Each family in India has at least one family which is resident outside India. Previously, the number of transactions between a resident and non-resident were limited but with growing number of family members now settling outside India, there is a tremendous increase in inflow and outflow of money between the two. This has made the tax department savvier and it has been increasingly important for both, resident as well as non-resident, to stay updated with fundamental rules and regulations. The article below discusses the basic aspects considering the nature of transaction that frequently takes place between a resident and a non-resident.
If your income is above basic exemption limit of Rs 2,50,000 then filing of return is mandatory. In certain exceptions, like income due to short-term capital gains from certain investments, return is to be filed even though such income is below the exemption limit.
Every buyer and not just non-resident Indians, have to deduct tax @ 1% where purchase price is Rs 50,00,000 and above. More importantly, such tax deducted has to be deposited within 30 days from the end of the month in which it was deducted. If no PAN is available, the applicable rate is 20%. There are other procedural formalities which are related to it and need to be strictly adhered to. Please note the onus of deducting such tax is on the buyer and it will be the buyer who will be in trouble for failure to deduct TDS.
If the property is more than 2 years old, long term capital gains tax will be incurred @ 20%. And if it is sell within 2 years then short term gain will arise and tax at normal slab rates. This tax can be minimised by making alternative investments in India. When an NRI sells property, the buyer is liable to deduct TDS @ 20%. In case the property has been sold before 2 years a TDS of 30% shall be applicable.
NRI’s are permitted to receive gifts or donations from their “relatives” (list of relatives as expressly specified by law) without any requirement of approval or reporting in India. There is however a limit of US$ 2,50,000 that is applicable to the donor. Rupee gifts should be credited directly to NRO account. One should understand that there are no implications of making a gift in India, neither for the donor nor for the recipient. But as far as the jurisdiction of non-resident is concerned, there could be domestic tax implications. For instance, in United States of America, where gifts received are more than US$ 1,00,000, then the recipient in USA has to file Form 3520 declaring the same. To be on a safer side, it is always advisable to consult a chartered accountant who has knowledge of world-wide taxation.
The maximum limit prescribed for making loans is US $ 2,50,000 per individual. This limit is to be combined when ascertaining the amount of gifts made, loans proposed to be given and monies sent abroad for other purposes. The loan mandatorily has to be interest free with a minimum maturity of 1 year.
A person residing in India can receive money gifts from their non resident Indian family members. It should be noted that the non-resident person making the gift may face tax consequences in his local jurisdiction.
The maximum amount that can be received by an individual resident from his NRI relatives is US$ 2,50,000. The minimum maturity of the said loan shall be 1 year and it should be interest free. If the non-resident is willing to lent monies on a non-repatriable basis, then there are separate conditions that need to be met.
An Indian company has to comply with ECB norms before raising monies from non-resident Indians, irrespective of the amount involved. Unlike question no. 7 above, where the lender and the recipient both are individuals and therefore no permission is required, in a case where the recipient is a Company, it is a fully regulated process involving various authorities and a lengthy process. Even if the monies raised are in form of equity, there are certain mandatory reporting requirements to be met.
There has been a conscious attempt to answer the questions in the simplest manner. Certain tax intricacies are beyond the scope of this article and therefore it is always advisable to consult your tax professional to ensure your actions are fully compliant.
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Republished with Amendments
1. This is a grey area. Look at it the other way round to then circle back to your point. Example – a NRI who made a FD for 3 years when he was residing overseas moves back to India just 4 months before the FD had to mature. In this case, I.T. authorities will always make the argument that the assessee was a resident at the time of maturity. The assessee generally makes the counter argument that when the FD was first made, he didn’t expect he will turn out to be a resident and the act was bona fide that of a resident.
Conclusion that generally comes is on the following principles:
a. How long was the assessee a resident vis-a-vis a non-resident during the tenure of the FD?
b. In the relevant previous year, what is his status?
c. Can the liability be divided into that of a resident and a non-resident?
d. As a thumb rule, authorities generally don’t bother assessees where the FD is maturing within 1 year of arrival in India and being converted into a resident. However, beyond that, the assessees generally end up paying tax on interest proportionate to the tenure as non-resident to the total tenure
2. Tax liability of NRI rupee accounts in India is Nil, absolutely NIL. Two kinds of incomes could be lying in NRI rupee account, one is from what was transferred by your overseas income to your NRE or NRO account and the other is monies lying in your ordinary account in India to your NRE or NRO account on becoming a non-resident. Therefore, while returning back to India, both these incomes (balances lying in account) have no further treatment except that as per RBI guidelines (which people don’t realize unless they are scrutinized) you are required to transfer balances from your NRO & NRE account to an ordinary account. Alternatively, you can request the bank and they will change the status of your account with a mouse-click, although this is going to require some sort of formalities with regards to submission of documents.
3. With regards to your last question, please elaborate.
Effort is appreciated but writing is incomplete as far as the topic is concerned.
I will be glad if the writer adds information on the following:
1. What about the tax liability of Resident accounts (SB or FD) in India of the person turned as NRI
2. What about the tax liability of NRI rupee accounts in India
3. The applicability of section 80, 24-B available to NRIs?