumulatively for less than 365 days in the preceding 4 years.

Therefore to calculate the above check your passport and note the immigration stamps dates. Remember the date of departure and arrivals are included in the calculation for a stay in India.

Any income of an NRI that originates in India or is received in India is taxable here. Some examples are:

  • Rental income from property owned in India
  • Income from the sale of securities and assets held in India.
  • Interest Income
  • Capital gains

If an NRI has performed his job in India, his salary income will be taxable here, irrespective of where the salary is credited to his account. On the other hand, if an NRI has worked abroad but received his salary in India, this will be included in his taxable income here. Interest income from an NRO account (but not from an NRE and an FCNR account), deposits, and debentures are taxable in India. NRIs also have to pay tax on capital gain from the sale of house property, shares, etc.

Does the bigger question come whether return filing is mandatory?

Filing an income tax return in India becomes mandatory for an NRI in the following situations:

The sum total of his taxable income from all sources (before claiming any deduction) exceeds the basic exemption limit. Filing of income tax return also becomes mandatory for an NRI even if his total taxable income does not cross the basic exemption if he claims the benefit under a tax treaty. Only the income earned outside India will not be taxable in India. An important point to note is with respect to the interest earned on their NRE or FCNR accounts, because the same will be tax-free, but the interest on NRO accounts will taxable.

Also, it is necessary to file tax return in India to claim back refund for the Tax Deducted at Source (TDS) or to carry forward a loss.

For Deductions, like resident Indians, NRIs are entitled to avail of tax deductions. Most of the commonly known deductions (under Chapter VIA of the IT Act) are available to both residents and non-residents.

For the benefits of DTAA, India has signed the double taxation avoidance agreement (DTAA) with around 90 countries. NRIs need to first determine whether a particular income of theirs is taxable in India. They must then furnish a tax residency certificate (TRC) issued by the tax authorities of the country where they currently reside. In addition, they may also be required to provide a self-declaration in the form specified. Next, depending on the type of income, they may get relief under DTAA: the income may be entirely exempted or it may get taxed at a lower rate. If the income is taxable under DTAA, they have to pay tax in India and claim credit for the tax paid here against the tax liability in their home country.

For claiming a lower tax rate under DTAA, NRIs had to earlier provide their PAN number to avoid the higher withholding tax of 20 percent under Section 206AA. The Central Board of Direct Taxes (CBDT) has through a notification introduced rule 37BC, which allows NRIs to furnish alternative documents and information instead of PAN to avoid paying the higher withholding tax. These include name, email ID, and contact number, address, TRC, and Tax Identification Number (TIN).

Residential Status and Taxation

When it comes to financial matters, many Indians who live overseas are concerned with their status with regards to the Indian authorities – and one of the most confusing areas relates to the tax you are expected to pay.

This article will therefore outline your tax status with regards to the Indian authorities, and then illustrate which areas you should expect to pay tax in – as well as the circumstances where you are not.

First, are you an NROR, NRI, or ROR?

Generally speaking, if you own an Indian passport, or your parents or grandparents were born in undivided India, you are either a citizen of India or a person of Indian origin.

Within this bracket, you are considered a resident Indian if you either spend over 182 days of the year in India or have been in India for 60 days or more in the specific year; and 365 days or more total in the 4 years previously.

If you are a resident of India, for the purposes of Income-tax, you can either be an NROR, or ROR.

If you usually live in India, you are a resident and an ordinary resident (i.e. “ROR”). If you are a resident but not usually resident in India, you are an “RNOR”.

Finally, if you do not live in India but are considered an Indian citizen as outlined at the beginning of this section, you are a non-resident Indian – an “NRI”.

What does your status mean with regards to paying Indian income tax?

Your status matters because it determines which income you can be taxed on. This still applies even if you live in the tax-free UAE.

The following table outlines the variables within Indian income tax (please note Indian income tax also includes a tax on capital gains):

Income ROR RNOR NRI
Received in India Taxable in India Taxable in India Taxable in India
Accrues or arises in India Taxable in India Taxable in India Taxable in India
Accrues or arises out of India Taxable in India Not taxable in India Not taxable in India

Indian income tax is charged in the financial year following the year in which the income is earned. The year in which the tax is actually charged is called the “assessment year”.

The tax rates now stand at 0%, 5%, 20%, or 30% – depending on your total income.

Where are the most tax-efficient places to keep your money?

Looking at the table above, if you are an NRI or RNOR, you may benefit from keeping your funds in accounts outside of India.

If, however, you need to keep money in India, there are three bank accounts that can prove beneficial:

  • Non-resident external rupee account (NRE Account)
  • Non-residential ordinary rupee account (NRO Account)
  • Foreign currency non-resident (bank) account (FCNR Account).

Transferring funds from a bank outside of India into one of these accounts means you shouldn’t have to pay Indian income tax on these proceeds (though you may have to pay tax on the interest earned in an NRO Account).

 

 

Points to Note – Buying House Property in India

How would the rent received from the property be treated?

Rent received is taxable in India and NRI has to file a tax return in India in case the rent received along with other income exceeds the threshold limit.

The rent may be additionally taxed in the NRI’s country of tax residence. There may be some tax relief available under the Double Tax Avoidance Agreement (DTAA) for NRIs who are tax residents in certain countries. This may allow one to get credit for Indian taxes paid.

What are the deductions one can get against the property?

It is the same as for residents. Municipal taxes paid during the year and housing loan interest payments are deductible. Standard deduction of 30 percent of the net rent (gross rent less municipal taxes) can be obtained for repair and maintenance, irrespective of actual expenditure.

Housing loan principal repayment, stamp duty, and registration charges are allowed as a deduction from one’s gross income under the overall limit of Section 80C.

How does one handle a vacant property?

Again, treatment here is similar to a resident. A property that is not rented out is treated as a self-occupied property and the taxable value is NIL. The only deduction available against such property is interest on a housing loan up to Rs 1.5 lakh per year. When there is more than one property that is not rented, then the owner can choose one property as self-occupied and all the other un-rented properties shall be deemed to be let out, even if not actually let out. For these, the rent that the property would likely fetch is considered gross rent and all other deductions as applicable for the rented property will be allowed.

Deduction for principal repayment on housing loan can be obtained on all property, whether it is rented, self-occupied, or deemed to be let out.

How is wealth tax applicable for NRIs?

Wealth Tax has been abolished and is not in force.

What are the tax payments to consider during a sale?

NRIs are subject to capital gains tax in India, similar to what is applied to residents. They can get a long-term capital gains rate for property held for over 24 months and can claim exemption by investing in another house property or specified bonds. Capital gains may also be taxable in the NRI’s country of residence. Relief may be available in the form of credit for Indian taxes paid, in case the NRI is a tax resident of a country with which India has a DTAA.

Are there any limits on the amount that can be repatriated?

Remittance outside India up to $1 million per financial year is allowed out of balances held in NRO account on submission of documentary evidence and certificate from a chartered accountant in the prescribed format. Remittance exceeding $1 million will require special permission from the Reserve Bank of India (RBI).

Under the income-tax law, the remitter is required to furnish prescribed information electronically in Form 15CA (self-declaration) based on a certificate obtained from a chartered accountant in Form 15CB, wherever applicable.

NRIs Tax Evaders in Gulf on Income Tax Radar

India’s efforts to track down tax evaders could soon see officials monitoring the funding flows of nationals living in Gulf countries.

“Some of the leading Gulf cities such as Dubai, Abu Dhabi, Bahrain [Manama] and Doha are major financial centers that are increasingly attracting Indian money that is leaving Swiss banks”

“In many cases, these funds reach Gulf cities in the form of seemingly legitimate investments.”

The Indian government has drawn up a plan to track the suspicious financial dealings of non-resident Indians in close cooperation with respective foreign governments.

The government has already posted eight senior IRS officers in newly-created income tax overseas units in countries like the US, the UK, and the UAE as part of efforts to trace illegal funds hidden away by Indians abroad.

These tax officials will function from the Indian missions in Washington, London, Berlin, Paris, The Hague, Abu Dhabi, Cyprus, and Japan.

“The expansion of information exchange network at the international level will help in curbing the cross-border flow of illicit wealth”

“It’s a long enough time for most to cover their tracks and move money to safer destinations.”

Although there are no official figures on illicit funds, estimates by various sources say the total amount could be in the range of $1.5 to $2 trillion (Dh5.5 to Dh7.4 trillion). A significant portion of this money is believed to be in Switzerland.

Despite the new tax treaty India signed with Switzerland, analysts say it is unlikely that the Swiss banks will give away any details of the coded accounts that existed prior to January 1, 2012, when the treaty came into effect.

Analysts say India’s war on black money is likely to be a damp squib as many of the cross-border fund movements are within the existing regulations.

A typical transaction to move money from Switzerland involves buying a shell company in a tax haven. Under the liberalized remittance schemes, Indians can make investments up to $200,000 a year per person. This allows the Indian resident to hold shares of a paper company while having an account with a bank abroad.

Then the illicit money in coded accounts can be transferred to these companies in the form of trading income or earnings from consultancy services. The money can eventually flow back to India in the form of a legitimate foreign direct investment or portfolio investment.

With hundreds of thousands of NRI-owned businesses in the Gulf and the Far East, tax evaders could use these businesses as conduits to escape the prying eyes of the taxman.

Frequently Asked Questions

  • Deductions Allowed

    1. Life insurance premium payment
    2. Tuition fee payment
    3. Principal repayments on loan for the purchase of house property
    4. ULIPS or unit-linked insurance plan
    5. Home Loan Interest
    6. Deduction under Section 80D
    7. Deduction under Section 80E
    8. Deduction under Section 80G
    9. Deduction under Section 80TTA

    Deductions not allowed to NRIs

    1. Investment in PPF
    2. Investments made in NSCs
    3. Post Office 5 Year Deposit Scheme
    4. Senior Citizen Savings Scheme
    5. Section 80CCG, 80DD, 80DDB, 80U

First, are you an NROR, NRI, or ROR?

Generally speaking, if you own an Indian passport, or your parents or grandparents were born in undivided India, you are either a citizen of India or a person of Indian origin.

Within this bracket, you are considered a resident Indian if you either spend over 182 days of the year in India or have been in India for 60 days or more in the specific year; and 365 days or more total in the 4 years previously.

If you are a resident of India, for the purposes of Income-tax, you can either be an NROR, or ROR.

If you usually live in India, you are a resident and an ordinary resident (i.e. “ROR”). If you are a resident but not usually resident in India, you are an “RNOR”.

Finally, if you do not live in India but are considered an Indian citizen as outlined at the beginning of this section, you are a non-resident Indian – an “NRI”.

Considering the interest income in NRE/ NRO Account, NRI can file their return in India. Income of NRE Account shall be exempt whereas, Income in NRO Account shall be taxable.

  1. If the tax deducted at the source is more than the actual tax liability of the NRI, then a refund can be claimed by the NRI only after filling the return along with interest.
  2. If the NRI has incurred any loss on the sale on sale of investments (either short-term or long term) then NRI can carry forward the losses to future years.
  3. Having details of the documentation of all the Income and Assets in India and in Foreign Country will help the NRI in complying with the Repatriation Rules for Income and Assets held in India and also when the NRI return to India.
  1. Interest on NRE & FCNR(Foreign Currency Non- Repatriable) account
  2. Interest on government-issued savings certificates notified bonds
  3. Dividends from shares of domestic companies
  4. Long term capital gains from listed equity shares and equity-oriented mutual funds

The treatment depends on the type of capital gain

  1. Short-Term Capital Gains on the sale of equity/equity mutual funds:
    Set off against the basic tax exemption limit is NOT available to NRIs for short-term capital gains of equity shares/equity mutual funds
    Example:
    If the taxpayer (NRI) made short-term capital gains of Rs.2, 00,000 on the sale of equity shares and have other income of Rs.1, 00,000 in India; the taxpayer will have to pay tax at 15% on the gain of Rs.2, 00,000. Taxpayer tax liability will be Rs.30, 000 (before surcharge and cess)
  2. Long Term Capital Gains(LTCG) on the sale of equity/equity mutual funds:
    LTCG in excess of Rs.1, 00,000 per financial year is taxed at 10% (According to the budget 2018)
    Residents can set off LTCG against the basic tax exemption limit but non-resident can’t avail of the basic limit.
  3. Short Term Capital Gains on the sale of Debt/Gold/Real Estate etc.
    Short-term Capital Gains income will be taxed as per income tax slab rates Set off against basic tax exemption limit short term capital gains of any capital asset (other than equity) is permitted for both resident and non-residents.
    Example:
    Short-term capital gains on the sale of debt funds/property Rs.3, 50,000 and other income of Rs.50, 000 and total income for the year is Rs.4, 00,000(including short term capital gains). The entire income will be taxed as per the income tax slab. So the taxpayer has to pay a tax of Rs.7,500 (irrespective of residential status).
  4. Long Term Capital Gains on sale of Debt/Gold/Estate etc.
    The rate of taxation is 20% after indexation or 10% without indexation depending upon the type of asset.
    Residents can set off LTCG against the basic tax exemption limit but non-resident can’t avail of the basic limit

In case Non-resident Indians (NRIs) who live abroad but also earn an income in India, there is a possibility that the income arising in India would attract tax in India as well as in the country of the NRI’s residence. This means that taxpayers would have to pay tax twice on the same income. To avoid such double payment of tax, income tax provisions were made in the name of the Double Tax Avoidance Agreement (DTAA).

The benefits of DTAA are lower withholding tax (tax deducted at source or TDS), exemption from tax, and credits for taxes paid on the double-taxed income that can be encashed at a later date.

India has DTAA with over 80 countries. The major countries with which it has signed the DTAA are the United States of America (USA), the United Kingdom (UK), the UAE, Canada, Australia, Saudi Arabia, Singapore, and New Zealand.

DTAA is calculated in 2 ways:

  1. Tax Credit Method
  2. Exemption Method

 

Tax Credit Method:

An example calculation from such method is

Income in Source Country 10000
Income in Resident Country 10000
World Wide income 20000
Tax paid in source country @20% 2000
Tax paid in Resident country on worldwide income @30% 6000
Less: Tax credit on Tax paid in the source country 2000
Tax paid in the resident country 4000
Total tax paid 6000

 

Exemption Method:

An example calculation from such method is

Income in Source Country 10000
Income in Resident Country 10000
Worldwide Income 20000
Tax paid in source country @20% 2000
Tax paid in Resident country @30% 3000
Total Tax Paid 5000