Our
commitment:
Our team of experts can deliver quality advisory services on various
sectors like, NRI property taxation,
capital gains tax, withholding taxation issues, individual
and company income tax filing. We also provide consultancy
services & insight to expats living in India.
Some Insight on Indian
taxation rules:
The basis of the Indian tax structure is laid down in the
constitution of India. According to article 265 of the
constitution, a tax can be levied by the authority of the
law. For this reason, an appropriate state or union law
has to be passed before any relevant tax can be collected.
The framework of the Indian taxation rules was created on
the basis of article 246 and the famous Income Tax Act of
1961. Since 2005, these rules have been simplified to a
large extent and the tax structure has become easier to
comprehend. This has increased collection and the
transparency of the entire system.
The basic taxation structure is as follows:
- Since the country follows a quasi-federal structure of
governance, certain powers are exclusively in the hands of
the central government as defined by the union list. The
state list defines the subject which is under the control
of the state. If any tax is to be imposed or modified on
the subjects on union list, the central government has to
pass a law. Same is required of the state government for
state list. No taxes are imposed on the items of
concurrent list which is jointly administered by the
center and the state.
- Union government can impose thirteen different taxes at
present. These include income tax, excise and custom
duties, corporation tax, estate duty, stamp duties,
terminal tax etc.
- State government has the authority to impose nineteen
different taxes including land revenue, tax on
agriculture, tolls, taxes on consumption and sale of
electricity, capitation tax, stamp duty etc.
- One of the important organizations in the Indian tax
structure is the Central Board of Direct Taxes. It is a
statutory body constituted under the Department of
Revenue, Ministry of Finance in 1924. It administers the
direct taxes in the country. In 1964, the Central Board of
Excise and Customs was separated from this body.
- The direct taxes in India include the income tax,
capital gains tax, fringe benefit tax, securities
transaction tax etc while the indirect taxes include
excise and custom duties and service tax.
- The Income Tax Act of 1961 is the milestone law in the
Indian taxation system. It levies income tax on incomes
accrued through either of five different channels like
income from salaries, business, houses or property,
capital gains and from other sources. The rate is decided
by the parliament in the annual budget.
- There are special provisions for taxation of NRIs and
foreign companies in India. In general, taxes are charged
only on income earned in India alone.
Major reforms in the tax structure after 1991.
1991 marked the era of liberalization and its effects were
also felt on the tax structure of the country. Some major
changes are:
- The Tax Reform Committee created a system where rate of
income tax varied according to different income groups.
Annual earnings below Rs. 50,000 were exempted. This
exemption limit has now been raised to Rs. 2, 00,000.
- The agricultural income of non farmers above Rs. 25,000
was made tax liable at par with income tax.
- Corporate income tax was drastically reduced in order to
woo foreign investment.
- A few new taxes were introduced. For example, in 1994,
union service tax was imposed on telephone, general
insurance and stock brokerage.
- Since 1999, uniform rate of sales tax was adopted in the
entire country, though it is a matter of state
jurisdiction. It was gradually phased out in favor of
value added tax which was uniformly implemented by all the
states since December 2005.
|
|
Other important
NRI, PIO & OCI related TAX faqs: |
|
|
I
am a non-resident Indian
getting interest on my
NRE Account - Is the interest taxable? |
|
NO. The interest you earn is
not taxable. |
| |
|
How can I legally repatriate
the total proceeds of the sale of my
property? |
|
You can only repatriate the
money and profits (capital gains)
accounted for (white value). You cannot repatriate the
money that cannot be accounted for (non-white value).
|
| |
|
The capital gain tax is same irrespective of whether I sell my
long-term and short-term capital asset. Is this true? |
|
No. This is untrue. The
capital gain you would receive by selling your short-term
capital asset would be taxed as a normal income, while
that against your long-term capital asset, with
indexation, would be taxed at 20%. |
| |
|
As a NRI due to acquire citizenship of a foreign land, I am
worried about the property I am going to inherit. Is it wrong
to keep inherited land as an OCI? |
|
It is not wrong to
keep/maintain inherited land as an OCI. This is mainly
because you, as an OCI, have added privileges compared to
a PIO. However, if you decide to sell your property, you
can do so only to a Resident Indian, and not a
non-resident (NRI, PIO or OCI). |
| |
|
I have a NRI PAN
and all my earnings are from abroad. Do I have to pay tax for
the same? |
|
No. Your income is taxable
ONLY if your income is generated from within the Indian
Territory. Just because you have a PAN does not mean you
have to pay tax. |
| |
|
Some of my
friends/relatives have told me that I need to declare my
savings in my NRE Account and also pay tax for the same. Is
this true? |
|
If you are a non-resident for
five or more years, you do not have to pay any tax against
your NRE Account. Also tax is collected only on interest,
not capital. |
| |
|
My office/company
is sending me abroad. What happens to my savings back here?
Can I continue with the same account? And if yes, then do I
have to pay tax? |
|
You need to inform your bank
of your NRI status so that your savings bank account can
be converted to a NRO Account. You may use this the same
way you were before acquiring your NRI status. If you are
a shareholder with/in any company, you need to inform them
also about your NRI status. However, if you already have a
DMAT account, it is not needed. But your Depository
participant (DP) HAS to be informed. You will file your
tax returns as a NRI, but not if your income is less than
the minimum taxable income in India. But, we advise you to
pay tax to maintain continuity irrespective of your
income. Also, if you had any investments or held any asset
prior to your becoming a NRI, you may handle them as you
did prior, the only difference being that your original
amount will become non-repatriable. We recommend that you
open a NRE Account as long as you are a NRI as the
interest you would receive in this account is tax-free. |
| |
|
Suppose I buy a property in India from my savings from
abroad. Can I sell it anytime or is there a lock in
period? What are the repatriation rules? |
|
You can sell you property
anytime you want as per the repatriation rules. Since the
mid year review of the economic policy by the RBI, the
lock in period has been lifted. |
| |
|
What is the rule
of repatriation if I take loan from an Indian Bank to buy
property in India? |
|
Repatriation is possible IF
you pay off the loan instalments through your NRE Account
or by transferring funds from abroad. |
| |
|
As a citizen abroad, say from USA
can I acquire property in India? If yes, then will I be
taxed in both India and my resident country? Also, will I
be taxed on my income from abroad upon my arrival in
India? |
|
As a PIO, you can acquire
property, except agricultural land, in India. If your
resident country is one with whom India has signed the
DTAA, then you will not be taxed in both the countries.
Also, upon your arrival you will be a RNOR, and will
remain one for two years, implying that your income from
abroad will not be taxed. After this period, your global
income will be taxable. |
|
|
|
I live out of
India and have an account in India for carrying out
transactions in the secondary market in India. Do I have to
pay tax when I redeem/sell my shares? |
|
Firstly, equity based Mutual
Funds (MF) is governed variedly from debt based MF. While
the dividend is tax-free in both cases, in case of debt
based MF, you have to pay a dividend distribution tax to
the exchequer at 14.025%. This is not the case with equity
based MF. The latter is also exempt from long-term capital
gains tax while the short-term capital gains are taxed at
10.2%. |
|
|
|
I plan to return to India. After my return:
a) how long will I be considered a non-resident or RNOR; b)
for what time period will my income from investments not be
taxed; c) what are the tax-free/safe investments in India? |
|
If you
have stayed in India for 182 days in the relevant
financial year, you will become a Resident Indian. Please
note that you cannot become a Resident Indian directly if
you are a NRI. If, as a NRI, you are returning to India
after nine or more years, you will first become a RNOR and
only then will become a Resident Indian. As a RNOR your
income is not taxable. Only after you have acquired a
Resident Indian status, will your global income be
taxable. Public Provident Fund (PPF) is the only safe
investment available in India as of today. There are many
tax-free investments but they are all subject to market
risks. |
|
|
|
I
lived in Canada before and currently living in
Australia for five years now and have a NRE
Account with an Indian Bank. If I become a citizen of this
country, do I have to close my NRE Account and open a fresh
one, or can I operate the same from here? |
|
As a PIO, you can operate
your account from anywhere. There is no need to open a
fresh account. |
|
|
|
As a resident abroad do I have to inform my
Bank (in which I have my NRE Account) if I buy commercial
property in India? |
|
It is not
necessary to inform your bank yet we would recommend that
you do the same. |
|
|
|
I am working as
an executive, on a work permit, in UAE since 2005. I have a
normal savings account in India and am wiring my money to my
family back to India. Do I need to pay tax on money I am
earning here, and if not then how do I show my money on Form
16 so as to make it tax-free? Is there any documentary proof
required for showing my source of income? Can I save tax by
opening a NRI Account as I am going to be here for another
year? |
|
Let us put first things
first. Having a normal/conventional savings account in
India, when you are a NRI, is ILLEGAL. You HAVE to inform
your bank about your NRI status the moment you become one
for the bank to re-designate your account as a NRO
Account. Capital transfer is NOT liable to tax. If your
income is money generated from outside the Indian
Territory, the question of paying tax in India does not
arise as the I-T Department can only tax you on money
received/generated from within the Indian Territory. But
your global income is taxable, irrespective of its place
of generation. You may open a NRE Account for maintaining
tax-free interest. |
|
|
|
I have a NRO
FD. What is the TDS that will be deducted off it? |
|
TDS is chargeable at 30.6%. |
|
|
|
Is it true that the interest amassed in a
NRE Savings Deposit is tax-free and repatriable as long as I
am a NRI? |
|
Yes this
is correct. |
|
|
|
I have invested
in MF by giving a cheque from my NRE Account. Is my gains
taxable? |
|
Please note that the gains
are always taxable. Only long-term gains from equity based
MF are tax-free. |
|
|
|
Is it compulsory
to have PAN if I want to invest in Indian MF? |
|
Yes, it is a must to have
PAN, along with recently introduced Mutual Fund
Identification Number (MIN), if you wish to invest in
Indian MF. |
|
|
|
Are the gains from trading MF repatriable? Also, can the gains
be transferred to my bank account for tax credit? |
|
Yes, gains from MF are
repatriable after taxes have been paid, if any. These
gains can be accredited to your NRE Account after the
relevant taxes have been paid. |
|
|
|
---------------------------------------------------------
Got
more questions? email us:
info@nriinvestindia.com
--------------------------------------------------------- |
| |
