As a Non resident
Indian, you are always skeptical about the tax laws in India and its
administration. Over the years, the laws in India have been relaxed and
simplified. The administration has also improved by being more friendly towards
Non residents.
In following lines, I
have tried to narrate our experience with important areas where a NRI needs to
plan his affairs with Indian Taxation laws.
a)
Residential Status :
As per Indian Income
tax Act, all individuals are categorized in three residential types:
1) Ordinary Resident
(OR)
2) Resident but not
ordinary Resident (RNOR) &
3) Non resident (NR).
Taxation in India
largely depends on residential status & nature of income. The number of
days spent in India by a person decides the residential status.
It is important for
NRIs to mention their residential status as “NRI” in all forms / applications
etc. These could be for application of PAN , purchase of Mutual Funds etc. Any
error here can have tax / legal implications. There are specific exemptions /
deductions available for each category of residents and by mentioning incorrect
residential status, one can miss out on the same. In case of a resident Indian
leaving India for employment / business outside India, his date of departure from
India can be crucial in determining his residential status and taxability of
income for that year. He therefore needs to plan the same carefully.
Case
study -
For
example, if Mr X leaves India on 1 st of April and carried out business overseas
and earned a profit of USD 2 Mln. As he departed India on 1st April, it is
likely that he would be treated as a Non Resident for that year and will not be
taxed on this income of 2 Mln. Now consider a situation where Mr X departed on 15th
October of the same year. In this situation, it is likely that he would be
treated as a resident in India for that year and can be taxed on this income of
2 Mln in that year.
Similarly in case of
a Resident but Not ordinarily resident (RNOR), income earned or received in
India is taxable. Their other global income is not taxable in India.
b)
Avoidance of Double Taxation in two different countries :
Income earned /
received in India is taxable in India even in case of NRIs. In order to make
sure that the NRIs do not end up paying tax on the same income in their
residing country, Government of India has signed Double Tax avoidance agreement
(DTAA) with more than 50 countries. Provisions of many of these DTAA throws up
avenues for better planning of minimization of tax incidence for NRIs.
c)
Tax saving in respect of Investments in specified Schemes / instruments :
NRIs having taxable
income in India can invest in specifies instruments / schemes (like PPF, Life insurance
premium, Nation saving certificates, Government recognized mutual funds etc)
upto Rs.1 lac and use provisions of Income Tax Act for saving tax .
Also, for those NRIs that have realized profit
on sale of property or other specified capital asset, they can invest the gain
in specified financial instruments / another specified property (subject to
conditions) and attain a Zero Tax position.
Tax-Planning-Avenues-for-NRIs
It is pertinent to
note that following incomes are tax-free for NRIs –
a) Interest on
deposit in NRE account
b) Interest on
deposit in FCNR account /deposit.
d)
Interest earned on NRE Account
Interest earned by
NRIs on Non Resident External (NRE) bank account is exempt from tax. A NRI returning
to India and having NRE/NRO bank accounts is required to report his return to
his bankers, who shall then convert these accounts to resident bank accounts.
The interest income earned on resident bankaccounts is taxable.
e)
Taxability on sale of Immovable Property
For NRI selling
immovable property situated in India, sale proceeds are allowed to be
repatriated after paying the requisite tax as per applicable law in India.
f)
No tax on Profit on sale of shares / Mutual Fund Units :
NRIs need to note
that in case where they have invested in shares of an Indian company through
recognized stock exchanges in India and have sold these shares after holding
them for more than one year, the gain on the same is tax free.
Also in case of sale
of Mutual Funds units, there is no tax payable if the units are held for more
than one year (subject to conditions).
g)
Selection of Entity / structure for doing business in India :
For NRIs and
returning NRIs, it is important that they select an appropriate structure in
India for their ventures / employment contracts –
Indian Income Tax
offers different tax treatment to different entities like Sole proprietary
concern / Partnership firms / Corporate entity. NRIs need to choose an
appropriate structure to suit their requirements and reduce the tax incidence.
For those working
under contracts, they need to understand that in case they function under the
employment contract,
they are taxed as “salaries” and no deduction is available to them. However, if
they were to choose to work under the “consultancy contracts”, they are
eligible to claim further deductions towards expenses incurred while computing
their taxable income under Indian Taxation laws.
h)
Applicability of PAN and implication on TDS
Permanent Account
Number (PAN) is a ten-digit alphanumeric identifier, issued by Revenue
Authority of India. Each assessee (e.g. individual, firm, company etc.) is
issued a unique PAN.
Tax Deducted at
Source (TDS) is a kind of advance tax imposed by Revenue Authority of India. It
is the amount withheld at the prescribed rates under DTAA or income tax act,
from payments of various kinds such as salary, contract payment, commission,
capital gains (in case of NRIs) etc. Credit for the same can be claimed in the
home country depending upon the DTAA with respective countries.
However, if PAN is
not available, then TDS will be deducted @ flat rate of 20% for which no credit
will be allowed.
i)
Applicability of Wealth Tax
Tax-Planning-Avenues-for-NRIs
Assets located
outside India of Non-resident (NR) / Resident but Not Ordinary Resident (RNOR)
are not taxable to Wealth Tax.
If NRI return to
India with the intention of permanently residing in India, the assets brought
by him will not be taxable for specified period. Also, the money and the assets
acquired from the money, brought by NRIwithin during prescribed period will be
exempt.
Source:- www.kdpaccountants.com
No comments:
Post a Comment