What are the provisions of Income Tax that have to be considered where a NON RESIDENT is returning permanently to India.
11 Replies
Binod Kumar Sinha
(COMMERCIAL DEPARTMENT)
(141 Points)
Replied 28 September 2009
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Income Tax implications
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For the purposes of levy of tax, the Income-tax Act in India has classified the status of an individual assessee into three viz.,
Resident and ordinarily resident (ROR)
Resident but not ordinarily resident (R but NOR) Non-resident (NR) The residential status of an Individual is determined based on the number of days of stay in India. Financial year (FY) is April to March.
*Not applicable to a resident going outside India for employment, a resident who leaves India as a member of crew of an Indian ship, an Indian citizen or person of Indian origin who is abroad and comes to India for a visit i.e. if such a person stays in India for less than 182 days, he would be a non-resident.
In the case of a ROR, his global income is taxed in India while in case of a Non-resident; only the income earned or received in India is taxed in India.
A returning NRI would generally be assessed as a R but NOR on his return to India. Up to financial year 2002-03, a returning NRI was assessed as a R but NOR on his return to India for nine years i.e. income earned on overseas assets or income accruing outside India (unless it is derived from a business controlled in or a profession set up in India) was not taxed in India for 9 years. However, with effect from financial year 2003-04, this benefit has been curtailed from nine years to two years i.e. income earned on overseas assets or income accruing outside India (unless it is derived from a business controlled in or a profession set up in India) would now be taxable in India from the third year itself. Accordingly, ‘A’ would now pay tax on his world income sooner than he would have hitherto done.
The impact of R but NOR status is that foreign passive incomes likes interest, dividend, royalty etc. would not be taxable in India in respect of a person who is R but NOR. Even share of profit of a partnership firm or any other business income would not be taxable in India, if the business in respect of which such income arises is not controlled from India. In other words, all foreign sourced income of a R but NOR is not normally taxable in India unless it is derived from a business controlled in or a profession set up in India.
Income accruing outside India would be taxed outside India as well in most cases in accordance with the tax laws of the foreign country and the Double Tax Avoidance Agreement (DTAA) signed between India and the foreign country. He would be entitled to seek relief under the relevant DTAA i.e. avail credit for foreign taxes paid against income tax paid in India. However there are certain practical difficulties associated with the availing credit for foreign taxes paid such as a possible difference in accounting year of the foreign country and India.
Immaculate planning of income tax implications in advance i.e. prior to return to India holds paramount significance for NRIs intending to return to India.
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Basic concepts under FEMA
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FEMA stands for Foreign Exchange Management Residential status and nature of transaction i.e. capital account transaction (e.g. purchase/ sale of shares, property) or current account transaction (e.g. remittance of income on shares, property) are the cornerstones of FEMA. The golden rule of FEMA is, “All capital account transactions other than those permitted are prohibited while all current account transactions other than those prohibited are permitted”. Under FEMA, certain types of transactions do not require RBI permission while others either require prior approval of RBI/ Government or it is mandatory to inform RBI of the same. Though transactions of residents in foreign exchange such as investment abroad are being liberalised at a very fast pace, India is still not close to full capital account convertibility though returning Indians enjoy certain concessions in relation to existing overseas assets. Act.
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Residential status under FEMA
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Residential status under FEMA is the basis of applicability of FEMA i.e. transactions of a resident even outside India are covered by FEMA. The determination of residential status under FEMA is substantially different as compared to that under the Income Tax Act. Under the Income Tax act, residential status is determined based only on the number of days of stay in India. Under FEMA, residential status is determined based on primarily the intention of the person.
‘A’ would become a resident for FEMA with effect from the date of arrival in India.
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Overseas Assets
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Foreign currency, foreign security or immoveable property acquired, held or owned by an ‘A’ while he was abroad or inherited from a person who was resident outside India can be continued to be so held and owned even after the A's return to India for permanent settlement.
There is no specific provision on movable assets like jewellery, motorcar and personal household effects. Accordingly ‘A’ may continue to hold/ dispose such movable assets without permission of RBI though to avoid any possibility of litigation; he may inform RBI of the same.
If required, overseas assets can be repatriatedRFC accounts are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India. to India. Proceeds of assets held outside India at the time of return, can be credited to RFC account. The funds in
Reinvestment abroad of sale proceeds of overseas assets is not specifically permitted but the same can be done by means of a RFC account i.e. sale proceeds deposited in RFC account and the same reinvested abroad (in shares or any other asset). Again under FERA, reinvestment was expressly permitted and we are of the view that the beneficial provisions of FERA would continue and permission from RBI would not be required for reinvestment directly i.e. not routed through RFC account.
Under FERA, RBI had granted general permission to returning Indians to maintain and operate foreign currency accounts abroad. FEMA is silent on this issue. Thus, technically a returning NRI would require approval from RBI to maintain bank accounts abroad. However we are of the view that the beneficial provisions of FERA would continue though it is advisable to obtain the approval of RBI in this regard.
Income earned on overseas assets needs to be repatriated to India. Alternatively, it can be credited to RFC account that is free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India.
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Indian Assets
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‘A’ is required to redesignate all his banking accountsRFC account. Interest earned on NRO account till date of return can also be credited to RFC account. as Resident Accounts by informing the banker of change in residential status. FCNR (B)/ NRE Fixed Deposit account may be continued till maturity at the agreed rate of interest till maturity. On maturity, the proceeds of NRE/ FCNR (B) deposits can be converted into
Similarly, one should inform of change in status to companies in which shares/ debentures are held as also to firms in which one is a partner.
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RFC account
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A returning NRI can open a Resident Foreign Currency (RFC) account. Funds in this account are free from all restrictions regarding utilisation in India/ abroad including investment (e.g. immoveable property, shares) in any form outside India. The following funds are eligible for being held in RFC account:
o Transfer from NRE/ FCNR account
o Funds realised on conversion of overseas assets
o Income from overseas assets
o Pension and other benefits from employer abroad
o Foreign exchange brought in India at the time of return to India
However it needs to be appreciated that the funds held in the RFC account offer a low return compared to other investment avenues in India.
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Transfer of Residence
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‘Baggage rules’ notified under the Customs Act lay down the provisions relating to Transfer of Residence (TR). TR rules provide for exemption from/ concession in custom duty to persons returning to India who satisfy all the conditions as below:
o Stay abroad for more than two years (shortfall of upto 2 months condoned in special cases);
o Total stay in India during two preceding years on short visits does not exceed six months (short visits in excess of six months condoned in deserving cases);
o Non-availment of this i.e. TR concession in the preceding three years
TR rules have been liberalised to a great extent now. The following articles (one unit of each for a family) have been exempted from duty
o VCR/ VCD player
o Washing machine
o Cooking range
o Desktop computer
o Laptop computer
o Refrigerator of capacity upto 300 litres.
Duty on 17 other articles (one unit of each for a family) including colour TV, home theatre, music system, air conditioner, camera, fax machine etc. has been reduced from 30% to 15%. Allowance of INR 25,000 is available over and above the benefit enumerated above. Also male and female passengers are allowed to bring jewellery duty free upto INR 10,000 and 20,000 respectively.
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work is worship
(Service)
(2728 Points)
Replied 28 September 2009
Thanks Binod, these informations i also got on the net..
My question is more from Income Tax angle, what all sections we need to consider and see its impact..
CA. Varun Soni
(Chartered Accountant)
(201 Points)
Replied 29 September 2009
Hi Subra....
There is no special provision under Income Tax.
Example: - Suppose a non-resident comes to india permanently on april,09. Fro Income Tax angle he will be a non-resident fr a/y 2009-10. Further he will have to fullfl the conitions under income tax act (182days stay in india) for the financial year 2009-10 to get the status of resident for a/y 2010-11.....
If he fullfils the conditions to get the status of resident then all the provisions of the income tax will be applicable to him a it applicable to a resident.
I would request you to please share the actual details of the case fo which you have asked this query.
Richa Arora CA Final
(article)
(70 Points)
Replied 29 September 2009
Please ans them if anybody know the ans.
Q1) Mr bajaj borrowed Rs 1000000 @ 12% p.a on 1-4-2008 & invested the amount on the same date in purchasing the shares of the following co. –
S ltd (domestic P ltd (Foreign M Co-operative soviety-Invested 300000/- as capital & recd. Dividend 50000/- on 31-03-2009 The balance money was used for personal purposes. Expenses on collection of dividend From P Ltd. 1000/-.Compute taxable dividend for AY 2009-10.
Binod Kumar Sinha
(COMMERCIAL DEPARTMENT)
(141 Points)
Replied 29 September 2009
Ans. of Q2 :
“Family Pension” means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death.
Taxability: "Family Pension" will be taxable under the head, Income from Other Sources.
The asseessee will be allowed a deduction of a sum equal to one-third ( 1/3 rd) of such income or rupees fifteen thousand , whichever is less.
Have a lot to achieve
(C.A. B.Com(H))
(101 Points)
Replied 29 September 2009
Thanks for giving such info
Gaurang Desai
(CA FINAL & CS Inter Student)
(123 Points)
Replied 29 September 2009
| Originally posted by :Richa Arora | ||
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Please ans them if anybody know the ans.
any dividend recd from indian comany or from any other enity is fully exempt ,hence the source is exempt then not single single exps allowed on it, however dividend recd from foreign co. is subject to tax & any exps incurred on it is fully allowable |
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(Guest)
| Originally posted by :Richa Arora | ||
| " | Please ans them if anybody know the ans. Q1) Mr bajaj borrowed Rs 1000000 @ 12% p.a on 1-4-2008 & invested the amount on the same date in purchasing the shares of the following co. – S ltd (domestic Co.)- 3000 shares @ 80/- each (face value-10/-).Co. declared dividend on 31-03-2009 @ 20% P ltd (Foreign Co.)- 5000 shares @ 20/- each (face value-10/-).Co. declared dividend on 31-03-2009 @ 20% M Co-operative soviety-Invested 300000/- as capital & recd. Dividend 50000/- on 31-03-2009 The balance money was used for personal purposes. Expenses on collection of dividend From P Ltd. 1000/-.Compute taxable dividend for AY 2009-10. Q2)Mr X died on 1 oct 2005 while being in Central Govt. services. In terms of rules governing his service, his wife is paid a family pension of 10000/- pm & D.A of 40% thereof.State whether the amount of family pension ia assessable in her hands, & if so, under what head of income. Can she claim any relief/decuction on such receipt? Compute taxable income for AY 2009-10. |
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Ans to ques1
Look dividend recd from domestic co is not taxable since Corporate Dividend Tax is already paid on it. However div income from Foreign co and coop society is taxable. So total taxable dividend is 59000 (50000*20% + 50000-1000). Expenses incurred in receiving div from Pltd will be allowed as deduction u/s 57.
rajeev kumar, bcom ca-final
(study)
(196 Points)
Replied 29 September 2009
can any body tel me about perquites in salarie employee
moto car facility
salam
(Article Assistant)
(39 Points)
Replied 19 July 2011
| Originally posted by : work is worship | ||
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What are the provisions of Income Tax that have to be considered where a NON RESIDENT is returning permanently to India. |
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shares of company purchased 20 years back sold during financial year 2010-11 what will be the tax implication ?can u help me any one
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