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March 18, 2000

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"Do I have to intimate the Income Tax Office when I move out of India?"

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

Readers' Note: Please keep your questions short.

I recently moved to the UK on an assignment. Before that, I was residing in India for 10 years and am in possession of a permanent account number or PAN. Do I have to intimate the Income Tax authorities about my moving out of India? Since I am employed by a UK-based subsidiary of an Indian company, do I have to declare my income in UK (tax being paid here) to the Indian authorities?

— Dipankar Chowdhury

Generally, the visa issuing authority would insist on producing a Tax Clearance Certificate from an individual leaving India for a long period. Other than this, there is no specific requirement under the Indian Income Tax Act to inform the tax department. Since you have mentioned that you are employed by the UK-based subsidiary, we assume that you are being paid by the subsidiary company. Such income is not taxable once you attain the status of an NRI. Till the time you are a resident under the Income Tax Act, 1961, you are liable to pay tax. If you are going to stay out of India beyond 182 days, then you will be termed as NRI. If your income in India still exceeds the non-taxable limit, you have to file a tax return in India.

My family and I went to Kenya in July 1989 and my husband became an Kenyan citizen in February 1997. With our NRI money, we bought a property in India in my name in 1998. In July 1988, I came to India with my two children and returned to Kenya for one month in October 1998. In March 1999, I again went back for two months and in October 1999 for 45 days. I now want to know about my status in India and about the tax on my property.

— Neelam Agarwal

It is not possible to determine your residential status from the information supplied. However, under section 6 of the Income Tax Act, an individual is declared to be a resident if:

He resides in India for that previous year for 182 days or more, or
He resides in India for that previous year for 60 days or more and 365 days or more during the four years preceding the relevant previous year.

If an individual does not satisfy either condition, he will be a regarded as an NRI . And, in addition to fulfiling one of the above conditions, if he fulfils both the below mentioned additional conditions, he will be treated as resident and ordinarily resident:

He is resident in India for at least 9 out of 10 years preceding the previous year,
In India for 730 days or more during the 7 years preceding the relevant previous year.

If either or both the additional conditions are not satisfied, then he will attain the status of 'Resident, but not Ordinarily Resident'.

As per section 9 of the Income Tax Act 1961, any income from any property situated in India will be treated as income accruing or arising in India. And as per section 5 of the Act, such income will be taxable in the hands of both residents and NRIs. Thus, the income (rent) received/receivable from owning a house property will be taxed in the hands of both Resident & NRI u/s 22. In case you derive any benefit from your property in the nature of rent, then you will be liable to tax under the head "Income from House Property". Further, tax on capital gains is payable if you desire to sell it off. However, if the property is used by you for your own residential purposes, then there would be no tax incidence.

I am an NRI. I have loaned a certain amount of money to someone. This was remitted from my NRE account. Would this money be taxed when the person concerned returns the money which I will then deposit in my NRO account?

— Hrisheet Barve

When the borrower returns the money, along with the interest, the interest will be taxed in your hands, because it is an income arising in India. And the interest earned on the balance of NRO account will also attract tax @ 20 per cent. As far as the principal amount is concerned, the onus is on you to prove to the Income Tax authorities that the money deposited in the NRO account is repayment of loan and not an income. For this purpose, you may create adequate documentation.

I am an NRI. My salary is accrued & paid abroad in foreign currency, but remitted to my family in India through the manning agents out here in INR. This is so because the manning agents do not encourage transfer of funds to my NRE account and neither do they remit in foreign currency. I would, thus, like to know the following:

1) Do I need to file my returns?

2) Can I invest in FD's, Bonds, Bank Depos, shares etc of Indian co's out here? What are the tax implications on the income earned on such assets?

3) What happens to the money lying to the credit of my NRE account? Is it taxed ?

— Samantha D'souza

1) If your income in India is above the non-taxable limit, you have to file the return in India .However, under Section 115G of the IT Act 1961, an NRI need not file a return, if his income consists of investment income or income by way of long term gains from transfer of any foreign exchange asset or both; and the tax has been deducted from such income.

2) You can invest money in FD, bonds, bank deposits, shares, etc. Since you will be investing abroad and not in India, the income thereon is not taxable in India till the status of NRI is maintained by you. However, in case you remit the funds in India and invest in Indian companies' deposits, then the income thereon will be taxable in India.

3) Since the balance in the NRE account is out of income remitted from abroad, such balance is not taxable in India.

I am on deputation to a customer's site in Belgium from the Indian company I am working with in Chennai. I have a residence permit here and will be paying the tax for the salary paid here. If I save some money from my salary and take it back to India, do I need to pay tax in India for that amount? Please could you let me know the details of the double tax treaty (if I got the correct word for it) and the countries with which India has signed this.

— Umesh Jayakumar

One of the important considerations for taxability is residential status. Since you are on deputation we presume that you are an Ordinary Resident of India. In this case, the salary earned by you is taxable in India. Generally, Double Taxation Avoidance Treaties provide for credit to the tax payer on account of tax paid by an assessee in the foreign country. You are also eligible for deduction under section 80 RRA, which allows you deduction upto 75% of salary earned abroad subject to certain conditions as specified in the section. You are eligible for all deductions permitted under Indian Income Tax Act. Any savings after meeting full tax liability will not attract further tax on remittance.

I was born in India and have been living in the US for the last 11 years. Recently, I became a US citizen. I have some money invested in US stocks and some money in NRE/FCNR. I want to return to India with a 5-year entry visa and live in India for indefinite period of time (renew entry visa every five years). I do not want to give up my US citizenship, because I may come back to US after 25 years. Please help me with the following:

If I sell some US stocks while living in India, I know I will have to pay to tax to US govt. Do I have to pay tax to the Indian government also?

Would I have to convert the FCNR to the rupee account?

If I work in India with an Indian firm and earn Rs 25,000 a month, will I have to pay tax to the Indian govt? If yes, is there a way to calculate how much?

— Sandeep Agarwal

To answer your questions, certain basic background needs to be given which are as under: - Tax Liability is based on residential status and the source of revenue. The following table will explain tax incidence under various conditions. Repayment tenure (years)

	Resident or resident and ordinary resident	Resident but not ordinarily resident	NRI
Income received in India (whether accrued in India or outside India)	Yes	Yes	Yes
Income deemed to be received in India (whether accrued in India or outside India)	Yes	Yes	Yes
Income accruing or arising in India (whether received in India or outside India)	Yes	Yes	Yes
Income deemed to accrue or arise in India from a business controlled outside India	Yes	Yes	Yes
Income received and accrued outside India from a business set-up in India	Yes	Yes	No
Income received and accrued outside India from a business controlled outside India	Yes	No	No

As can be seen from above for determining the tax liability the following things are important: - q residential status of the assessee q source of revenue i.e whether it is from India or abroad You have not indicated in your question, the exact time period for which you intend staying in India so as to enable us to understand your residential status. However, the following are the answers to your question: 1) Since the stocks have been purchased by you from income earned by you outside India, the income from sale of these stocks will be "income accrued and arise outside India" but still would be taxable in India if you fall within the definition of "Resident, but Not Ordinary Resident" or an "Ordinary Resident" under the Income Tax Act, 1961. However, if you qualify as an NRI as per the Act, then the said income would not be taxable in your hands in India. 2) The discretion lies with you. In case you want to retain foreign currency, you can opt for the RFC account which is the Resident Foreign Currency Account 3) If you work with an Indian firm, then you will have to pay tax. In case you earn a salary income of Rs 25,000, you will have to pay tax of Rs 77,000 (i.e. Rs 6,416 per month). However, you are eligible for deductions for certain investments, housing rent, etc. which can be worked-out by you with your employer.

I am an NRI. I plan to buy a house in India and pay the mortgage every month. In the US, if you are a Home Owner, the interest that you pay on your home's mortgage is tax deductible. Can I get a tax deduction in the US if I own a home in India ?

— Rajesh Pandia

As is the case in the US, in India too, an assessee is eligible for tax deduction on interest paid for housing loan. However, such accommodation is generally presumed to be in India. If the revenue department in US allows deduction for interest paid on house acquired outside US, you may be eligible. However, since your question is not related to Indian Income Tax we are unable to provide exact guidance.

I am a software professional living & earning outside India for the past 3 years. I would like to know whether it is necessary for an NRI like me to obtain a PIN number though I don't have any income earned in India. I recently heard from few people that it is necessary to get a PIN number (NRIs also) because later it won't be possible to buy assets in India without that number. Is that true?

— Sarada Priya

The "PIN number" mentioned by you is assumed to refer to "PAN number", i.e Permanent Account Number, under Indian Income Tax Act. Since you are an NRI you need not apply for the PAN number. The act otherwise mentions thus: - As per Rule 114B (a) of Indian Income Tax Rules 1962, a person has to quote his PAN in all documents for the sale or purchase of any immovable property valued at Rs 500,000 or more. But as per Rule 114C of the IITR, an NRI need not apply for and obtain PAN for any transaction mentioned in clauses (a) to (h) of Rule 114B ,(which includes sale or purchase of immovable property ). Thus, you can buy assets in India without PAN.

Earlier:

"Do I have to pay tax in India on allowance earned in the US?"
"What is the tax treatment for an NRI selling his stock options of a company listed in India?"
"Can my father buy a house from the money that I gift him?"
"Do I need to apply for a PAN account in India when I return?"
"Is the money that I saved on a business trip to the US taxable in India?"
"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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