Taxation of Non Resident Indian

Who is a Non-Resident Indian?

 

An Indian abroad is popularly known as Non-Resident Indian (NRI). NRI is legally defined under the Income Tax Act, 1961 and the Foreign Exchange Management Act, 1999 (FEMA) for applicability of respective laws.

Difference between Resident definition under Income Tax and FEMA

• "Financial Year" is not defined under FEMA, but by convention it is assumed to refer to 1st April to 31st March 
• Income-tax Act requires physical presence of 182 days or more, whereas, FEMA requires 183 days or more 
• Income-tax Act considers the physical presence of a person in the Current Financial Year, whereas FEMA considers physical presence of a person in the Preceding Financial Year 

NRI as per Income Tax Act

 

Income Tax Act has not directly defined NRI. Section 6 contains detailed criteria of who is considered as Resident in India and provides that anyone who doesn’t meet these criteria is Non-Resident.

 

The status of a person as a resident or non-resident depends on his period of stay inIndia. The period of stay is counted in number of days for each financial year beginning from 1st April to 31st March (known as previous year under the Income-tax Act).

 

Resident

 

An individual will be treated as a Resident in India in any previous year if he/she is in India for:

1. At-least 182 days in that year, OR
2. Atl-east 365 days during 4 years preceding that year AND atleast 60 days in that year.

An individual who does not satisfy both the conditions as mentioned above will be treated as "non-resident" in that previous year.

 

Definition of Resident is relaxed by dropping Condition 2 given above (i.e. only Condition 1 is applicable), for the following cases:

1. An Indian citizen who leaves India in any year for the purpose of employment outside India or as a crew member of an Indian ship, 
2. An Indian citizen or a person of Indian origin who resides outside India and who comes on a visit to India. Note that a person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India.

Following examples will make the rules more clear:

1. Ajay leaves India for the first time on 1st August, 2006 and remains out of India in the remaining part of the financial year. His period of stay in India in the previous year 2006-07, being less than 182 days, he is not a resident for that year. 
2. Divya leaves India in December 2006 and continues to remain abroad in the remaining part of the financial year. Her period of stay in India being more than 182 days, she will be a 'resident' in the previous year 2006-07. 
3. Rohit leaves India in 2003. In the financial year 2003-04 to 2006-07 he visited India several times and the total period of stay during these 4 years was 400 days. During the financial year 2007-08, he came to India for total period of 180 days. Although his stay in India in the financial year 2007-08 is less than 182 days, he becomes a ‘resident’ by virtue of the fact that his stay in the preceding 4 years was more than 365 days and he was in India for more than 60 days in the year under consideration. 
4. In the above examples, if Rohit was a member of the crew of an Indian ship or a citizen of India or a person of Indian origin, he would not have become a 'resident' for the year 2007-08 since his period of stay in India in that year was less than 182 days. 

“Resident and Ordinarily Resident” & “Resident but not Ordinarily Resident”

 

A person Resident in India is further classified as “Resident and Ordinarily Resident”if BOTH the following conditions are satisfied:

 

1. Resident in India for 9 out of 10 years preceding that year, AND
2. In India for atleast 730 days during 7 years preceding that year

If any one of the above conditions is not satisfied, the person is classified as“Resident but not Ordinarily Resident”

 

Points to Note

• A Hindu Undivided Family (HUF), firm or other association of persons is Non-Resident if control and management of its affairs is situated wholly outside India 
• A company is said to be resident in India in any previous year, if it is an Indian company; or the control and management of its affairs is situated wholly in India 
• Every other person is said to be Non-resident in India if control and management of his affairs is situated wholly outside India 
• If a person is resident in India in respect of any source of income, he shall be deemed to be resident in India in respect of each of his other sources of income 

Residency and Taxable Income

 

Based on the residential status of a tax payer and the place where the income is earned, the income that is included in the total income is as under:-

 

Residential status	Nature of Income taxable
Resident and Ordinarily Resident	All Income whether earned in India or outside India All incomes :- which is received or is deemed to be received in India which accrues or arises or is deemed to accrue or arise in India, and which accrues and arises outside India which means the world income is taxable in case of a resident
Resident but not Ordinarily Resident	All income earned in India and all income earned outside India if the same is derived  from a business which is controlled in India or from a profession which is set up in India
Non Resident	All income earned in India. Income outside india is not liable to tax

 

A person who is non-resident is liable to tax on that income only which is earned by him in India. Income is earned in India if -

1. It is directly or indirectly received in India; or 
2. It accrues in India or the law construes it as having accrued in India. 

The following are some of the instances when the law construes the income to have accrued in India:-

1. income from business arising through any business connection in India; 
2. income from property if such property is situated in India; 
3. income from any asset or source if such asset or source is in India; 
4. income from salaries if the services are rendered in India. In such cases salary for rest period or leave period will be regarded as earned in India if it forms part of service contract,. 
5. income from salaries payable by the Government to a citizen of India even though the services are rendered outside India; 
6. income from dividend paid by an Indian company even if the same is paid outside India; 
7. income by way of interest payable by Government or by any other person in certain circumstances; 
8. income by way of Royalty if payable by the Govern­ment or by any other person in certain circumstances; 
9. income by way of fees for technical services if such fees is payable by the Government or by any other person in certain circumstances.

The following income even though appearing to be arising in India are construed as not arising in India:-

1. If a non-resident running a news agency or publishing newspapers, magazines etc. earns income from activities confined to the collection of news and views in India for transmission outside India, such income is not considered to have arisen in India. 
2. In the case of a non-resident, no income shall be considered to have arisen in India if it arises from operations which are confined to the shooting of any cinematography film. This applies to the following types of non-residents:- 

• individual who is not a citizen of India; or 
• firm which does not have any partner who is a citizen of India or who is resident in India; or 
• company which does not have any shareholder who is resident in India. 

In the Income tax act, following sections are relevant in respect of computation of taxable income of a NRI.

1.      Section - 115C : Definitions​

2.      Section - 115D : Special provision for computation of total income of non-residents

3.      Section - 115E : Tax on investment income and long-term capital gains

4.      Section - 115F : Capital gains on transfer of foreign exchange assets not to be charged in certain cases

5.      Section - 115G : Return of income not to be filed in certain cases

6.      Section - 115H : Benefit under Chapter to be available in certain cases even after the assessee becomes resident 

7.      Section - 115-I : Chapter not to apply if the assessee so chooses​​     

A brief summary of the applicability of the above sections is given below.

1.      INVESTMENT INCOME OF A NON-RESIDENT

Interest income received by a non-resident from Government or from any other person in India is taxable in India.

A.     Exempt Investment Income

Following types of interest incomes are exempted:

0.      Interest on NRE/FCNR account paid or credited to individual non-residents Indians who are permitted by Reserve Bank to maintain such accounts. Sec. 10(4)(ii)  

1.      Interest on notified saving certificates (like NSC VI & VII) subscribed in foreign exchange before 1-6-2002, by a NR who is an Indian citizen or a person of Indian origin. Sec. 10(4B)

2.      Interest, premium on redemption or any other payment on NRNR deposit and other securities, bonds, savings certificates, notified under section 10(15)(i). NRNR deposit interest is exempt in the hands of non-resident while he remains non-resident as per Income-tax Act.

3.      Interest on "NRI Bonds 1988" and "NRI Bonds (Second series)" issued by SBI purchased in foreign exchange, exemption continues even after person becomes resident.
(S. 10(15)(iid). However, no exemption will be available in the year of premature encashment.

4.      Interest paid up to 31st March, 2005 by a scheduled bank on RBI approved foreign currency deposits, FCNR & RFC A/c, to a NR or NOR [S. 10(15)(iv)(fa)]. [Exemption withdrawn for interest payable on or after 1st April, 2005 by the Finance (No. 2) Act, 2004]

5.      Interest payable by Government or local authorities on moneys borrowed from sources outside India prior to 1-6-2001. [Sec. 10(15)(iv)(a)].

6.      Interest on moneys borrowed by industrial undertaking prior to 1-6-2001 in a foreign country in respect of purchase of raw materials, components or plant and machinery and approved by Central Government prior to 1-6-2001 [Sec. 10(15)(iv)(c)].

7.      Lease income from leasing of aircraft or aircraft engine received from an Indian company under an agreement is exempt from tax. However incomes under an agreement entered into between 1st April, 1997 and 31st March, 1999, and agreements entered into after 31st March, 2005, are not entitled to exemption.

8.      Any income by way of dividends referred to in S. 115O received by a non-resident is exempt u/s 10(34). Any income received in respect of units of a Mutual Fund specified u/s 10(23D), or the specified company or an Administrator of the specified undertaking as defined in Sec. 10(35) is exempt u/s 10(35).

9.      Any income arising from the transfer of a long-term capital asset, being an eligible equity share in a company purchased on or after 1st day of March, 2003 and before 1st March, 2004 and held for a period of twelve months or more is exempt u/s 10(36). Eligible equity share means: –

                                                                             ( )            Any equity share in a company which is a constituent of BSE 500 Index of the Stock Exchange, Mumbai as on the 1st day of March, 2003 and the transaction of purchase and sale of such equity share are entered into on a recognised stock exchange in India;

                                                                             (i)            Any equity share in a company allotted through a public issue on or after the 1st day of March, 2003 and listed in a recognised stock exchange in India before 1st March, 2004. There is a change in the taxation of Capital Gains from sale of listed securities. See the relevant Income Tax Section for details.  

 

B.     Special Tax Rate and Surcharge applicable on Investment Income of Non-resident

Tax Rates

Sections 115A to 115AD prescribes tax rates for various types of investment income of different non-resident entities. However, if the non-resident is covered by a particular DTAA, then the rates prescribed under that DTAA would be applicable without any surcharge.

Surcharge
If a non-resident recipient of income is either an individual, HUF, AOP or BOI and his income (from all sources) is exceeding or likely to exceed Rs. 10,00,000/- in a Financial Year then a surcharge and education cess of 10 per cent is applicable.

In case of other non-resident entities, a surcharge of 2.5% and education cess is applicable.

                                                         .            Income of non-residents in respect of interest received from Government or any Indian concern for money borrowed in foreign currency is taxed @ 20% subject to applicable surcharge and education cess. [Sec. 115A]

                                                        i.            Tax on overseas financial organisation (approved by SEBI) in respect of income by way of long-term capital gain arising on sale/repurchase of units of Mutual Funds/UTI purchased in foreign currency is 10% subject to applicable surcharge and education cess. [Sec. 115AB]

                                                      ii.            Tax on non-resident in respect of interest on bonds of Indian companies issued as per Government notification, on bonds of PSU sold by Government and purchased in foreign currency, and on LTCG on sale of such bonds/GDRs/ADRs is 10% subject to applicable surcharge and education cess. [Sec. 115AC].

                                                    iii.            Tax on approved Foreign Institutional Investor (FII) is as follows:

                                                                                 .            Income by way of interest on securities – 20%

                                                                                i.            Short-term capital gains on sale of such securities – 30%

                                                                              ii.            Long-term capital gain on sale of such securities – 10% [Sec. 115AD]
  

C.     Special Tax Rates for income of a non-resident sportsmen or Sports Associations

Income of non-resident sportsmen or sport association by way of i) participation in India in any game or sport or ii) advertisement or iii) contribution of article in newspapers, magazines etc. is chargeable at 10% subject to applicable surcharge and education cess (without allowing any deductions) [Sec. 115BBA]

2.      BUSINESS INCOME OF NON-RESIDENTS

 

A.     Income from business of operation of ships is taxable at 7.5% of the gross receipts from such business. [Section 44B]

B.     Income from business of providing services or facilities in connection with plant and machinery on hire used or to be used in prospecting for or extraction or production of mineral petroleum & natural gas is taxable at 10% of gross receipts from such business, unless the assessee claims lower profits and gains by fulfilling the required conditions. If the non-resident claims that he has earned lower profits than that prescribed, he can keep proper accounts, get the same audited and file the audit report with the income tax return. The Income Tax Officer will then conduct a scrutiny assessment. [Sec. 44BB]

C.     Income from business of operation of aircraft is chargeable at 5% of gross receipts from such business. [Sec. 44BBA]

D.     Income of foreign companies from business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in respect of turnkey power project approved by the Central Government and financed under any international aid programme is chargeable at 10% of gross receipts from such business, unless the assessee claims lower profits and gains by fulfilling the required conditions. If the foreign company claims that it has earned lower profits than that prescribed, it can keep proper accounts, get the same audited and file the audit report with the income tax return. The Income Tax Officer will then conduct a scrutiny assessment. [Sec. 44BBB]

E.      In any other case, for computing the business income of non-resident, expenditure in nature of head office expenditure is allowable up to 5% of the adjusted income as specified. [Sec. 44C]

F.      For any other business, the present rate of tax for foreign companies is 40% plus a surcharge of 2.5% and education cess of 2% thereon. (i.e., 41.82%)
  

3.      TAXATION OF ROYALTIES & FEES FOR TECHNICAL SERVICES RECEIVED BY NON-RESIDENTS
  

A.     Royalties and Fees for technical services received by non-residents from an Indian concern or the Government are taxed as under:

                                                         .            *Agreements entered into after 31st March, 1976 and before 1st June, 1977 – [Section 115A(1)(b)]

                                                                                 .            Foreign Companies:

a.       If agreement approved by Central Government, or is under Industrial Policy, Tax = 30% on Gross income

b.       For other agreements, Tax = 40% on Gross income

                                                                             A.            Persons other than foreign companies – Tax is at applicable rates on Gross income.
 

                                                        i.            Agreements entered into after 31st May, 1997 and before 1st April, 2003 – [Section 115A(1)(b)]

                                                                                 .            Foreign Companies:

a.       If agreement is approved by Central Government, or is under Industrial Policy, Tax = 20% on Gross income.

b.      For other agreements, Tax = 40% on Gross income.

                                                                             A.            Persons other than foreign companies – Tax is at applicable rates on Gross income.
  

                                                      ii.            Agreements entered into after 31st March, 2003 – [Sections 44DA & 115A(1)(b)]

For all non-residents; i.e., Foreign companies and other persons:

                                                                                 .            If the non-resident does not have a Permanent Establishment in India –

a.       (a) If the agreement is approved by the Central Government or is under Industrial Policy, Tax = 20% on Gross income.

b.      (b) If the agreement is not approved as mentioned in clause (a), Tax is at applicable rate on Net income.

                                                                             A.            If the non-resident has a PE, Tax is at applicable rates on Net income.
  

                                                    iii.            Agreements entered into on or after 1st June, 2005 – [Section 115A(1)(b)]

                                                                                 .            Foreign companies

a.       If the agreement is approved by Central Government, or is under Industrial Policy, Tax = 10% on gross income.

b.      For other agreement, Tax – 40% as Gross Income.

                                                                             A.            Persons other than foreign companies. Tax is at applicable rates on Gross Income.
 

B.      Any income by way of royalty or fees for technical services arising to any foreign company (as may be notified by the Central Government from time to time) under an agreement entered into with the Central Government for provision of services in connection with security of India is exempt. (Section 10(6C))
 

4.      TDS BORNE BY THE PAYER

TDS borne by the payer in case of all payments to non-residents would be taxable in hands of the non-residents except in following cases:

A.     royalty or technical service fees payment in respect of agreements with foreign company after 1-4-1976 and before 1-6-2002.

B.     payment other than salary, royalty or technical services in respect of agreement made before 1-6-2002 between Central Government and international organisation or foreign government.

C.     tax on perquisites borne by the employer u/s 192(1A).

D.     payment of lease rent for aircraft or aircraft engine under an agreement entered into after 31st March, 1997 but before 1st April, 1999, or entered into after 31st March, 2005.
  

5.      ACTUAL COST OF AN ASSET BROUGHT INTO INDIA BY A NON-RESIDENT

A.     For the purpose of computation of business income, ’Actual Cost’ of any asset brought into India by a non-resident would be computed as Actual cost of acquisition to the non-resident as reduced by notional depreciation as provided in the Income-tax Act, 1961, from the date of acquisition as if the asset had been used in India. (Sec. 43 Expl. 11)

B.     Where an imported capital asset is acquired on deferred payment terms or out of the foreign loan the actual cost would be after taking into account the fluctuation in exchange rate. For this purpose, actual payment will be considered. (Sec. 43A).
  

 

FAQ – FREQUENTLY ASKED QUESTION.

) Who is NRI as per Income Tax Act?

A) Residential status of an individual or HUF or a company is of great importance in Indian Income Tax Act as the liability to pay tax in India does not depend on the nationality or domicile of the Tax payer but on his residential status. Residential Status is determined on the basis of physical presence i.e. the number of days of stay in India in any year.

An individual is resident if any of the following conditions are satisfied: (i) he stayed in India for 182 days or more during the previous year, or (ii) he stayed in India for 365 days or more during the four preceding years and stays in India for at least 60 days. 182 days in case of an Indian citizen or a person of Indian Origin coming on a visit to India or 182 days in case of an Indian citizen going abroad for an employment during the previous year. Otherwise he is Non Resident.

Hindu Undivided Family (HUF) or firm or other Association of persons is resident of India except in cases where the control and management of its affairs is wholly situated outside India in the previous year

A company is resident in India if-it is an Indian company, or during the previous year, the control and management is situated wholly in India.

Q) I am NRI, do I need to file my Income Tax Return for A Y 2014-15?

A) NRI need to file your return provided your taxable income in India during the Assessment Year 2014-2015 was above the basic exemption limit of Rs 2 lakh OR you have earned short-term or long-term capital gains from sale of certain investments and assets, even if the gains are less than the basic exemption limit. For NRIs, certain short term or long term capital gains from sale of investments or assets are taxed even if the total income is below the basic exemption limit. There is an exception: If your taxable income consisted only of investment income (interest) and/or capital gains income and if tax has been deducted at source from such income, you do not have to file your tax returns.

Q) Is Income Tax Return need to file compulsory Online for NRI for AY 2014-15?

A) Central Board of Direct Taxes (CBDT) in India issued a notification which has made it mandatory for individuals who have annual gross total income in excess of Rs 5 lakh to file their returns online from Assessment Year 2014-2015. This applies to all individuals including non resident Indians. So as an NRI with gross total income exceeding Rs 5 lakh in Assessment Year 2014-2015, you must file your returns electronically.

In case your taxable income exceeds Rs.5 lakh in the previous year, you would be required to file the return of income electronically either using the digital signature or through submission of the verification Form ITR-V after electronically filing the return of income. In case your income does not exceed the above limit, you would also have an option to file the return of income in paper form.

Q) Are NRI were liable to pay advance tax for Assessment Year 2014-2015?

A) As per the Income Tax Act, Individual must pay advance tax in three installments during the year in case the tax payable is likely to be Rs 10,000 or more after considering TDS deduction. In case of default interest is generally 1 percent per month for the default amount and extends till the date of payment. Therefore, NRIs should evaluate if they were liable to pay advance tax and whether the same was paid in time.

Q) What is last date to file your Income Tax Return? What if NRI do not have any tax payable?

A) The last date to file returns for the financial year Assessment Year 2014-2015 is July 31st 2014. However, If you do not have any tax payable (that is all your tax has been deducted at source), you can still file your tax return by 31st March 2015 without any penalties.

Q) What if NRI do not file return till 31 March 2015?

A) If you do not file your tax returns even by the 31st of March 2015, you may be charged a penalty of Rs 5,000 for every year of delay or sometimes may not be able to file your returns at all after 2016.

Q) My NRO account TDS has been deducted at source @30%. My interest income is 1 Lakhs Rs? Do I Need to File Return?

A) As your total income is less than 2 Lakh Rs, you are not liable to file return. However you can cliam refund of Rs 30,000/- of your TDS deducted for which you should file return. If you are expecting a refund, make sure that you put accurate bank details such as account number and IFIC code of the branch as refunds are processed electronically.

Q) Can NRI get Refund of TDS by Filing IT return for Last year 2013 March Ending.

A) Yes you can file your return for Financial Year ended 2013 and get refund.

Q) What all income is exempt for NRI?

A) Dividends from equity shares and equity mutual funds is tax free in India. Interest received on the NRE account and FCNR account is tax free. Long term capital gains on equity shares and equity mutual funds (provided you pay securities transaction tax at time of sale). Further, If you have given a property on rent, you can claim an ad hoc deduction of 30% of net annual value as repairs and maintenance expenses in addition to claiming a deduction on mortgage interest.

Health insurance premium in India for yourself or your dependents, you can claim a deduction under section 80D. If the health insurance is taken for your spouse and dependent children, you can claim a deduction of Rs 15,000 per annum. An additional Rs 15,000 is available as deduction on insurance premium paid on behalf of your parents. If either of your parents is over the age of 65, the additional deduction will be Rs 20,000 instead of Rs 15,000.

Contributions to an approved charity, you can claim a deduction under section 80G. Investments such as PPF, life insurance premiums, etc. can be claimed as deduction under section 80C up to a total of Rs 1 lakh.

Q) I am NRI has deposited Rs. 1 crore in a non-resident ordinary (NRO) account in the form of fixed deposit. I want to transfer the amount from NRO to a non-residential external (NRE) account. Is it compulsory to give Form 15CB and 15CA to banks? Who has to file these forms? The bank has deducted tax at source when it credited the interest amount. What is the ceiling for transfer from NRO to NRE during a year?

A) An NRI can transfer / remit out of the NRO account subject to production of documentary evidence in support of acquisition by the remitter and an undertaking by the remitter along with a certificate by a chartered accountant in Form 15CA and 15CB

As per regulations, NRI are permitted to transfer a maximum of $1 million per financial year to your NRE account. The transfer will be subject to payment of applicable taxes. So far the amount being transferred to the NRE account represents balances for which tax has already paid or exempt there shouldn’t be additional tax.

Q) I am a non-resident Indian (NRI) and have a piece of agricultural land and an apartment in India. I earn agriculture income and rental income from these two. Do I need to file income tax return? Also, can an NRI buy agricultural or farmland in India?

A) NRI would be subject to taxes in India on any income accruing or arising from an asset located in India. The agricultural income earned by you would be exempt, whereas the rental income from the house property would be subject to tax. You would be under an obligation to file an income tax return in India on or before 31 July 2014 for financial year 2013-14 if your taxable income exceeds Rs.2 lakh in the previous year. However, you may note that the income tax law prescribes a specific method of computing taxable income where the taxpayer has earned agricultural income. While this type of income is exempt from tax, it is nonetheless included in the total income for rate purposes.

Q) Is NRI allowed to buy Agriculture property or Farm house in India?

A) NRIs and Persons of Indian Origin are not allowed to buy agricultural property, plantation or a farm house.

Q) What are the tax implications for an NRI looking at selling his property in India?

A) If the property is more than 3 years old, long term capital gains tax will be incurred on the sale of the property. On long term capital gains, tax is payable @ 20%. However, tax can be minimised by making alternative investments in India.

Q) I am a NRI living in US. Can you please advise me if long term capital gains tax are payable on sales of shares purchased by paying STT, and if it is exempt is there a limit?

A) LTCG is fully exempted on sale of listed company shares, purchased by paying STT, provided the transaction is long-term. i.e that share are hold for period of more than 12 months

Q) I an NRI, bought a property in 2005 and sold it in 2014 at a difference of Rs 40 lakhs for Rs 80 lakhs. If I repatriate this amount to the US, am I liable for any tax? What is the procedure to repatriate money to the US?

A) You have earned a long term capital gain on your property. You have to pay taxes in India on this income and then obtain a certificate from a chartered accountant. After this certificate only, you would be able to repatriate the money abroad.

Q) During Year Ended 2014, I, NRI leased out my building to a bank which is paying rent monthly but is deducting TDS. Can you please let me know what kind of documentation is required from the bank to submit my taxes in India? Is form 16 sufficient?

A) Form 16 is enough to determine your income on rent and TDS deducted by the bank.

Q) Is the money received from sale of inherited property in India taxable for an NRI? Earlier it was mandatory to put it in an NRO account but now with the RBI go ahead can we transfer it to NRE account provided the tax is paid?

A) Yes, the money received from NRI is taxable in India. Sale proceeds will first be credited to NRO account. Then you have to obtain a certificate from the chartered accountant relating to payment of taxes after which the money would be transferred from NRO account to NRE account.

Q) I hold NRI status for this year 2014. I have FD and RD accounts in ICICI Bank and they are deducting taxes. Do I need to pay the tax for the interest I get from FD and RD?

A) If the FD and RD were opened under NRE status as (NRE-FD or NRE-RD) then the interest earned on the same will not be taxable. However, in case the FD/RD was opened when you were resident Indian then the said FD will be converted to NRO- FD (upon your status being changed to NRI) and the interest earned on the same will be subject to TDS. However, depending on your cumulative tax liability in India, you may claim refund while filing tax return in India.

Q) If I have 8 year NRE FRD and if in second year I become resident, how NRE FDR will be treated after third year and will interest thereon be taxable?

A) For returning Indians, funds held in fixed deposits in NRE accounts, interest will be payable at the rate originally fixed, provided the deposit is held for the full term even after conversion into resident account. However, the interest earned after the status was updated to resident will be taxable.

Q) If I buy a property out of NRE funds and later on sell the property and credit the proceeds to my NRO account, what are the tax implications?

A) Profits earned by selling property in India will be liable to Capital gain is the difference between the sale value of the property and its cost of purchase. Capital gains can be classified as short term (up to 36 months) or long term (more than 36 months), depending on the period for which the property is held. Short-term capital gain will be taxed at normal slab rates and long-term gain will be taxed at 20%.

If a residential property is sold after being held for more than three years and the proceeds are reinvested for purchase of a new residential property, then the capital gains will be exempt to the extent of the amount reinvested. The exemption is subject to the new property being purchased within a year before or two years from the date of sale, or if new property is being constructed within three years from the date of sale.

Q) Can NRIs can also claim exemption by investing the amount of capital gains in bonds issued by the National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC) in case of Profit from sale of property which is long term?

A) Yes Investment in the specified bonds is to be made within six months of such sale and there is a lock-in period of three years for such bonds.

Q) I am an Indian resident taking up employment abroad. I want to know whether I am eligible to claim exemption of income under NRI category. If the employment is in Dubai, where there is no tax on income, will it make any difference?

A) Your employment in Dubai will not make any difference. As per taxation laws in India, your overseas income getting credited to your NR account in India will not be taxed. It is indifferent to overseas country tax regulations.

Q) I have an account in Qatar and want to send money to my resident (saving) account in SBI Bank, Will it be taxable? What is the ceiling for wire transfer? Can I open an NRO/NRE account before completing first six months out of India.

A) Yes, you can send money to your resident account and the said amount will not be taxable because it will be from your overseas earnings. There is no upper cap on the amount you can wire transfer to a bank account in India. Yes, based on a valid work visa and company offer letter, you can convert your existing resident account into NRO and open a NRE account as well.

Q) Can an NRI returning back to India, continue to hold his foreign earnings overseas, and gradually bring the money back to India as and when required?

A) You can bring your earnings as you wish. You should take care of income tax of your earnings. After you are return to India, your income earned outside India will not be taxable in India provided it is received in India for two years. After the two years, your worldwide income would be taxable in India.