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NRIs should plan their return
to home
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: The grass is not really greener
on the other side. And many Indians abroad are figuring it out the hard way.
Faced with a gloomy economic and career prospects, some are packing their bags
and heading back to test the job market.
Though finding a job would be easier in India, especially for those with good
degrees and employment background, figuring out the tax liability - especially
in the initial years - may be a daunting task. If you are returning to India for
employment, there are some tax issues you have to consider before taking the
final decision.
This is crucial because the
taxability of
overseas income (such as rental income from property outside India) for
returning Indians largely depends on their residential status in India. Planning
the timing of one's return is very important.
RESIDENTIAL STATUS
Residency rules play an important role in determining the income that is taxable
in India. Indian residency is attained in either of the following situations: 1)
The individual is in India in that financial year for 182 or more days; or 2)
The individual is in India in that financial year for 60 or more days and 365
days or more in the four financial years prior to that financial year.
If either of the above conditions are not satisfied, the individual would be
treated as a non-resident. "Even if one satisfies either of the above two
conditions, and, therefore, qualifies as a resident, Indian tax laws provide a
relief for a category of individuals who are 'not ordinarily resident' (NOR).
One can become a
NOR
either if his/her stay in India in the seven financial years immediately
preceding that financial year is less than 729 days or if he/she was a
non-resident for nine of the 10 financial years immediately preceding that
financial year. A resident other than a NOR is generally referred to as ordinary
resident," says Vineet Agarwal, director - tax and regulatory services,
KPMG.
SELLING YOUR PROPERTY ABROAD
"As a returning Indian, try to sell your overseas property while you are still a
'not ordinarily resident' (NOR) or 'non-resident' (NR). As a NOR or
NR, if you
sell any overseas assets and receive the sale proceeds outside India, you do not
have to pay any taxes in India. If you need to buy a house in India out of the
sale proceeds, you can first receive the sale proceeds in a foreign bank account
and thereafter remit part or whole of the proceeds back to India without
creating any Indian tax liability," says Amitabh Singh, tax partner,
Ernst & Young.
Keep in mind that the sale of property at a profit will probably create tax
liability in the country where the property is situated. In some countries, it
creates sales tax and other liabilities as well.
"If you have become an Indian resident, selling the house liable for taxes both
in the country where the property is situated as well as in India. The country
where the property is situated will generally have the primary taxing rights ie,
the right to collect the tax while India will have the obligation to provide a
credit for taxes paid in the foreign country and collect only the balance tax,
if any. The precise tax treatment will be guided by the domestic tax laws of
India and the foreign country as well as the tax treaty between the two
countries, if there is one," says Singh.
( Courtesy: http://economictimes.indiatimes.com/ )
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