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How tax liability goes up for NRIs above 65
Arnav Pandya in Mumbai | January 14, 2008 12:19 IST
Sanjeev Singh, 70, has been staying with his children abroad for the last few years. In fact last year, he spent almost 10 months with his sons based in the US and UK. As a result, he became a non-resident Indian for tax purposes in India. Recently, when he visited India to file his tax returns, he was surprised to find that his tax liability had gone up Rs 12,000. More interesting was the fact that, while his income had remained similar, the tax amount had risen from zero to Rs 12,000.
Surprised with this new development, he decided to approach a chartered accountant for an explanation. Fresh calculations revealed that the numbers were correct. The key point in the entire process was that the senior citizen benefit was not available for Singh, even though he was above the required 65 years of age.
According to the Income Tax Act, there are two main benefits available for senior citizens. First, a higher exemption limit of Rs 1,95,000 for someone who has crossed 65 years. Also, there is a higher deduction of Rs 20,000 available for payment of premium for a medical or a health insurance policy.
But both these apply to resident Indians only. There are some who become non-resident for a small time period and many consider this it to be beneficial from the tax angle. This is because a person who is a resident is taxed on their entire world income according to Indian laws.
However, a non-resident's gets the advantage of being taxed, only if they have a source of income in India.
In case of people like Singh, when he becomes a non-resident, the above part of the condition is not fulfilled and due to this, benefits accruing to senior citizens are denied to him. For instance, if the final taxable income of Singh is Rs 1,90,000, then he will get the basic exemption limit of Rs 1,10,000 applicable to any normal citizen. But beyond that, he will not get any tax benefits. This would mean that he would have to pay a tax of Rs 12,000 plus surcharge on the rest Rs 80,000.
This is in contrast with a resident's liability of zero because Rs 1,90,000 is lesser than 1.95 basic exemption limit for senior citizens. Also, senior citizens are allowed a higher benefit of Rs 20,000 on their medical insurance premiums.
But once they become non-resident Indians, they will get a basic benefit of only Rs 15,000 that is available for young citizens. In other words, the taxation structure is not favourable for non-resident senior citizens.
The writer is a certified financial planner