NRI Tax Info

A N Shanbhag, the highly respected investment guru, and his son Sandeep, answer your questions on NRI investment.

A Rediff India Abroad feature:

My brother is working in New York on an H-1B visa for the last eight years. His status here in India is Non-Resident Indian. His funds in the United States hardly earn 2 to 3 percent. He files his tax returns in the US. Please suggest how to invest his dollars in India.

-- Jatin Shah

Subject to the local laws of the NRI, he or she is free to invest funds in equity, mutual funds, property and insurance related products in India. Moreover, if the funds are remitted to India, full repatriability is maintained.

The interest rates in India are currently in the region of 10-11 percent p.a. Ideally, your brother should invest in a mix of mutual funds and fixed income securities.

My daughter is a green card holder in the US. In India she was employed with the state government and went to the US in February 2006. Currently, she is not working. In India she had invested in bank FDs, Post office MIS, PPF and NSC.

Total earning from the above is less than the exempted limit of Rs 150,000. As per the bank's advice, she had submitted 15G form and tax was not deducted from April 1, 2007 to March 31, 2008 on the above investments. She has also not converted her accounts to Non-Resident Ordinary accounts.

1. Is it necessary to change the present bank accounts to NRO accounts?

2. Is it possible to change to NRO accounts from back date?

3. Is it necessary to deposit 30 percent of income earned through above investments during the year 2007-2008 now as income tax and then claim this amount from IT department by filing ITR.

-- Kanhaiya Lal

Yes, it is necessary to redesignate all her resident savings accounts to NRO. An NRI cannot have and operate resident accounts. It is not possible to do so retrospectively.

If her total income is less than Rs 150,000, then no tax is due from her and hence there is no requirement of filing a tax return.

I work on a ship. My employers have their head office in Hong Kong. I earn my wages working on ships which have a foreign flag and are not registered in India. In this financial year, I have worked for two months and, due to certain reasons, will only be able to resume work in January. This means that my stay in India will be for a total of about seven months in this financial year. Since I will be considered to be a Resident, will my earnings be taxable even though my employers are not based in India and I have earned my wages while being out of India?

-- Sharukh Cama

Tax is determined based on your residential status and not that of your employer's. Secondly, for a Resident Indian, global income is taxable. Therefore, since you have been in India for over 182 days this year, your total income including that earned while being out of India will be taxable in India.

I am an NRI for the last 12 years and have a Non-Resident External savings and NRO savings and fixed deposit accounts. I have a valid PAN Card too. I have no income from India except interest earned on my NRO fixed deposits. This year I was slightly late in filing my tax return. I understand that the last date was July 31. However, I have been advised that even now I can file the return under 'Belated Return' facility. Is this true?

Also, while going through the return form, I was not able to understand the requirement of Item 24 in the form. This item is described as 'Other Information (transactions reported through Annual Information Return) (Please see instruction number-9(ii) for code).' Could you elaborate on this also please?

-- Sundar

In India, the financial year runs from April to March and tax return for income earned during this period has to be filed by July 31. If you haven't been able to do so, you may still file your tax return till the next March 31. This will be known as a belated return.

If any tax was payable originally, you would need to pay such tax and interest thereon @1% per month till the date that you finally pay the tax.

Regarding your other question, under section 285BA of the Income Tax Act, read with Rule 114E, the transactions of all persons, including NRIs, undertaking any one of the following seven specified financial transactions, equal to or over specified financial limits, are required to be reported to the IT department through Annual Information Return (AIR):

1. Cash deposits in a year in any bank SB account are of or more than Rs 10 lakh (Rs 1 million).

2. Payments in a year credit card are of or more than Rs 2 lakh (Rs 200,000).

3. Purchase of units of mutual funds of or more than Rs 2 lakh.

4. Acquisition of bonds or debentures of or more than Rs 5 lakh (Rs 500,000).

5. Purchase of shares of or more than Rs 1 lakh (Rs 100,000).

6. Purchase or sale of immovable property of or more than Rs 30 lakh (Rs 3 million).

7. Purchase of RBI bonds of or more than Rs 5 lakh.

If you do not have any of such transactions, you may write 'nil' in the space provided.

I am a marine engineer (Merchant Navy) having permanent residence in Kolkata. What will be my tax status and tax treatment? Will I be a NRI even though I sail for less than six months an year? Can I hold a normal savings account along with NRE account in India? Can I invest directly into the market as a resident individual?

-- Saurav Agarwal

If any person spends 182 days or more in India, he would get the status of Resident as per the Income Tax Act. Therefore, if you sail for less than 6 months and thereby end up staying in India for 182 days or more, you would not be termed as NRI but a Resident.

One can either be a Resident or an NRI. Accordingly, one can either have a Resident savings account or an NRE / NRO account. As a resident individual, you can directly invest in the stock market. An NRI to do the same would require the PINS permission.

 

 

Thanks

Sankar Chinnathambi

Senior Manager - Oracle Applications

Herbalife International of America Inc.

Phone: 310-410-9600 Ext. 22359