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NRI: TAXATION
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What are the types of non taxable incomes for
NRIs?
The following are some items of income of NRIs that
are exempt from tax under the provisions of the Income Tax Act.
- Interest on Non Resident External Account (NRE)
in a Bank.
- Interest on foreign currency deposits-FCNR
(B) deposits.
- Interest on notified Relief Bonds.
- Other notified Bonds and Certificates.
- Dividends on shares of domestic companies.
- Income from specified Mutual Funds.
- Long Term Capital Gains of sales of shares
of Indian Co/Equity Oriented Mutual Funds on a recognized stock exchange.
- Other items specified in Section 10 of the
Income Tax Act.
106. What are the tax benefits available to an
NRI?
- Bank Deposits investment in shares, units
of Mutual Funds etc. are exempt from wealth tax in India.
- Interest earned on NRE and FCNR accounts is
completely tax-free.
- Gift tax has been abolished for all types
of gifts from the 1st October 1998.
- However, gifts received on the occasion of
marriage or from relative or under will or inheritance would not be subject
to tax
107. Do I have to pay any taxes on the
funds in my NRE Savings Account?
As per current guidelines, funds in NRE Savings
Account are exempted from Income tax in India.
108. What’s the difference in the tax
treatment for interest earned on an NRE and an NRO account?
The interest earned on any type of NRO deposits are
taxed under the account holder’s tax bracket. On the other hand, interest earned
on the NRE account is totally exempted from income tax, and the credit balances
in the account don’t attract any wealth tax. Any gift given to a close relative
doesn’t attract gift tax.
109. What is the special tax regime
available to a NRI?
A special tax regime is available for NRIs in
respect of income arising from investment in specified assets purchased with
convertible foreign exchange. The specified assets are as under:
- Shares in an Indian company.
- Debentures issued by a public limited
Indian company.
- Deposits with a public limited Indian
company.
- Securities of the Central Government.
- Any other notified assets.
Income from the aforesaid specified assets shall be
taxable as under:
- Investment income: 20% of gross amount
(without any deduction or allowance against such investment income)
- Long-term capital gains: 10% (without
indexation)
Exemption from long-term capital gains tax is
available by investing the net consideration in any specified
asset within a period of 6 months from the date of transfer of the capital
asset.
110. What are the wealth tax provisions
applicable to a NRI?
Wealth tax, in India, is levied under the
Wealth-tax Act, 1957. NRIs are taxed for their wealth in India alone.
Wealth tax is payable on the aggregate value of chargeable assets as reduced
by the value of debts owed on valuation date. The valuation date is
uniformly fixed as 31st March.
Taxable Assets
- Any building or land annexed thereto
used for residential or commercial purposes, but not including:
- Houses forming part of
stock-in-trade.
- Houses occupied for business or
profession.
- Residential property let out for a
minimum of 300 days in the previous year.
- Commercial establishments and
complexes.
One house or part of a house or a plot of
land not exceeding 500 square meters, belonging to an individual or an
HUF is also exempt from wealth tax.
- Motor cars other than those used in the
business of running them on hire or held as stock-in-trade.
- Jewellery, bullion, furniture, utensils
or any other article made wholly or partly of precious metals other than
those used as stock-in-trade.
- Yachts, boats and aircrafts other than
those used for commercial purposes.
- Urban land subjected to certain
exceptions.
Cash in hand in excess of Rs.50, 000 of
individuals and HUF's and in other cases, amounts not recorded in the books
of accounts.
111. What are the exemptions available
from Capital Gains?
It should be noted that
exemption are available only in respect of "Long-Term Capital Gains". There are
no exemptions for "Short Term Capital Gains".
In respect of long-term capital gains, NRIs can claim exemption by
investing the capital gainswithin the time limit in specified bonds of:
- SIDBI (Small Industries Development Bank of
India)
- NABARD (National Bank for Agriculture and
Rural Development)
- NHAI (National Highways Authority of India)
- RECL (Rural Electrification Corporation
Ltd)
- NHB (National Housing Bank)
Exemption is also claimed by investing the
net consideration in a residential house.
In case of long-term capital gains arising from transfer of listed securities or
unit, exemption can be claimed by investing the capital gains
in acquiring equity shares forming part of an eligible issue of capital.
Capital Gains Accounts
Scheme- If an NRI wants to avail the benefits of long term capital
gains exemption by investing in a residential house, the same has to be invested
within the stipulated time period as mentioned in that particular section. In
case, the return of income is filed before the time limit specified for such
investment, then the said amount can be deposited in the 'Capital Gain Deposit
Account Scheme' with a nationalized bank.
112. What are the different rates of
tax applicable for NRIs?
Depending upon the kind of income, the tax rate
will vary as under:
- Long Term Capital Gains:
On assets other than specified assets @ 20% (with indexation benefits).In
case the gains arise from transfer of listed securities or unit or zero
coupon bond, there is an option to be taxed @ 10% without indexation
benefits. Long term Capital Gains arising on sale of listed equity shares
and units of an equity oriented fund are exempt from tax with effect
from1.10.2004
- Short Term Capital Gains:
Such gains are taxable as per the normal rates of Income Tax applicable to
the total income of the NRI. However, short term Capital Gains arising on
sale of listed equity shares and units of an equity oriented fund is liable
to tax @ 10%.
- Dividends (other than dividends
from domestic companies) and Interest income: 20% of gross amount.
- Dividends on GDRs and Interest on
Foreign Currency Convertible Bonds:>10% of gross amount.
- Long Term capital gains from the
transfer of GDR or FCCBs:10%
When the income of an individual exceed
Rs.10,00,000/-, surcharge @ 10% will be levied on the above tax rate. Education
cess @ 2% is levied on the total tax, plus surcharge.
Note: Where rates prescribed under the relevant Double Tax
Avoidance Agreement are lower, the same would apply.
113. Is it compulsory for a NRI to file tax
returns?
An NRI is required to furnish his return of income
if his total taxable income exceeds the maximum amount which is not taxable.
A non-resident Indian is not required to furnish return of income, if -
- Total income consists only of investment
income from foreign exchange assets or long-term capital gains under special
tax regime or both.
- Tax has been deducted at source on such
income.
- NRI has opted to be governed by the special
tax regime.
114. How can NRIs, residing in other
countries, take benefit of ‘Double Taxation Avoidance Agreements (DTAA)?
To avail benefit of lower rates of tax as per
double taxation avoidance treaty entered in by India, NRIs need to submit the
Residency Certificate issued by Tax Authorities of the country of his residence.
These documents should be submitted to the designated bank branch at the time of
opening the bank account or subsequently. New TDS rate shall be applied only
after the acceptance of the Residency Certificate by the designated bank.
115. Who can apply for Tax Exemption
Certificate?
Any NRI who has obtained Exemption Certificate
needs to submit it to the Payer of the income who will follow the certificate
and not deduct tax or may deduct at a lower rate as given.
116. What action is to be taken after
obtaining exemption certificate?
Any NRI who has obtained Exemption Certificate
needs to submit it to the Payer of the income who will follow the certificate
and not deduct tax or may deduct at a lower rate as given.
117. What investment options are
available to me for my repatriable corpus?
- Non Resident Indians can invest in
Government Securities and Treasury Bills through a Primary Dealer.
The same will be issued to Non Resident Indians in a dematerialized form,
and Non Resident Indians have to establish to the primary dealer that the
source of funds is external in order to allow Non Resident Indians to put
the proceeds on maturity into an NRE account.
- Non Resident Indians can purchase and
redeem units of domestic Mutual Funds, by simply mentioning
Non Resident Indians status as NRI in purchase form, and by issuing a cheque
from Non Resident Indians NRE account. However, if Non Resident Indians
invest in the Money Market Mutual Fund, they will not be permitted to
repatriate proceeds of redemption.
- Non Resident Indians are also permitted to
invest in Bonds issued by public sector undertakings
(PSUs) in India from Non Resident Indians NRE account and
credit the proceeds back into the NRE account.
- Non Resident Indians can purchase
Shares, both in the Primary as well as the secondary market.
Primary Market
In the primary market, Non Resident Indians may invest either through an
Initial Public Offer (IPO) of Public Limited companies, or in
Public Sector Enterprises being dis-invested by the Government of
India. This will be mentioned in the prospectus/application form and the company
will have taken the approval to invite Non-resident funds.
Secondary Markets / On a stock exchange
Non Resident Indians are permitted to trade in shares listed on the Stock
exchange under what is called the Portfolio Investment Scheme (PIS).
Non Resident Indians will simply have to open a separate NRE savings and an NRE
Demat account and obtain a permission (through us) to do so.
Non Resident Indians are also entitled to place Non Resident Indians money in
Deposits with Indian companies, non-banking finance companies
registered with RBI, housing finance companies and other financial institutions.
The company will have taken the permission for RBI to allow Non Resident Indians
to invest, and will then make an appropriate mention / invitation to Non
Resident Indians.
118. Which NRI account attracts TDS
(tax deduction at source)?
NRO (savings & term deposit) account will attract
TDSNRE deposit: No TDS will be deducted
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