ATM :: The NR Eye: NRIs should be aware of tax implications

by Moiz Mannan | December 14, 2014 – 1:33:12 am | The Peninsula, Qatar


The continuing growth in financial investments of non-resident Indians (NRIs) in their home country shows not just the kind of faith they have in the Indian economy, but also that they are wise enough to keep all options open.

While it is prudent to save and invest a part of the foreign earnings in India, the NRIs also need to understand taxes so that they can make the most of their money. Those who have recently moved out of India need to be aware of the tax implications.

The income earned by NRIs abroad is not subject to tax in India, but they are liable to pay tax for any income that is earned or accrued in India. If any income from business transactions and also income generated from assets and investments in India crosses the basic exemption limit of Rs.200,000 they are required to file their returns. Unfortunately, the higher exemption limit for women and senior citizens who are resident do not apply to non-residents in these two categories.

Now, how and where can they possibly earn Rs.200,000 or more in India? Recent data show that the end of March 2014, NRI deposits in India were estimated at $104bn. Between June 2013 and June 2014, the NRI deposits in commercial banks in Kerala alone shot up by 24 percent.

Other than interest on deposits, the NRIs have also been buying commercial and housing property for the sake of investment. The rental income from property in India adds to their taxable income here. In this area too there is an apparent discrimination against NRIs. The rental income earned in India by non resident Indians are subject to tax withholding at the rate of 30 percent as opposed to 10 percent for resident Indians.

In case an NRI has only one property in India and it is vacant, a rental value cannot be attributed to the same. However, if he owns two properties and both are vacant, he has to pay income tax on one of the properties as if the same was rented. In case of more than one property, the NRI would also have to pay wealth tax at the rate of one per cent on the value if it is in excess of Rs.1.5 m.

Similarly, there is the issue of taxation on capital gains for those NRIs who have been booking profits from equity investments.

Thus, even middle income NRIs who have invested wisely and are enjoying recurring income rather than notional long term gains, face the prospect of being taxed. In such cases, income tax returns have to be filed if the income exceeds the taxable limit, or to claim refund if the tax deducted at source is more than the tax payable, or to claim the amount set off against capital losses.

The Indian authorities have been trying to make taxation simpler for NRIs. Already, interest earned by an NRI on the balance in an NRE account is exempt from income tax. The Income Tax Department last year lowered the limit to mandatorily e-file tax returns from Rs.1m to Rs.500,000.

In certain cases where investments are made in specified assets such as savings certificates, capital gains on transfer of foreign exchange assets is not charged. Incomes of NRIs are exempt from income tax interest on various specified securities or bonds.

NRIs who pay health insurance premium in India for dependents can claim a deduction under section 80D. Deductions under section 80G are also available to NRIs donating to an approved charitable institution.

Some short and long term capital gains from sale of investments or assets are taxed in the case of NRIs even if the total income is below the basic exemption limit. These include short term capital gains on equity shares and equity mutual funds where tax rate is 15 percent and long term capital gains on securities and assets where tax rate is either 20 percent or 10 percent without indexation.

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