A. TAXATION FOR NRIs
AND THOSE EARNING OVERSEAS
1. The
Income Tax Act, 1961 defines a non-resident Indian as an individual, being a
citizen of India or a person of Indian origin, who is not a resident.
2. A person is of Indian origin if he, or either of
his Indian parents, or any of his grandparents was born in undivided India.
3. Many of the people who go abroad maintain bank
accounts in India to either invest here or save money here or just for ease of
transactions to and fro.
4. But if you are a Non Resident Indian (NRI) with a
bank account in the country, it is advisable that you are aware of all the
existing tax rules as far as NRIs are concerned.
5. Even if you are a Non-Resident Indian, you are
liable to pay tax for any income that is earned or accrued in India.
6. This is irrespective of whether the income is
directly or indirectly received by the Non-Resident Indian in India or is
accrued or deemed to have been accrued in India as far as the laws are
concerned.
7. A Non-Resident Indian will have to pay tax for any
income from business transactions and also income generated from assets and
investments in India.
8. The major difference between tax paid by a resident
Indian and a Non-Resident Indian is that the latter only has to pay tax for his
‘Indian Income’, and his foreign income, i.e. income earned and accrued abroad,
is completely exempted from tax in India.
9. It is important to note that Indian Income is
income that accrues /arises (or is deemed to accrue/ arise in India) or which
is received (or deemed to have been received) in India, though it might have
accrued/risen elsewhere.
10. Foreign Income is that which accrues or arises (or
deemed to accrue or arise) outside India AND received (or deemed to be
received) outside India.
11. There is
no need to file income tax return if you don’t have any income in India.
12. However,
if the income accruing in India through capital gains, rent, dividend or
interest is beyond the threshold limit, you will have to file tax returns.
13. You have
to declare the income earned in India while filing tax returns in the foreign
country too.
14. If the
latter has a Double Tax Avoidance Agreement (DTAA) with India, it will help you
get tax credit for the taxes paid in India.
15. For NRIs,
there is a special chapter (XII-A) in the Indian IT Act, according to which if
he earns a specified income and the tax, if any, has been deducted at source,
he need not file a return in India.
16. In most
cases, regulators have mandated tax deductions before handing over money to
NRIs.
17. So, your
rental income or mutual fund withdrawals will be deposited in your account
after taxes have been cut, and the rates are the same as that for residents.
18. If an NRI
sells shares and debentures of an Indian company that he had acquired using
foreign currency, the taxation process will require currency conversion and
re-conversion for capital gains calculations.
19. These
capital gains will be taxable at the rate of 10% and no indexation benefit
shall apply.
20. Some of
the rates may depend on the origin of the invested money.
21. When an
NRI sells assets in India, he can opt for a concessional 20% tax scheme under
Chapter XII-A, which is only available on investments in India from funds
remitted by an NRI.
22. An NRI
doesn’t have to pay tax on property or assets he inherits in India.
23. However,
any rental income or profit from such property or its sale will be taxable in
India.