Q) I am an NRI working in the UK for the last
4 years. I have just received my PF settlement from the Indian
company I worked for in Mumbai. Can I deposit my PF earnings into
the NRE account?
A) The PF funds originated in India and therefore
cannot be credited to the NRE account, which receives foreign
currency only. You can credit these funds to your
NRO account.
Q) Is interest earned on NRE Recurring Deposit
taxable?
A) No, the interest on all types of NRE accounts
is tax-free.
Q) If I sell my property in India and if there
is a "white" value and a "non-white" value,
how do I legally repatriate the total proceeds of the sale?
A) Money which cannot be accounted for or is
"non-white" cannot be repatriated.
Q) Is the capital gains tax when selling property
same for both long and short term gains?
A) Short-term capital gains are taxed as normal
income and long-term gains with indexation are taxed @20%.
Q) I am an NRI and now due to acquire American
citizenship. What happens to my property, residential and agricultural,
which I am inheriting from my parents? Is it a problem to keep
an inherited agriculture property with an OCI status?
A) Obtaining OCI status gives you additional
rights and privileges over and above the ones you enjoyed in your
capacity as a Person of Indian Origin. You had a right to own
and maintain inherited agricultural property and therefore, you
continue to enjoy this right. However, if and when you decide
to sell or gift away the property, note that you can do so to
a Resident Indian only and not to an NRI or PIO.
Q) My son remits funds to my savings account
every month - how is the tax levied on it?
A) There is no tax liability on the funds which
your son is gifting to you. However, you can follow a procedure
to protect your savings from tax by accepting the gift in writing,
mentioning the relationship between the donor and donee.
Q) Is it mandatory as a NRI PAN Card holder
to submit yearly returns with IT Department even if all my income
is through my earnings from outside India?"
A) There is no legal obligation to file tax returns
unless the income chargeable to tax exceeds the minimum tax threshold
of Rs. 1, 00,000.
Obtaining a PAN card has nothing to do with the above requirement.
In other words, if your Indian income does not exceed Rs. 100,000,
regardless of whether you have a PAN card or not, you do not have
to file a tax return.
Q) Do I need to declare all the money that I
have in my NRE account for the last 5 years? Do I need to pay
any taxes on it?
A) If you have maintained your NRI status for
the last 5 years, the income in your NRE account is free from
tax. Note that tax is collected only on interest, not on the capital.
You can include the information on your NRE account in your annual
return, even though you do not need to pay tax on it.
Q) I will be posted to the UK shortly, but I
wish to continue with my savings bank account from which I can
make transfers to my family in India. Is this possible, and what
are my tax liabilities?
A) On becoming an NRI, you are required to inform
all your banks and also all the companies where you have investments
about the change in your status within a reasonable time. The
banks will re-designate your accounts as NRO. You can use this
account the same way as you used it before becoming an NRI.
You must also inform all the companies of whose shares you hold,
about change in your status. If you have a demat account, it is
not necessary to inform the companies but informing the DP is
a must.
You will also start filing your tax returns in your new NRI status.
If the Indian income is below the taxable threshold, there is
no need to file the returns but it is practical to do so for maintaining
the continuity.
Even after you become an NRI, you are free to deal with all your
investments and assets you held prior to becoming an NRI. The
only restriction is that the original amount is non-repatriable.
It is better to open an NRE account since the interest on it
is tax-free in India as long as you are an NRI.
Q) I will be earning a rental income of around
Rs. 6 lakh a year from my property in India. I don't have any
deduction to claim and I haven't taken any loans from an Indian
Bank. How much tax am I liable to pay? Do I fall in the 30% tax
bracket and TDS from rental income 15%? Do I need to pay totally
30% + 15% tax or only 30% (out of that 15% will be TDS (like Tax
withholding) and remaining 15% when I file the taxes.
A)
-
Surcharge @10% on tax computed after
taking into account deductions, will be levied only if the net
total income is over Rs. 10 lakh.
-
Marginal relief is available by limiting
it to the income over Rs. 10 lakh.
-
Education cess @3% on total tax is applied
on the tax liability thus arrived at.
-
TDS is like withholding tax and the
tax deducted can be netted off against your total tax liability.
-
Note: There is a standard deduction of
30% available on rental income.
-
It is a little difficult to compute
the net income chargeable to tax and you will do well by taking
some professional help.
Q) I am buying a residential
property for Rs. 50 lakh in Mumbai from my savings in USD. If I
sell the apartment after 3 years, how do I repatriate those funds?
Or do I need to hold that property for 10 years to sell it?
A) For property purchased out of foreign funds,
as far as repatriation rules are concerned, you can sell it anytime.
The lock in period for such property has been lifted
Q) Instead of using foreign funds to buy residential
property, if I take a loan from an Indian bank (say 85% of agreement
costs), do the rules of repatriation change?
A) If you buy the property on mortgage by taking
housing loans, repatriation will still be possible if you pay
off the loan instalments in India through your NRE account or
by transferring funds from abroad.
Q) As a US citizen, can I own property in India?
If I return to India, will I be taxed in India and the US? Will
my US income be taxed in India?
A) Yes, as a PIO, you are eligible to buy property
other than agricultural property. On your return to India, you
will be a RNOR for 2 years during which your forex income will
not be taxable in India. After that your global income will be
taxable in India. If you are taxed in both the countries, India
as well as USA, the Double Taxation Avoidance Agreement between
them will protect you.
Q) I live in Indonesia and hold an account in
India for purchasing mutual funds/equities from the secondary
market. Am I liable to pay any Capital Gains tax when I sell/redeem
these shares/funds?
A) Equity-based MF schemes (65% or more exposure
to equities) are governed differently from the debt-based schemes.
In both cases, dividend is tax-free in the hands of the investor.
However, there is a dividend distribution tax @14.025% payable
by the MF directly to the exchequer in the case of debt-based
whereas the equity-based are exempt from this tax.
Equity-based schemes are also exempt from long-term capital gains
tax (holding period over 12 months). The short-term capital gains
are taxed @10.2% only.
In the case of debt-based schemes, short-term gains are treated
as normal income of the assessee and taxed at the rates applicable
to the assessee. The long-term gains will attract tax @10.2% without
indexation or @20.4% with indexation, whichever is more beneficial
to the assessee.
In the case of ELSS, there is an additional benefit of deduction
u/s 80C.
There are following 3 tax concessions on investment in equities
traded on a recognised stock exchange in India:
-
Dividend is tax-free in the hands of
the investor but there is a dividend distribution tax paid directly
by the company @14.025%.
-
The long-term capital gains are exempt
upto Rs. 50 lakh on sale of property
-
The short-term capital gains enjoy the
concessional flat rate of tax @10.2%.
Q) My wife was working in
Doha for the last 2 years. After marriage she has settled in India
and will be here for at least a year. She is working on internet-based
online jobs from the US for which she gets paid into her NRE account.
Is this the right way to be paid? Does she have to pay income tax?
A) Since she is now a Resident Indian she cannot
maintain a NRE account. The NRE account will be converted to a resident
account on her informing her bank about the change of her residential
status.
She is liable to treat the money received as her taxable income
in India. If the income is over Rs. 1, 45,000, she is liable to
file a tax return.
She should apply for PAN.PAN is required not only for filing
returns but also for several transactions in India
Q) How long will I be considered as Non-Resident
or Not Ordinarily Resident after I return to India to settle down?
How long after my return to India will my income from investments
including deposits with Banks, including Indian banks located
in foreign countries, qualify for exemption from Income tax? What
are tax free and safe investments in India?
A) If your stay in India during the Financial
Year is 182 days or more, your residential status will be as Resident
Indian.
There is a transitional status of RNOR between being an NRI and
becoming a full-fledged Resident after returning to India permanently.
An RNOR is not required to pay tax in India on his forex income.
Anyone who returns after 9 or more years of being an NRI will
become RNOR for 2 years.
Resident but not Ordinarily Resident (RNOR) is a person who satisfies
one of the following conditions ---
a) he has been a non-resident in India in nine out of the ten
previous years preceding that year, or
b) has during the seven previous years preceding that year been
in India for a period of, or periods amounting in all to, seven
hundred and twenty-nine days or less.
An NRI who has returned to India permanently is allowed a reasonable
time to inform all the banks (and companies) about the change
in his status wherever he has his investments. On receipt of this
information, the bank will re-designate the NRE/FCNR accounts
as a 'Resident' account. These can be run up to their maturity
but the interest on NRE becomes taxable from the date of the return
whereas the FCNR interest is tax-free as long as the holder remains
an NRI or becomes an RNOR. Alternatively, both the accounts can
be converted into RFC without any penalty but the interest even
on RFC is tax-free only for RNORs.
Whether RFC is tax-free or not, withholding tax will be applied
@30.6% and if the interest is over Rs. 10 lakhs, the rate will
be 33.99%.
The NRE SB and NRO SB accounts will be re-designated as Ordinary
SB accounts.
It is also necessary to inform all the companies/DPs where you
have investments about the change in your residential status.
PPF is the only safe and tax-free investment at present. There
are other investments which yield tax-free returns but are subject
to market fluctuations and consequently not risk-free. Fixed income
investments other than PPF do not yield tax-free returns.
Q) I am a NRI working in the USA. I would like to know
whether withdrawal from 401K which is a contributory retirement
fund in USA will be taxable in India if I bring the money here,
even though this is already taxed in the US
A) Normally 401K is distributed at retirement.
At that time, the person need not be an NRI. There are several
NRIs who eventually come home to settle in India. However, due
to their past employment, they may be getting some pension in
India from abroad. Article 20 of the Indo-US Double Taxation Avoidance
Agreement spells out that pensions would be taxable in the country
of Residence- India, in this case. However, Social Security Benefits
or other public pensions would be taxed only in America.
Q) Currently I am having an NRE account with
an Indian bank. I am an Indian citizen living in the USA for the
last 7 years. If I become a US citizen, would my current account
be closed and do I need to open a new one, or can I continue to
operate my NRE account from here?
A) The change of citizenship does not change
your rights to operate the NRE account. You will be a Person of
Indian Origin (PIO) which allows you to handle the NRE account
the same way as a NRI.
Q) I am a NRI resident in Canada for the last
15 years and hold only an NRE savings account in Delhi., I would
like to know
1) if I buy a commercial property in India (payment made through
my NRE account) will I have to inform the bank before I make a
payment through my NRE saving account?
2) If I get Rs.15, 000 per month as rent, how much tax will I
pay on this and will I need to file in a tax return form?
3) If I buy this property for Rs.40 lakh and sell it for Rs. 60
lakh after 3 years, can I invest this 60 lakh to buy another commercial
or residential property without paying any capital gains tax?
A)
-
Though there is no rule or specification
as such, it is better to keep the bank informed
-
This is a complex matter. You can approach
a consultant in the field of filing returns. Briefly, you are
allowed deductions for property taxes on annual value (computation
of which is complex) of the property and also a standard deduction
of 30%.
-
You will be earning long-term capital gains. You can claim exemption u/s 54F by purchasing a residential
house within 1 year before or 2 years after the date of sale
of the old house. Alternatively, you may construct a residential
house within 3 years after the date. It is necessary to apply
net sale proceeds (after the related expenses) for purchasing
a residential house (and not a commercial property.)
- The amount which is not invested before the filing of returns
for the year or the statutory last date for filing the returns,
whichever is earlier, is required to be parked in 'Capital Gains
Account Scheme' with a bank in India.
Q) I am working in Saudi Arabia on a work permit
since August 2006. Currently I have a normal savings bank account
in India and don't have an NRE account.
I am sending money home through a wire transfer service. Do I
need to pay any tax on the money earned in Saudi Arabia? If not,
how do I show this income in my form 16 so that it can be tax
free? Also what kind of proof is required to show the source of
income? How do I save tax? Do I need to open an NRI account for
showing my status as NRI for saving tax on this income as I will
be here for another 8 months.
A) You are likely to become an NRI for the FY
06-07, unless you come to India for a short trip rendering your
stay in India for 182 days or more.
-
On becoming an NRI, legally you are
required to inform all your banks and also all the companies
where you have investments about the change in your status within
a reasonable time. The banks will re-designate your accounts
as NRO.
-
It is illegal for an NRI to continue
to hold their normal Resident bank accounts.
It is also necessary to inform all the companies of whose shares
you hold, and UTI/MFs about change in your status.
-
Transfer by itself does not create any
tax-liability. If the money transferred is capital in nature,
the question of paying tax thereon does not arise.
-
If your status for the Financial Year
'April-March' is NRI and if the money earned abroad is an income
not arisen out of some nexus with India, either by way of Indian
employment or business, the question of levying tax on it does
not arise.
-
Otherwise, your global income is taxable
in India, whether you transfer it to India or not.
-
You may open an NRE account for earning
tax-free interest and maintain the repatriability of the corpus
in the account.
Q) What is the TDS deducted
on NRO fixed deposit interest?
A) The interest on NRO is fully taxable at the
rates applicable to Residents. But there is no income threshold
under which TDS is not chargeable. However, TDS is applicable @30.6%
and nothing can be done in practice to avoid it.
The only recourse open is to claim refund by filing tax returns.
In case the interest payable is over Rs. 10 lakh from the same
branch of the bank, there is a surcharge of 10% taking the total
tax to 33.99%. There is a marginal relief available by way of
the surcharge payable being limited to the income over Rs. 10
lakh.
Q) I am contemplating the sale of a plot of
land in Gurgaon for approximately 60 lakh. Can I deposit the proceeds
into my NRE or NRO account? I understand that the street value
of my plot of land is higher than the official value. Therefore,
it appears as if the official documentation related to the sale
will specify a sale value of Rs. 40 lakh instead of Rs. 60 lakh.
Please help me understand the tax implications of this land sale.
A) If you have purchased the plot by applying
forex by direct remittance or through NRE account, you can credit
the original forex amount of cost of acquisition to NRE. Otherwise,
you will have to credit it to NRO.
If you have acquired the property over three years ago, then
the profit on sale would be long-term capital gains and taxed
@20%. There is a facility available for indexing the cost on account
of time value of money. If the property has been acquired less
than three years back, then the profit would be termed as short-term
gains and taxed at slab rates applicable. The rate broadly for
any amount more than Rs. 2, 50, 000 is 30.6% and for an amount
more than Rs. 10 lakhs is 33.99%. There is no indexation facility
available in this case.
If the sale value offered to you is less than the rate adopted
for payment of stamp duty, as per Sec 50C the stamp duty rate
would be taken as the sale value.
Q) Principal and interest accrued in NRE savings
deposits are tax free and fully repatriable as long as I maintain
NRI status, regardless of the amount -is this correct?
A) The interest from NRE account is tax-free
in India as long as you are NRI and have not returned to India
permanently.
Q) If I invest in Indian Mutual Funds using
a cheque issued from my NRE bank account, are the gains taxable?
A) The gains are always taxable whether the original
amount is repatriable or not. However, long-term capital gains
from equity-based schemes (over 65% equity component) are tax
exempt.
Q) Is it mandatory to have a PAN to invest in
Indian Mutual Funds if you are an NRI?
A) You will require a PAN. You will also require
a recently introduced 'Mutual Fund Identification Number' (MIN)
Q) Are the gains from trading in Mutual Funds
fully repatriable, gross of Income Tax?
A) All capital gains from whichever source are
repatriable after taxes, if due, have been paid thereon.
Q) Can gains from Mutual Funds be transferred
to my NRE bank account to maintain NRE asset status to be eligible
for tax credit?
A) Yes, but only after correct taxes, if due,
are paid.
