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"Is the money that I saved on a business trip to the US taxable in India?"

Readers' Note: Please keep your questions short.

I am working as a software engineer and have and have gone on my company's behalf to the UK twice.On a short term tour we are given a daily allowance. Apart from that, part of our salary is paid in India. If we save the money and bring it back will it be taxed?
--Raja

You have not clearly mentioned your residential status, hence it is difficult for us to comment on the question posed by you. However, assuming your Residential Status to be a Resident and Ordinarily Resident, we offer the following advice.

As per the provision of Section 5(1) of the Income Tax Act, 1961, the total taxable income of a resident and ordinarily resident also includes income deemed to accrue or arise in India whether received in India or outside India. Hence the daily allowance received by you during your stay abroad is taxable. However any savings brought by you to India will not be Taxable as the same is already subject to tax at the income stage.

Even if you are treated as an NRI under the Act, since you are receiving the salary from your employer who is based in India, the allowance is still taxable. You are eligible for a deduction under section 80RRA, of upto 75 per cent of the amount remitted by you into India within 6 months from the end of the financial year. This deduction is available only if you are a technician as defined under explanation (c) to sub-section (2) of section 80 RRA and further, the terms & conditions of your service outside India are approved in this behalf by the Central Govt. or the appropriate authority. The balance 25 per cent is taxable at the marginal rate of tax.

The manner in which the money is remitted into India is not relevant for the purpose of determining the liability of taxation.

I am an NRI, having stayed abroad for the last four years. During these years, I have saved some money in India in the form of NRNR and NRE fixed deposits. What would be the tax status of these deposits after I return to India? Would I still be eligible for tax-free status on these deposits ? Could you please answer specifically about Cumulative deposits and Monthly-Income deposits?
Also, what about the money in the NRE fixed deposit,and NRE savings account? Will this still be considered as repatriable Rupees after I return to India? Can I convert this money into dollars, etc. after returning to India?
Finally, is there any tax implication on income I have earned abroad, if I return to India in the beginning of the financial year? Will I have to pay tax on money earned abroad if I return to India in, say, May, and therefore stay more than 183 days in India?
--V L Prasad

Immediately upon return of the account holder to India and on his becoming resident in India, NRE account will be re-designated as Resident Rupee Account or converted to RFC account as per the option of the account holder. These rules are contained in the exchange control regulations. The interest earned on such accounts is free from tax till such time as the foreign exchange control regulations permit the holding of such accounts.

Regarding the conversion of rupee to dollars, again this is controlled by the exchange control regulations. Being outside the scope of personal taxation, we won't be in a position to answer this question.

The taxability of income is based by the residential status of an individual under the Income Tax Act, 1961 as determined for each financial year. The income earned for a particular year is taxable for that year and hence the income of earlier years when you were a non-resident cannot be taxed in one particular year just because you assumed the status of a Resident for the financial year.

At present I am in the USA to receive some training from an Indian company. I am here on the Business Visa. My salary continued to be paid in India and I get some compensation in dollars for the expenses incurred here.
If I save some money from that compensation money, can I bring it back to India? If yes, how can I do so? Will there be any tax on this money? If so, how much?
-- Shailesh Thakker

The information provided by you does not clearly specify your residential status for the relevant year (whether an NRI or Resident). The Income Tax, 1961, specifies that global income of a Resident Indian is taxable in India. In case of an NRI, the income earned outside India is not subject to income tax in India.

Section 9 (1) (ii) of the Income Tax Act, 1961 specifies that income chargeable to tax under the head "Salaries" is deemed to accrue or arise in India if it is earned in India. Hence in your case, if you are not an NRI and if the living allowance in USA is received by virtue of a contract of employment with an entity based in India, it is deemed to have been earned in India and hence the same is subject to tax.

In such circumstances, you are eligible for a deduction under section 80RRA, of upto 75% of the amount remitted by you into India within 6 months from the end of the financial year. This deduction is available only if you are a technician as defined under explanation © to sub-section (2) of section 80 RRA and further, the terms & conditions of your service outside India are approved in this behalf by the Central Govt. or the appropriate authority. The balance 25% is taxable at the marginal rate of tax.

First some facts about myself:
- Left India on 31st May'97 for UK. Entered India on 15th June'98
- Left India on 7th Nov'98 for UK. Entered India on 12th June'99
- Again left India for US on 18th July '99

In the UK I was working for an Indian-based software company, which paid a salary in India and an allowance in UK. From the allowances received in UK the savings were transferred to Indian FCNR/NRE deposits on 15th Dec 98 and 1st June'99 . For the salary received in India I have been regularly filing my tax returns in India. But for the allowance received in UK ,I have not paid any tax in UK and I don't know whether my company has paid any tax in any of the country or not.
Now in the US I am working for a US-based company and I am filing the tax returns for the salary earned in US. My question is:
1) What is the status of the money which I have transferred to my FCNR/NRE accounts ?Is it taxable?
2) Do I need to show this money or the interest earned on that in my Indian income tax returns ?
-- Guddu S

The Income Tax Act, 1961, levies tax only on the income earned and not on the amount remitted into India.

It is very clear from the information provided that you enjoy a NRI status. According to section 9 of the Income Tax Act 1961,certain incomes are deemed to accrue or arise in India even though they may actually be received outside India. Also since you are employed with an Indian company and have been sent on deputation to UK all the payments made to you is deemed to accrue or arise in India. Hence, you are liable to pay tax on the allowance paid to you in UK as well as the salary received by you in India. You may claim a deduction under section 80RRA of the Income Tax Act, 1961 subject to fulfilment of certain conditions. (Please refer to answer to the first question above).

As such you will have to pay tax on the savings kept by you in the FCNR/NRE account. However, as per the provision of section 10(4)(ii) of the said Act the interest earned is exempt from taxation as long as you enjoy an NRI status.

Exempt income are not taken into consideration while computing the tax payable, but a separate disclosure of the income which is claimed to be exempt has to be made in the return of income.

My company has sent me to USA for three months. I am receiving here $100 per day as living allowances (for my expenditure here). The amount which I am saving out of this $100 is it taxable in India? If so at what rate?
-- Anupam Gupta

As you have mentioned that you are out of India only for three months you satisfy the condition of section 6(1)(a) and you are a resident for the purpose of Income Tax Act, 1961. Also since you are employed with an Indian company and have been sent on deputation to USA all the payments made to you is deemed to accrue or arise in India. Hence, you are liable to pay tax on the allowance paid to you in USA as well as the salary received by you in India. You may claim a deduction under section 80RRA of the income tax Act, 1961 subject to fulfillment of certain conditions which have been reproduced by us above. (Please refer to the answer to the first question above)

I am employed in the Gulf for the last eight years. I am planning to settle down in India. I have my savings in NRNR, NRE as well as in FCNR account. I also plan to join a company in India where i will work for a monthly salary.
I was a tax assesse earlier before i left India. Now earning a salary again in India I will become a tax assesse again. How can I best avail the tax benefits on my foreign earnings?
-- T L S Raman.

Since you are planning to take up an employment in India you become an assessee form the Financial Year in which you have joined the concern. All the interest earned on your NRE account while you enjoyed the status of a Non-Resident is exempt under section 10(4)(ii) of the Income Tax Act, 1961, and the interest earned in the FCNR, NRNR account is exempt under 10(15)(fa) of the said Act. On becoming resident in India the said deposit will be converted into resident deposit and the interest earned by you will be liable to tax from the date on which the deposits will become domestic deposits under the exchange control regulations. The money earned by you while abroad will not be taxed in India after you return.

I am planning to take up US citizenship shortly and have the following queries:
a. I have a flat in my name, paid out from my funds in my NRE account. Do I need to make a declaration to RBI after becoming a citizen ?
b. I also have a PPF account which is being funded thru' the balances in my savings account that is jointly held with my father, who is also my constituted attorney. After becoming a US citizen, can I continue to investin PPF from my taxable income in India and will there be any bar on my father either depositing income earned in India or withdrawing cash from this savings account?
Do I need to inform the PPF and savings bank of the change in my citizenship?
Since my savings bank account is jointly with my father, it is treated as a domestic account and not NRO. Is that a problem ?
c. I am also a partner in a firm in India - do I need to inform any government authority of the change in citizenship ?
d. I am holding investments in various mutual funds . Do I need to inform them of change in citizenship ? And can I continue to make investments in these mutual funds from my savings bank account or should it be done only thru' the NRE account ? Should proceeds of redemption be made only to the NRE a/c or can it go in the existing savings bank A/C ?
e. I am also holding shares in Indian companies jointly with my father and in various ICICI tax saving bonds singly. These shares are not yet demated. Do I need to inform these companies of the change in my citizenship status before or after I become a citizen ? Do I also have to inform RBI ?
f. Finally, what is the law in India with regard to income earned in India by people such as myself - Indian born but foreign citizens?
-- S. Soni

All the questions except the question (f) are outside the scope of personal taxation. Regarding question (f), the Income tax Act, 1961, contains various provisions for taxing foreign citizens and also for granting exemptions under various sections. We would be in a better position to answer your questions when they are more specific.

(Editors Note: Your questions relating to banking will be answered in our personal banking section soon.)

I have been living in US for the past 3 years. I am working for a big company which has alloted Stock Options as part of the benefit package. I plan to return back to India in another 3 years (Dec 2002 ). I have three months to excercise the stocks after leaving the company. Here are my questions:
a. If I exercise my stock options and sell them in Feb 2003, while I am in India, what will be my Tax liability in India. Will I be taxed in India or in USA?
b. Will my taking transfer of residence anyway impact the tax scenario?
-- Ravi Shanker

Since the Income Tax Law is generally amended every year, it would not be proper on our part to answer your question regarding the taxability of the income in the year 2002-2003 . However, as per the prevailing tax laws, the taxability of the income by way of capital gains, would depend upon your residential status which is determined as per the Income Tax Act, 1961. If you sell the ESOP after you assume the status of Resident, you would be taxable on the amount of capital gains. If you sell the ESOP under the NRI status, you are exempt from tax as the income is deemed to accrue and arise outside India. The transfer of residence is not of relevance for determining your tax status.

A friend of mine worked in USA for five months from August,1998. He is working for a software company (say X) based in India. He was deputed to a client company (say Y) of X in USA. It was mentioned in the invitation letter from Y, that all his living expenses in USA would be borne by Y. There was no mention of any allowance as such although he was being paid a small allowance by Y to take care of food etc. During his stint abroad, his Indian salary was being paid in his Indian bank accounts. What will be the tax implications for him in that financial year ?
-- Sumit

From the information given to us your friend satisfies the condition mentioned under Section 6(1) of the Income Tax Act, 1961, and becomes resident for the financial year 1998-1999. A resident is taxable on global income and as such is liable to tax. The living allowance received by him, if declared, is taxable.

I am an NRI residing in India for almost 5 months this year. Prior to that I was in USA for more than six years with a cumulative time of less than 365 days spent in India in the last four years. According to your advice on rediff.com I assume that I am still under NRI status. My questions are:
a) If an Indian company buys a flight ticket for me (for travel inside India only), makes arrangement for my accommodation and food without any charge to me for the purpose of providing consulting services for which I am not being paid in any other manner....will it be classified as income earned by me? If yes how do I calculate such income?
b) What is the year period used for calculation of the 182 days period? Is it Jan 1-Dec 31 or is it something else?
c) Do I need to get a PAN number or file a tax return if my total income earned in India is less than Rs 50000 including savings and FDR interest?
-- Sleepless in Shimoga

The taxability for the expenses of air ticket and the food and accommodation will depend upon as to whether there exists any employer-employee relation. If, yes, then the above is taxable as perquisite under section 17 of the Income Tax Act, 1961.

The year for the purpose of Income Tax Act means the financial year commencing on the first day of April and ending on 31st March.

If the total income for the previous year is less than Rs.50,000 then you need not apply for PAN nor furnish your return of income.

I am on a business trip (2-3 months) to the US. My company pays me daily allowance to live in US. If I bring this money back to India is it going to be taxed ? How should I declare this money? I am not an NRI.
-- BGS Prasad

From the information given to us you are a Resident for the purpose of Income Tax Act, 1961 and are as such subject to Indian taxation for all the income earned by you whether in India or outside India. Hence you are liable to pay tax on the allowance received. However, you may claim a deduction under section 80RRA of the income tax Act, 1961 subject to fulfillment of certain conditions. (Please refer to the first answer).

As far as the saving is concerned the same has already been taxed when you received the allowance and hence will not be taxed on the saving.

I am an Indian citizen, but have been living in the US for the last eight years. I am currently on an H1 visa. I have been working for the last 6 years in the US, so I have been an NRI for the last 6 years. I am planning to return to India in the beginning of year 2000. Is it true that my NRI status will be maintained for the next 7 years as I have been an NRI for more than 2 years in a row ?
Does this mean I can continue to invest in the US stock market without any tax obligations to the Indian government ?
For how long can I continue to maintain US accounts before being liable to income tax in India ?
-- Rajiv Pandey

According to the provision of section 6(1) of the Income Tax Act, 1961, an individual will become resident in India if he satisfy either of the conditions:
a) he is in India for a period of 182 days or more; or
b) he is India for a period of 60 days or more and was in India for a period of 365 days or more during 4 immediately preceding previous year.
From the above it would be clear that the status of non-resident for the purpose of Income Tax Act, 1961 could be maintained only for the year of return to India (if the above conditions are not satisfied) and cannot be enjoyed for a longer period.

Further, under section 6(6) a resident individual is treated as "resident and ordinarily resident" in India if he satisfies the following two additional conditions :
a) he has been resident in India in atleast 9 out if the 10 previous years [according to the basic conditions noted above] immediately preceding the relevant previous year; and
b) he has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.

In other words it can be said that an individual becomes resident and ordinarily resident in India if he satisifies atleast one of the conditions in section 6(1) and the two additional conditions in section 6(6).

On the basis of the above definition you can ascertain your residential status in accordance with the date of your return to India. However, once you become resident of India you would be liable to tax on your global income irrespective of the source of Income and the place of receipt of the same.

Earlier:

"What are the tax implications for an NRI selling shares of Indian companies?"
"If an NRI gifts Rs 1 lakh to a relative from his NRO account in India does he have to pay any Gift Tax? (The NRO account is funded from abroad in US dollars.)"
"Do i need an income tax clearance certificate if i go abroad for a two-year contract?"
"Will my father be taxed if I send him money to buy a flat in my name?"
"What is the difference between personal taxation of an NRI and of a resident but not ordinarily resident?"
"We are software engineers investing in the form of NRNR deposits, FCNR deposits, etc. How will we be taxed?"
'I am an NRI getting salary from a US firm. Can I invest in Indian securities? What are the tax implications?'

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