NRI Queries Related to Tax Rules

Q1) What kind of tax rules have been advised for NRIs?

Ans: Tax rules for NRIs related to property transactions can be enlisted as follows:

• Purchase of Property- No taxes are needed while purchasing a property.
• Sale of Property - Certain taxes are payable while selling a property.
• Renting Property - PAN card is necessary at the time of letting a property on rent.
  

Q2) Under what circumstances an NRI is liable to pay taxes in India?

Ans: NRI is liable to pay taxes under the following circumstances:

• Income received in India, irrespective of whether income is accrued in or outside India.
• Income deemed to be received in India, irrespective of whether income is accrued in or outside India.
• Income accruing in India, irrespective of whether received in or outside India.
• Income deemed to accrue in India, irrespective of whether received in or outside India.
  

Q3) Which categories of NRI income are taxable in India?

Ans: The following categories of NRI income fall under the taxable regime:

1. Double taxation
2. Fees for technical services and royalties
3. Income from property in India.
4. Income arising as a result of profits of businesses in India.
   

Q4) What is estate duty for NRIs?
Ans: NRIs are not liable to pay estate duty in India.

Q5) Is NRI obliged to pay for gift tax in India for gift to spouse?
Ans: No.

Q6) To save on taxes, how much do I need to invest? Can I avoid tax completely?

A) You can invest upto Rs.100, 000 annually in various government schemes such as PPF, NSC, pension plan and insurance and medical premiums. You cannot evade tax completely, you can only minimize it.

Q7) The Form 16 issued by my ex-employer before I left for employment overseas erroneously carries my wrong PAN number. Even if the company issues a new Form 16 to me, the wrong PAN number quoted by the company on the TDS could create problems for me?

A) Once you have informed your ex-employer of the error, the onus for revising the returns lies on them.

Q8) Is there a time limit for getting an IT refund?
A) Generally, refunds are issued within a year. You can inform your Income tax officer in case of a delay beyond 12 months.

Q9) How do I file my income tax returns from overseas?
A) From 2007 onwards, online payment of taxes is possible for all categories of taxpayers, including NRI taxpayers.

Q10) What is the process for filing online returns?

A) Firstly, prepare the income tax return in the electronic format (XML) which is accepted by the Income Tax Department. You can download the service from www.incometaxindiaefiling.gov.in or use online software which calculates your tax and creates an XML format. After the XML format is ready, upload your return on the above mentioned site again.

Q11) While filling up the ITR Form, does one need to fill up all the credit entries – there is hardly enough space.

A) Yes, it is mandatory to fill up all credit entries – you can add an annexure based on the same format with all the data included.

Q12) If I have paid up my housing loan by March 2007, how do I minimize my tax?

A) Invest in NSC, ELSS schemes, pension plans and other tax-free schemes which
promise returns, upto a maximum of Rs.100,000

Q) Which form is used for declaring short term capital gains?

A) Form ITR 2. The same form is used by NRIs for filing returns on rentals received on property in India

More Queries

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Q:-I am an US citizen originally an Indian. I have all my investments abroad. I plan to spend a major part of my time (more than six months) in India with my children. In such a case, will my status change to that of a Resident? I will not be in India for business or employment but only for leisure. Also, I have no income arising from India. Even so, will I have to declare my global income to Indian tax authorities?

A : The Residential status is decided by the person’s number of days stay in India and not by your status (PIO etc.) or the extent of investments abroad or whether you are in India for employment or otherwise. As per law, the global income of a Resident becomes taxable in India. So, yes, you will as per law, have to disclose and pay tax on your global income. However, in case you are being taxed in the US also, you can definitely take shelter under the Double Tax Avoidance Agreement between US and India.

Q:-I’m an NRI/OCI in Australia and planning to take a loan in Australia to buy a property in India. I would like to know if I can get a tax concession in India on the rental income from that property against the interest I’ll be paying towards the loan in Australia?

A : No. The loan will have to be taken from a housing finance company in India for purchase of house in India.

Q : 1. Being an NRI can I link a Demat account to a NRO account for trading in stocks?
2. If my earnings through trading in stocks is more than Rs. 1 lakh, do I have to file tax return in India?
3. I am also given to understand that tax will be deducted at source for the interest earned in NRO accounts, does it mean that I need file tax returns in India?
4. Is there a way I can file tax returns on-line?
5. Due to my NRI status (with no Indian income) I will not be filing tax returns. If say after a year I earn rent income or profit from stock trades and if I have to file tax returns, does it matter that there is a gap in tax filing?

--- Kumar

A : 1 Yes, you can link your NRO account to the demat account for the purpose of trading in stocks.
2. Yes, if your earning is more than Rs. 1.10 lakh, you have to file tax return.
3. If your Indian income is more than Rs. 1.10 lakh you have to mandatorily file a tax return, regardless of the amount of tax deducted at source. You get credit for the tax deducted from your final tax liability. If your Indian income is less than Rs. 1.10 lakh, you need not file a tax return unless you wish to claim refund of any extra TDS.
4. At this particular juncture, on-line filing is not possible but it should see day light within a couple of years.
5. If the income chargeable to tax is less than the tax threshold, there is no need to file the returns. The gap would not matter as legally a person with income below the tax threshold of Rs. 1.10 lakh isn’t liable to file a tax return.

Q: Can a NRI invest in KVP, POMIS or other postal investments on non-repatriable basis. How do the post office track whether the investment made is from NRI money or otherwise (since most of the transaction is done on cash. Even if cheque is required it is quite easily possible from a local account to issue a cheque). Although national savings website shows NRI are not allowed to invest in P.O small savings, some agents are encouraging NRIs to deposit cash or cheque from local accounts for postal investments? Could you please guide us with a correct detail of this investment?

--- Surindar

A : This is on account of systemic inefficiencies. As per law, NRIs are not allowed to invest in postal schemes. However, if one invests cash, it is difficult to find out. Secondly NRIs aren’t allowed to have local accounts. They should convert the same to NRO accounts. However, several NRIs do not do this and continue to operate local accounts. The long and the short of the matter is that if being an NRI you do invest in Postal instruments, you are breaking the law. If it comes to the notice of the authorities, not only will the money be given back to you without any interest, you will also be liable to prosecution.

Q: I will like to know better of the following two options.. Liquid/Debt fund VS NRE Fixed deposits. NRE FD - current interest rates is around 5.7%, interest is non-taxable. Lock-in period of minimum 1 year. On the other hand, liquid/debt fund- Finance minister has recently increased the dividend distribution tax. What, in your opinion, will give higher/better returns?

A : Yes, post the distribution tax, yields on both the NRE as well as liquid schemes will be the same. However, if you invest in a short-term debt scheme, which is distinct from a liquid scheme the problem will be overcome. Also, MFs are coming out with liquid-plus schemes now which technically do not suffer the distribution tax. Look out for the same.

Q : I have paid 50% advance for an apartment in Mumbai city from funds in my NRE account. The balance I would like to pay by sale of another flat I own in the outskirts of the city which I had bought way back in 1998 when I was an Indian resident.
Now, under this situation:
Can I deposit the proceeds on sale in NRE A/c?
Would there by any tax on capital gain?
Can I request the buyer of my second property to directly pay the builder of the first property on my behalf?

--- Pritam

A : 1. The answer to your first question is in the negative. Funds from NRE are repatriable and no non-repatriable money can be credited to the NRE account. You may credit the sale proceeds to your NRO account.
2. Since you are purchasing another flat, you may not have to pay capital gains tax depending upon the capital gains earned and the cost of the new flat.
3. You certainly can. However, it is advisable to pay through your own account to avoid any subsequent requirements of any proofs.

Q : Hi, I am a US Citizen. I have NRE as well as NRO account. I have following questions:
01) I am being taxed on interest earned on my NRO account. It is not very significant but can I still file a return and see if I am eligible to receive refund? This is the only form of income that I have in India. Also I assume I will have to have a PAN card for filling a return, correct? Can a US citizen have a PAN card?

A : 1. The interest on NRO is fully taxable at the rates applicable to Residents. But there is no income threshold under which TDS is not chargeable. However, TDS is applicable @30.9% the only practical recourse open is to claim refund by filing tax returns.
2. Yes, it is necessary to have a PAN for filing returns.
3. You are a person of Indian origin. Even if you were a rank foreigner, you could have applied for PAN.

Source:http://sify.com/finance

Process Of Investment in India For NRIs

When India looks for investments in various sectors, among others, it turns to the NRIs, the case in point being Resurgent India Bonds. The process of investment into India has progressively been made simpler and in many cases, no permission from the RBI is needed before investing in India.

However, before we discuss the actual process of investment for the NRIs, let us look at some of the issues faced by the NRIs when they invest in India currently. Investing in India is typically a one time event every year when they come to India. Massive mis-selling occurs due to time pressure and the need to close a deal.

The ‘MUST’ list

>>Get a PAN as it’s the most important document required by NRIs.
>>Open an NRE account to maintain repatriability of the funds invested in India.
>>Have a local representative to invest in illiquid assets.
>>Find a financial advisor to get legal and international tax advice.
>>The financial planner should help the NRI develop a long range financial plan for investment of his assets and insurance needs

Process of investing in India

Get a PAN: The most important document or registration required by NRIs is the Permanent Account Number (PAN). This is available to many first generation NRIs as a legacy of their stay and working in India. Getting a NRI PAN card is easy with the private PAN facilitation centres, which issue PAN within a few days.

Opening a banking relationship: Since all the investing transaction require a banking channel (buying and selling, parking funds, etc), opening a bank account is the next steps. Banks are more than eager for NRI accounts since they tend to maintain higher balances and offer great opportunities for cross selling. Open an NRE account to maintain repatriability of the funds invested in India. Banks allow NRIs to nominate a local representative who has the “mandate” to operate the banking account on their behalf.

Appoint a local representative: Investing in illiquid assets like real estate might require the NRI to appoint someone in India as his local representative. The NRI needs to give a “power of attorney” to the local representative detailing the powers that the representative can exercise on behalf of the NRI.

If the NRI does not want the hassle of writing cheques to his insurance company or to his mutual fund company, he can give his local representative the right to sign, invest and redeem on his behalf.

Identifying a financial advisor: Similar tests apply for the NRI when it comes to choosing a financial advisor. He needs to find someone who can win his trust. He needs to look at the ability of the advisor to service him. The client should not be too large or too small for the advisor.
Look at the ability of the financial advisor to provide legal and international tax advice. This can be important, especially since the NRI might do many transactions “sight-unseen” and across tax-geographies. In case of professionals, if the company has accredited financial advisors, then the professional knows where to go.

Deciding on asset allocation and insurance needs: The financial planner should help the NRI develop a long range financial plan for the investment of his assets as also for the insurance needs of the client. While it may not always be feasible for the advisor in India to research the market dynamics across the portfolio of his client, he should have a basic understanding of the risks on his client’s portfolio. Depending on the long-term needs of the client, the advisor needs to decide his India and Indian rupee allocation.

Understanding of the local laws (including taxes) and customs: There can be many quirks in the local law that the NRI should know. For example, while repatriation of sale proceeds of house property is allowed, it is limited to two such repatriations per individual. Similarly, capital gains bonds are available only up to Rs 50 lakh per person per year.

In case the NRI has made larger capital gains, he will need to pay the tax on that or reinvest in another property. Similarly, an understanding of the local customs can go a long way in helping the NRI set expectations correctly. While there is increasing professionalisation on the real estate development, there are many cases when the projects take much longer to complete.

Source: Economictimes

NRI Deposits Fail To Pick Up Despite Rising Rupee

NRIs park their foreign currency savings in either the non-resident (external) rupee accounts (NR(E)RA) and the foreign currency non-resident (bank) accounts (FCNR(B)). Of these, the FCNR (B) deposits do not involve any exchange-related arbitrage since the accounts are denominated in foreign currency.

A rising rupee appears to have failed to catch the attention of NRIs. A stronger rupee gives them exchange-rate benefit when they convert dollars to open rupee accounts. Bankers feel that a lower rate of interest offered on such deposits seems to have taken away the sheen from such deposits, and inflows have slowed down since February. The rupee has strengthened by more than Rs 3.50 a dollar since March this year, as it now trades at Rs 40.50 against the greenback compared to Rs 44.25 in March.

In case of NR(E)RA deposits, once the foreign currency deposit is made, it gets converted into rupees. And, it again gets reconverted into dollars at the time of redemption. Consider this: An NRI had made a deposit of $100 for one year in May 2006, when the value of the dollar was Rs 45.88. This gets translated into a rupee deposit of Rs 4,588. One year down the line, even if there was a zero interest rate, the rupee funds would fetch him more dollars as Rs 4,588 at the current dollar rate of Rs 40.50 would translate into $113.28 on maturity.

Despite this advantage, there seems to be little interest in these deposits. A senior official from a private sector bank said, “Despite the rising rupee, lowering of rates has made such deposits very unattractive and we are rather seeing a slowdown. Also, interest rates have been rising in developed markets, which may seem to be more lucrative.” According to Bank of India executive director KR Kamath, NRI depositors normally take a long-term view on the rupee. “We expect a growth in such flows, but it has not yet happened,” he said.

Of late, RBI has further capped the interest rates. In April this year, RBI has capped the interest rates on the 1-3 year NR(E)RA term deposits at the London Inter-bank Offer Rate (Libor) prevailing on the last working day of the previous month.

Source: Economictimes

ICICI Bank hikes interest rates on NRI deposits

Largest private sector bank of the country ICICI Bank on Thursday revised upwards intrest rates on deposits of Non Resident Indians (NRIs).

As per the revised rates, the Non Resident External (NRE) Fixed deposits of maturity period 12 months to less than 18 months, 18 months to less than 24 months, 24 months to less than 36 months will all attract interest rate of 6.43 per cent.

For deposits of 36 months to 120 months, the new interest rates would be 6.45 per cent.

The new rates for Foreign Currency Non Resident (FCNR) deposits in US Dollars for 12 months to less than 24 months will be 5.43 per cent, for 24 months to less than 36 months will be 5.43 per cent, 36 months to less than 48 months will be 5.45 per cent, 48 months to less than 60 months will be 5.47 per cent and for 60 months it will be 5.51 per cent, a release here stated.

Source://Hindustantimes

Remit2India to offer NRE transfers

World’s number one independent online money transfer portal for NRIs recently unveiled its exciting NRE promotional campaign. The promotion promises premium exchange rates to NRIs allowing them to earn up to Rs.4500 over the standard rates for transferring money into their NRE accounts.

NRE(Non-Resident External) account, is a bank account, which can be opened by any person of Indian origin or nationality, currently settled abroad. These accounts can be maintained in the form of savings, current or term deposit accounts with any authorized banks in India. An NRI gets the opportunity to enjoy the multiple benefits of higher interest rates, tax- free principal and interest amount and also full reparability of funds involved.

Furthermore, the NRI can use his NRE account to invest into the various investment vehicles including mutual funds, property, insurance, etc. as tools for wealth creation.

The NRE money transfers promotion being latest on the platter is designed and framed to steal the show by offering best possible exchange rates in the market exclusively for Remit2India customers. Remit2India service is available in 32 countries and 9 currencies across the globe for inbound remittances to India through multiple money transfer options available on the website.

Source:indiatimes

ICICI Bank scheme for NRIs

ICICI Bank has introduced a new product 'NRI SmartSave Deposits'? an unique fixed deposit scheme for Non Resident Indians(NRIs). A one of a kind service introduced by ICICI Bank comes with a host of benefits that are tailor made for the Indian diaspora settled abroad. To avail of this service, even if the customer has a fixed deposit account in any other bank, all that the customer has to do is to get in touch with ICICI Bank, who will ensure a flawless transfer of the account on maturity.

The customer may not be in India when the deposit matures or may not have the time to go to the bank when in India. ICICI Bank will collect the documents from the customer and send the documents to the concerned bank through a vendor on behalf of the customer and get the money transferred to ICICI Bank. The customer simply has to walk into ICICI branches for the product and his requests will be taken care of by the sales executives of ICICI Bank. ICICI Bank will transfer the money for the customer so that the customer can manage funds effectively through internet banking and relationship managers.

Speaking while introducing the product, Anup Bagchi, senior general manager said, 'The customer can look towards a seamless, reliable, trustworthy and speedy transfer of money through ICICI Bank. We at ICICI Bank are committed to making banking easy and convenient for NRIs around the world. We offer a wide range of world-class banking services that are tailored to meet the unique needs of the global Indian. With ICICI Bank's convenient Balance Transfer facility switching from traditional banking service is easy. The customer can easily and conveniently transfer his deposits with other banks to ICICI Bank by completing easy formalities with us and we will handle the rest. '

Source: //newstodaynet.com

ICICI Bank freezes many NRI accounts

ICICI Bank has frozen the accounts of many non-resident Indians (NRIs) in the UAE after they failed to submit personal documents demanded by the Bank.

The Bank had asked for the documents after the 2005 Mumbai floods damaged documents originally given by the customers, including papers submitted for opening savings and current accounts, demat accounts for trading and investing, NRI home loans and auto loans, and ICICI Direct online trading accounts.

Apart from NRI customers, the damage has also affected several account holders in India.
While the bank had given its customers in India until December 25, 2006 for submiting the required documents, NRIs in the UAE were given a deadline of January 31, 2007.

"Several accounts of customers who have failed to meet the deadline have been deactivated," an official at the ICICI Representative Office in Dubai said.

The official, however, said that the accounts would be reopened after the documents were submitted.

"It will definitely affect our customers. At least that way we can expect them to quickly come and rectify the problem," he said.

Source: hindu.com

PNB hikes interest on fixed deposits

The Punjab National Bank (PNB) has hiked interest rates on fixed deposits under different maturity periods with effect from December 26, 2006, PNB zonal manager S P Singh said.

The interest rates are as follows: Eight percent for five years and above; 7.50 percent for one year to less than three years; Seven percent for 180 days to less than one year.

For bulk deposits, PNB offers eight percent interest for deposits of Rs 15 lakh to Rs 5 crore for periods of one year to less than two years. For deposits over Rs 5 crore, the bank offers higher rates of interest depending on the size and period of deposits.

For NRI deposits, the PNB is offering 6.33 percent for NRE deposits for one year. FCNR deposits in US dollars gets 5.33 percent, in GBP - 5.58 percent, Euro - 4.02 percent, CAD - 4.24 percent and AUD - 6.62 percent for a year. PNB offers housing loans at 9 percent for five years repayment, 9.25 percent for 10 years and 9.50 percent for 20 years.

//Source: newindpress.com