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

A Rediff India Abroad feature:

Please clarify whether an NRI, who has a PINS account with one bank / institution, can have yet another PINS account with, say, Kotak Securities.

--- A R Malhotra

PINS -- or Portfolio Investment Scheme -- is the permission that a Non-Resident Indian requires to trade in the Indian stock market. Normally, the bank obtains this for you. An NRI can have only one PINS account current at one time. So such a person will not be eligible to have a PINS account with Kotak (or any other such entity) if he or she already has one with another bank.

I have taken a home loan from reputed bank and I have approximately Rs 500,000 income from rent in my Non-Resident Ordinary (NRO) account. Please let me know if I am eligible for any tax benefits against my home loan. I will appreciate your advice for reducing my taxes. Let me know tax filling process too.

--- Nihal

Since the house is rented out, the entire interest payable without any ceiling is deductible from the rent received. Additional deduction under section 80C of the Income Tax Act, within the overall limit of Rs. 100,000 for the repayment made of the principal amount is available. This deduction is available only on loans for acquiring or constructing a housing property but not for any addition, alteration, renovation or repair.

It is necessary for the assessee to obtain a certificate from the lender that such interest was payable in respect of the amount advanced for acquisition or construction of the house, or as refinance of the principle amount outstanding under an earlier loan taken for such purpose.

Computation of tax on house rent is a complicated matter. It is better to employ an accountant to file the tax returns if you have rental income.

Tax is payable on rental income may not be the actual rent charged. It depends upon several factors like i) Municipal Ratable Valuation and the place where the property is located such Delhi, Chennai, Mumbai, Kolkata, etc.; ii) Fair Rent  assessed on the basis of rents fetched by similar properties in the neighborhood; iii)  Standard Rent applicable to those cities under the Rent Control Acts of respective states; iv) Actual Rent; and v) Unrealized  and irrecoverable rent.

You would get first a deduction from the lease rental of municipal taxes paid and thereafter a standard deduction of 30 percent.

The interest payable on housing loan is also deductible.

The resultant figure is to be added to your other income taxable in India.

I have been an NRI for the last ten years and have decided to return permanently this year. I have come back to India 2-3 times and stayed for periods of 2 -3 months then returned to the United Arab Emirates where I was staying earlier, for a month or so. Effectively, if I count number of days, I will have been out of India for more than 182 days in the financial year 2007- 08. I would appreciate answers to the following. queries:

I have recently started a business based out of UAE (for last two years) and have earned some income from this business. Since I will qualify to be an RNOR (Resident but Not Ordinarily Resident) for the next 2 years, I would like to know till when the income from my business in the UAE will be tax free in India.

I have NRE (Non-Resident External) and NRO accounts and also demat accounts. When will I need to declare that I have become a resident to qualify for the RNOR status?

If I transfer the business income from the UAE accounts to my NRE account, will it be taxable?

If the business income from the UAE becomes taxable only after two years, can I keep transferring the money from the UAE account to the NRE account on a regular basis or will this change once I inform the bank  that my status has changed. In short, what is the best advisable route - to transfer money from the UAE on a single occasion and then declare my status change or can I continue to transfer funds on multiple occasions even after informing about status change without inviting tax?

--- V Shankaran

1. The foreign exchange income of an RNOR is not taxed in India.

2. An NRI who has returned to India permanently is allowed a reasonable time to inform all the banks (and companies) about the change in his status wherever he has his investments. On receipt of this information, the bank will re-designate the NRE/FCNR (Foreign Currency Non-Resident) accounts as 'Resident' accounts.' These can be run up to their maturity but the interest on NRE becomes taxable from the date of the return whereas the FCNR interest is tax-free as long as the holder remains an NRI or becomes an RNOR.

Alternatively, both the accounts can be converted into RFC (Resident Foreign Currency) without any penalty but the interest even on RFC is tax-free only for RNORs. The corpus in RFC is freely repatriable.

Whether RFC is tax-free or not, withholding tax will be applied at the rates applicable to Resident deposits.

The NRE savings bank and NRO savings bank accounts will be re-designated as Ordinary savings bank accounts.

It is also necessary to inform all the companies/depositary participants where you have investments about the change in your residential status.

3. Since this income is non-taxable in India as long as you are an NRI or RNOR, it cannot be charged to tax. Mere transfer does not attract taxability.

4. Your taxability does not depend upon your declaration of the status to the bank. It depends upon your status itself. After the period of two years, this income will become taxable in India

The authors may be contacted at wonderlandconsultants@yahoo.com

A N Shanbhag is an investment consultant and author of In the Wonderland of Investment; How to Convert a Taxpayer into a Taxsaver; NRI Investment Guide. This article does not constitute tax or legal advice. Consult your tax or legal advisor before making any tax- or legally-related investment decisions.