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NRI Tax Implications

2017-08-09 11:30:35 | Legal Services
Tax Implications
RETURNING INDIANS: - An NRI returning back to the country must understand the norms of foreign exchange regulations, tax system, and banking in order to settle his financial issues in India and outside.
FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)
OVERSEAS ASSETS: - Foreign currency or any immovable property belonging to the individual while he is outside India or inherited from a person who was not an Indian resident can still be in his possession even after his return to India. How’ve no specific rules are made in relation to the movable properties such as jewelry and household things?India does not have an income tax on any foreign income just because the income was recruited to India.The golden rule of FEMA is, “All capital account transactions other than those permitted are prohibited while all current account transactions other than those prohibited are permitted”. India is still not close to full capital account convertibility though returning Indians enjoy certain concessions in relation to existing overseas assets
Residential status is determined solely on the basis of the intention of the person. A person would become an Indian resident, the day he arrives in India.
INDIAN ASSETS
RESIDENT FOREIGN CURRENCY ACCOUNT (RFC Account):-
-After becoming an Indian resident, NRIs are allowed to open these accounts.
-The funds in these accounts are denominated in foreign exchange.
-Funds can easily be sent abroad for any beneficial purpose of the account owner.
-RFC accounts are bank accounts in a foreign currency. They are beneficial to NRIs who plan to return to India because it will help them to retain their foreign earnings.
SHARES SECURITIES ETC: - A returning NRI must inform all the respected authorities and ensure that his status has changed from NRI to the resident.
INCOME TAX ACT:-
Interest on Non-Resident External Account (NRE) and Foreign Currency Non-Resident Account (FCNR) [fusion_builder_container hundred_percent="yes" overflow="visible"][fusion_builder_row][fusion_builder_column type="1_1" background_position="left top" background_color="" border_size="" border_color="" border_style="solid" spacing="yes" background_image="" background_repeat="no-repeat" padding="" margin_top="0px" margin_bottom="0px" class="" id="" animation_type="" animation_speed="0.3" animation_direction="left" hide_on_mobile="no" center_content="no" min_height="none"][Section 10(4)(ii)] is Exempt in the hands of a person who is a Person Resident outside India as per section 2(w) of FEMA, 1999 and definition of ‘Non-Resident’ under Income Tax is not relevant for this subsection.
Income in respect of Interest, the premium on redemption, other payment on notified securities, bonds, certificates and deposits. [Section 10(15)(i)].
Interest paid by schedule banks to NonResident or to a person who is not ordinarily resident in RBI approved foreign currency deposits (i.e. RFC deposits) is exempt (s. 10 (15) (iv) (fa)). The exemption, in respect of RFC account, continues until such time as the account holder continues to be “Resident but Not Ordinarily Resident”.
NRIs have been offered a separate concessional tax regime in respect of certain types of income under Chapter XIIA comprising section 115C to 115I. As per section 115E, a concessional tax of 20 percent is available in respect of investment income and 10% in respect of long-term capital gains from the specified assets, which are acquired out of the convertible foreign exchange. The benefit of concessional tax treatment under chapter XIIA continues even after NRI becomes a resident.
Pension: If you are likely to receive a pension from your former employer after you return to India, it may be liable to tax in India subject to provisions of Double Taxation Avoidance Agreement between India and the country from which you are receiving it.
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 for they assets.
The investment should be made in each of the files in such a manner that the amount of taxable income is kept below exemption limit, which at present is Rs. 50,000.
Another important area of tax planning to be adopted by a returning NRI is to make investments in bank fixed deposits as also in NSCs in such a manner that each member of his family gets a deduction up to Rs. 15,000 per year under the provisions of Section 80L.
Every returning NRI must adopt tax planning carefully so as to avoid clubbing of the income of his spouse or daughter-in-law or minor children with his income.
An important aspect of tax planning to be adopted by a returning NRI is to make an investment in Relief Bonds so that the entire income is exempt from income tax under Section 10(15)(iii) of the I.T. Act.
Likewise, he can make an investment in tax-free 6½% Savings Bonds of the RBI.
Likewise, an NRI can make investments through the help of well-known brokers in shares of reputed companies so that there is security along with liquidity of investment and the dividend income is eligible for exemption under Section 10(34) from income tax.
If there is any taxable income, say on account of rental income or investment in non-banking deposits, etc., then the tax incidence can be reduced through investments in PPF, NSCs, Life Insurance premiums, specified and notified infrastructure bonds, units, etc. under Section 88 where 20% or 15% rebate of income tax is allowed up to a maximum investment of Rs. 1,00,000 per tax-payer.
Earlier, a very safe and sound avenue for returning NRIs was an investment in 8 per cent Relief Bonds as the interest was completely tax-free for the period of the bond, namely five years. From 1.3.2003, however, these have been discontinued. But they can be bought through the Stock Exchange.
Where an NRI is interested in having a house, he can invest his funds in the purchase or construction of a self-occupied residential house, the income of which will be nil for income tax purposes. Further, he can even borrow money from his relative and get a deduction on interest up to Rs. 1,50,000 every year from any other taxable income. The above account of tax planning to be adopted by an NRI gives the most important aspects of tax planning to achieve a zero income tax level.
WEALTH TAX: - Assets located outside India of Non-resident (NR) / Resident but Not Ordinary Resident (RNOR) are exempt from Wealth Tax. If NRI returns to India with the intention of permanently residing in India, the assets brought by him will be exempt. Also, the money and the assets acquired from the money, brought by NRI within one year after his return, will be exempt. This exemption is available to NRI for a period of seven years after his return to India. [Sec. 5(1)(v)]

This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for GST software, GST Return Filing, GST Registration, Section 8 company registration, Nidhi company registration, IEC registration.


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