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No tax on remittances from pay earned abroad

July 16, 2007 08:31 IST

For a non-Indian resident, any income earned and received outside India is not taxable in India.

I am working in the US, and want to transfer half my salary that to my savings account in India. I am paying taxes in the US. Will I have to pay taxes in India too? 

-- Ravi Iyer, email 

For a non-Indian resident, any income earned and received outside India is not taxable in India. In your case, since your salary is earned, received and taxed in the US, and if your residential status as per Indian income tax rules is that of a non-resident, you will not attract any tax liability on the remittances made to your Indian accounts. Your account will be designated as a Non Resident's Ordinary account (NRO). You also have the option of remitting funds to a Non Resident's External Account (NRE).

I am 27 years old and my cost to company is Rs 1.87 lakh per annum. How should I invest to avoid paying tax and filing return of income?

-- Sujal Dixit, Pune

For tax planning, it is important to know the break-up of your CTC. Some of the common components of CTC are basic salary, house rent allowance, conveyance allowance, medical allowance and leave travel concession. Subject to conditions, a part or whole of these allowances are exempt from income tax. You will arrive at the net taxable income after accounting for the exempt allowances.

For financial year 2007-08, you will get a basic exemption of Rs 1.1 lakh out of the net taxable income. If you get a balance amount after applying the basic exemption limit, you can invest it in any of the tax-saving schemes listed under Section 80C of the Income Tax Act, 1961, to avoid paying tax and filing the return of income.

Coming to your not filing the return of income since your taxable income would be nil, my advice would be that income tax offcer can invoke his discretionary power under section 271F to impose a penalty of Rs 5,000 in the event of your not filing the return of income.

Even otherwise under section 139 you are required  to file the return of income in order to disclose fully your gross total income and the deduction that you claim from the same to arrive at the taxable income even if it is nil.

In your recent write up on Tax on Gifts you have not clarified fully when the basic exemption for gifts from non-relatives which was Rs 25,000 has been now raised to Rs 50,000. Please clarify the latest position since I am planning to receive such gifts amounting to Rs 1 lakh during the current year

-- Inder Chand Adukia, Jaipur

The limit of basic amount free from tax in respect of gifts from non-relatives has undergone a change. For such gifts made between October 1, 2004 to  March 31, 2006, it was Rs 25,000 and those after 1.4.2006 it is Rs 50,000 per year.

While raising the limit from Rs 25,000 in section 56(2)(v) to Rs 50,000 in section 56(2)(vi), a subtle change in the language of the provision has been made by the Taxation Laws (Amendment) Act, 2006 which has the effect of making the entire amount of the gift(s) chargeable to tax once it exceeds Rs 50,000. In other words, there is now   no exemption if the amount of gifts crosses Rs 50,000.

Section 56(2)(v), effective till March 31, 2006, was: "where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004 [but before the 1st day of April, 2006], the whole of such sum" However, the language of new clause in 56(2)(vi) is: "where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006, the whole of the aggregate value of such sum".

The earlier clause had the unintended effect of making all individual separate gifts up to Rs 25,000 (even if the aggregate amount exceeded even Rs 1 lakh) non chargeable to tax. Now, this is not possible.

The writer is a chartered accountant

Kanu Doshi