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The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

Readers' Note: Please keep your questions short.

I have been in the US from July 15, 1999 and am getting paid by the US company. I have been paying tax as a non immigrant worker. I also get a salary in India from the sister company. Since I enjoy the status of an NRI, but what will be my tax implications?

I will have to file my returns in India but how do I show my US savings which I deposit in my account in India? What proof do I need to submit to show that the money I had in my bank account in India (not an NRI account) is from my US savings and is not taxable?

— AVJ Raju

You satisfy the condition of being an NRI as you are not resident in India for 182 days or more. With specific regard to the money being received by you in the US, section 9(1)(ii) of the Income Tax Act, 1961 specifies that income chargeable to tax under the head "Salaries" is deemed to accrue or arise in India if it is earned in India. In your case, if, the salary in the US is received by virtue of a contract of employment with an entity based in the US, it is deemed to have been earned outside India and is hence not taxable. The salary received by you in India, however, is taxable in India.

While submitting your return for income taxable in India, you would need to prove the source of the remittance from US only if the assessing officer requires so. In that case as the remittance made by you from the US would be in dollars, it would be easy for you to prove the nature of remittance.

It would be worthy to note that interest earned on dollars remitted into your savings account in India would be subject to tax which is not the case with remittance into NRE account.

I am an NRI working in the US. A relative of mine is in need of Rs 1 lakh for buying a car. He will be returning the loan within three months. I am planning pay him through my NRI account. My questions are:

1. What is the best mode of payment to this person (cheque/cash/DD)?
2. Are there any RBI restrictions/requirements?
3. Does the receiving person need to complete any formalities?
4. What if my father, who is resident Indian, pays him on my behalf?

— Venugopal Puttaparti

The first three questions do not pertain to personal taxation and hence they have not been answered. However, if you give an interest-free loan, there will not be any tax implications if the loan is given for a specified period. The amount involved is not material, if it is to a relative and/or for some justifiable reason.

I have got employee stock options of a company with overseas offices. The company is listed on the BSE. I am an NRI currently residing in US. I want to exercise the options by borrowing money from a broker, sell the shares immediately, repay the broker, and repatriate the proceeds to the US. Would I be taxed in India? What percentage would it be? Would I be taxed in the US? What percentage would it be? If I exercise and wait for a year and then sell, what would be the tax payable in India and the US?

— RM SM

From the details provided by you we assume that you are an employee of the Indian company and have been sent abroad on deputation. This would mean that your salary whether received in India or abroad would be taxed in India as income earned in India.

With these presumptions your query has been answered as follows.

When an employee exercises employee stock options, the difference between the market value of the share and the cost at which it is offered to the employee will be charged to tax as perquisite under the head salary income.

When an asset is sold, it is charged to tax under the head capital gains (short term or long term capital gain).

Short term capital gain arises on sale of asset held for less than 36 month prior to the date of transfer (12 months in case of shares or debentures of Indian companies). Short term capital gain is taxable at marginal rate of tax.

Long term capital gains are chargeable to tax at the rate specified under Section 112 of the Income Tax Act, 1961, which is 20 per cent for the current Assessment Year.

Your query on the tax implication/percentage in the US has not been answered as we cater to tax queries pertaining to Indian personal taxation.

I am a software professional and have returned from the US five months ago. I still hold some FCNR deposits. After coming back to India, I have also converted some of my FCNR deposits to RFC deposits. How long can I enjoy tax free interest on my FCNR and RFC deposits? Till what time can I carry my NRI status? I had been in US for 17 months from April 1998 to Aug 1999.

— Nitin Lokegaonkar

When a non resident Indian returns to India, his FCNR/NRE account is to be re-designated as an RFC account at the option of the account holder. The interest earned on these accounts during the Resident but Not Ordinarily Resident (RNOR) Status and Resident and Ordinarily Resident (ROR) status is specified hereunder.

Interest on NRNR/NRE/FCNR deposit with banks is exempt upto maturity of deposit when the status is RNOR and taxable as normal resident with an option for flat rate at 20 per cent upto maturity when the status is resident.

RFC account (NRE/FCNR account converted) is exempt even on deposits renewed during the above status when the status is RNOR and taxable as normal resident when the status is resident.

The residential status of an assessee has been clarified below:
According to section 6 of The Income Tax Act 1961, an individual shall be treated as resident in India if he fulfils any one of the following conditions:
1) He is in India in that year for a period of 182 days or more;
2) He is in India for a period of 60 days or more during the previous year and 365 days or more during the four years preceding that year.

Additional conditions to test when a resident individual is ordinarily resident in India

A resident individual is treated as "resident and ordinarily resident" in India if he satisfies the following two additional conditions:
a) He has been resident in India in at least nine out of ten previous years (according to the basic conditions mentioned above) immediately preceding the relevant previous year; and
b) He has been in India for a period of 730 days or more during seven years immediately preceding the relevant previous year.

In brief, it can be said that an individual becomes resident and ordinarily resident in India if he satisfies at least one of the basic conditions and the two additional conditions (ie (a) and (b) above).

I have been an NRI for seven years and am returning to India finally in the month of February. Do I have to pay tax on the interest earned from my NRNR deposits for the months of February and March as I would be considered an NRI for assessment year 1999-2000?

— Suman

From the information provided by you, as you would be returning to India only in February 2000, your stay in India would be below 182 days. Hence for the financial year 1999-2000 (ie Assessment year 2000-2001) you would be considered an NRI. The interest paid on deposits made in foreign currency by a scheduled bank, where such deposit is permitted to be accepted by the RBI, is exempt from taxation.

I have come to the US since April 1999. Till that time I was a resident Indian earning in India, but I was not able to file my Income Tax return for last year. Being a salaried employee, the tax was deducted at source. Do I need to file the returns? What are my options?

— Ananth

According to section 139 (1) of The Income Tax Act, 1961, a salaried individual has to file his returns on or before June 30 of the relevant assessment year. If any person has not filed his return of income within that period, he can file a belated return under section 139 (4), at any time before one year from the end of the assessment year or before the assessment is completed, whichever is earlier. If you are not filing the return or belated return within the time allowed you will be treated as an assessee in default, irrespective of the fact that TDS is deducted from your salary.

I am in the US for the last two years. I want to send money to my parents in India. Will my parents have to pay tax on that money? Can I open an NRI account India and give power of attorney to my parents so that they can operate that account?

— Ajay Pathak

From the details provided by you, it seems that you are an NRI and your earnings are for services rendered outside India. Hence such amount is not taxable in India at the time of remittance into India. If the amount is given as a gift to your parents, then the income earned out of investments made from such gifted sum is taxable in the hands of your parents. However, you can alternatively open an NRE account in India and grant power of attorney to your parents for operating the account (restricted to withdrawals for local payments). Also, the interest earned on NRE account deposit is exempt from tax.

I have NRI accounts in SBI where the interest as well as principal is maintained in US dollars. I intend to return to India for good in year 2002. When my status changes to resident from NRI, does the interest on these accounts become taxable? Do I have to pay any tax on the interest earned at maturity? Can I still keep re-investing the money that I have in these accounts in future, even after changing to resident status?

— Nitin Kumar

On your permanent return to India, you have to re-designate your NRE account into either normal bank accounts or into a Resident Foreign Currency (RFC) account within the time limits specified under FERA.

Interest earned on deposit in NRE account is exempt from tax upto maturity of the deposit during the status of Resident but not ordinarily resident but during Resident status, it is taxable as normal resident with an option for flat rate at 20 per cent upto maturity.

Re-investing the money into these accounts is not applicable after you become a resident Indian.

I am an NRI since 1991 but before that I was paying tax in India and the annual taxes were deducted from my salary by my previous employer. I paid tax until December 1990. Since the financial year was ending in March 1991, do I have to file a return for that year (I have not done it so far)?

— R Balachandran

According to section 139 (1) of The Income Tax Act 1961, a salaried individual has to file his return of income on or before June 30 of therelevant assessment year. If any person has not filed his return of income within that period, he can file a belated return under section 139 (4), at any time before one year from the end of the assessment year or before the assessment is completed, whichever is earlier.

The time limit for filing return for the year 1990-91 has expired and you cannot possibly file the return for that year.

Earlier:

"Will my father be taxed if he buys a house from the money that I gift him?"
"Do I need to apply for a PAN account in India when I return?"
"Is the money that I saved on a business trip to the US taxable in India?"
"What are the tax implications for an NRI selling shares of Indian companies?"
"If an NRI gifts Rs 1 lakh to a relative from his NRO account in India does he have to pay any Gift Tax? (The NRO account is funded from abroad in US dollars.)"
"Do I need an income tax clearance certificate if i go abroad for a two-year contract?"
"Will my father be taxed if I send him money to buy a flat in my name?"
"What is the difference between personal taxation of an NRI and of a resident but not ordinarily resident?"
"We are software engineers investing in the form of NRNR deposits, FCNR deposits, etc. How will we be taxed?"
'I am an NRI getting salary from a US firm. Can I invest in Indian securities? What are the tax implications?'

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