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"We are software engineers investing in the form of NRNR deposits, FCNR deposits, etc. How will we be taxed?"

Readers Note: Please keep your questions short.

I am in Mauritius for the last one year working as a consultant for an US Company. My employer pays my living allowance in Mauritius directly from the US and the Consulting fees in Indian Rupees in India.I want to save a portion of my living allowance maybe through an NRE Account.Can I do that? -- R. R. Mohanty

Assuming you are a Non-Resident for the Financial Year 1999-2000 your NRI status confers exemption on all income earned and received by you outside India. Further, with specific regard to the money being received by you in Mauritius, 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 living allowance in Mauritius is received by virtue of a contract of employment with an entity based in US, it is deemed to have been earned outside India and hence not taxable.

According to Section 5(2)(a) of the said Act, a Non Resident is chargeable to tax on income received or deemed to be received in India. Thus the consulting fees received in India is chargeable to tax.

As far as the savings are concerned; if the credits in the NRE Account are on account of income earned while enjoying the NRI status, such balance would not attract any tax liability.

I was an NRI for three years. I returned to India 2 years ago. Can I make repatriable investments in India using proceeds from my overseas investments? If so how long?

-- Paulose P. Thomas

Since the question does not pertain to personal taxation, we cannot anwser this question.

I am working in US for more than 1 1/2 years. My earnings are from US salary. I have few questions.

1. When I send money to India to my father/mother account do they have to pay tax? They live in India.
2. When I send money to my NRI account is it taxble? it there limit in year where minimum amount which is not taxable?
3. We want to buy house in India. On whose name should we buy for tax benifit ?

-- Dhrumil Patel

The Income Tax Act, 1961, provides for charging of tax on the income and not on any remittance or transfer of money. Assuming that you are an NRI, the income earned by you outside India is not chargeable to tax. The amount sent by you is not taxable irrespective of whether it is sent to your parents or to your bank account.

The taxability of the income from House Property under section 22 of the Act, is in the hands of the legal owner of the property. The tax liability in either case (whether NRI or resident) is the same in respect of Income from House property. However, if the person in whose name the property is acquired is already an owner of another property, then it is adviseable not to purchase the property in his name. This would increase the tax liability.

Annual value from one self-occupied property is exempted from Income Tax.

I was impressed with your responses to tax queries from REDIFF friends around the world. A friend of mine is in US on an H1 visa for last couple of years. Before leaving for US he was working in India and was maintaining a few ordinary savings accounts. When he left for the US he did not close these accounts and have those still open. He has also received some interest amount for the deposits in these non-NRI Rupee accounts. Besides the interest amount from these and some other NRI (NRNR/NRE accounts) deposits, he has no other income to report in India. What kind of Indian tax implications can there be for having maintained these accounts in India.

-- Ajit Marhas

Assuming that your friend to be an Non Resident for the Financial Year 1999-2000 we offer the following answer: According to Section 5(2) of the Income Tax Act, 1961, an Non Resident is chargeable to tax on income from all source which is received or deemed to be received in India; or accrue or arise or deemed to accrue or arise to him during the year

Thus the interest received from deposit in ordinary saving account is liable to be taxed, but the same can be claimed as deduction under section 80L of the above Act to a extent of Rs.12,000

The interest earned on the balance lying to the credit of NRE Account with any bank is exempt from Income Tax under Section 10 (4) (ii) of the Income Tax Act, 1961. Can you clarify my following doubts?

1. When does an individual be considered as an NRI?
2. I'm currently working in the US since July 99. When would I be considered as an NRI? Since I had worked in India for 3 months in the current financial year, do I need to file my taxes for the 3 months.
3. I was in UK between Nov 97 and Aug 98(Around 10 months). But I was told that I was not an NRI as I had spent more than 6 months in India in the financial year '97 and again in '98 since I was in UK only for 4 months, I had to pay taxes in UK and India for both the years. Is this right? Do we have Dual taxation? And during my stay in the UK, I had no income from any sources in India.

-- Sujit Nair

Section 6 (1) of the Income Tax Act, 1961 contains the conditions whose fulfilment or otherwise would determine the residential status of an assessee. A person attains the status of a resident Indian for the purpose of tax if he satisfies one of these two conditions

1. he is in India in the previous year for a period of 182 days or more;or
2. he is in India for a period of 60* days or more during the previous year and 365 days or more during the 4 years immediately preceding the previous year

Thus non fulfillment of the above conditions makes an individual an Non Resident.

Since your stay in India exceeds 60 days and were in India for more than 365 days during the 4 immediately preceding you are resident for the Financial Year 1999-2000. If you are in India for a period of less than 60 days, you can become a Non Resident. As per the provisons of section 5(1), a resident is liable to tax on his global income. You are therefore liable to furnish your return as required under section 139(1) of the Act.

Your were not an NRI for the FY 1997-98 & 1998-99 as you have fulfilled the conditions of section 6(1) of the above Act.

The taxability of your income in either countries depends on the terms of employment, the location of your employer and status of the payer without the details of which it would be difficult to answer your question correctly. I am an Indian Citizen and am working abroad for a period of 6 months, on behalf of a company in India. Though my company in India pays tax on the salary I get, the country I work in does not have a double taxation agreement with India. Could you let me know, what tax laws will be applicable if I want to bring this income to India. Are there any rebates applicable to this income?

-- Vijay Anand

Assuming that you are an NRI, your NRI status confers exemption on all income earned and received by you outside India. However, an NRI is taxable on all incomes received or is deemed to have received in India. 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.

You are eligible for a deduction under section 80RRA, of upto 75% of the amount remitted by you into India within 6 months from the end of the financial year. This deduction is available only if you are a technician as defined under explanation (c) to sub-section (2) of section 80 RRA and further, the terms & conditions of your service outside India are approved in this behalf by the Central Govt. or the appropriate authority. The balance 25% is taxable at the marginal rate of tax.

We are part of a large software company established in India. Right now 10 percent of the employees are posted here is USA, to carry out Year 2000 assignment and other software assignments.

Each assignment will be anywhere between 4 months to 2 years. Mostly each employee who are assigned to US, will spend more than 183 days in a financial year, outside India. We are getting basic salary, house rent allowance, PF, Gratuity etc. in India. This amount is credited into our bank account in Indian Rupees. The company also pays "allowance in US dollars" here towards accommodation, food and transport.

Most important thing I would like to highlight to you is, the company pays all kinds of tax to US government on behalf of us. For example, federal tax, state tax etc. They deduct the Indian Salary paid here as expenditure. Each allowance stub has these details.

Now our question is "We are making some savings from this allowance, and we are investing back home in India in the form of NRNR deposits, FCNR deposits, etc. Whether these savings are taxable.. the deposit amount .. the interest amount .."

What is our status - Resident Indians or Not Ordinarily a Resident or Non Resident?

Should we file Income Tax as Resident Indians or as Non Residents for the salary that we receive in India in Indian rupees? Should we declare our savings in the IT report, as annexure? If you say these are taxable at India (total savings), then are we not subject to Double taxation on the same allowance?

Also, these persons save money here and bring precious dollars to India. Could you please clarify?

-- Desi, USA

Section 6 (1) of the Income Tax Act, 1961 contains the conditions whose fulfilment or otherwise would determine the residential status of an assessee. A person attains the status of a resident Indian for the purpose of tax if he satisfies at least one of these two conditions:

1. he is in India in the previous year for a period of 182 days or more; or
2. he is in India for a period of 60* days or more during the previous year and 365 days or more during the 4 years immediately preceding the previous year *(note: 182 days to be substituted for 60 days in case of a person who proceeds abroad for the purpose of employment outside India)

You will be treated as a Resident for the purpose of Income Tax Act, 1961 if you satisfy at least one of the above conditions. If you do not satisfy both the above conditions, you will be treated as an NRI.

Assuming that you are an NRI, your NRI status confers exemption on all income earned and received by you outside India. Since you are receiving the Salary from your employer who is based in India, the Salary is still taxable. The living allowance from your employer who is based in India is taxable. You are eligible for a deduction under section 80RRA, of upto 75% of the amount remitted by you into India within 6 months from the end of the financial year. This deduction is available only if you are a technician as defined under explanation © to sub-section (2) of section 80 RRA and further, the terms & conditions of your service outside India are approved in this behalf by the Central Govt. or the appropriate authority. The balance 25% is taxable at the marginal rate of tax.

As far as the savings are concerned; if the credits in the NRE Account are on account of income earned while enjoying the NRI status, such balance would not attract any tax liability. Further, please be informed that the Indian Income Tax Act levies taxes on the income and not the savings.

The deposits from the saving are not taxable. Further, the interest earned from such deposit are exempt from tax under section 10(4)(ii) of the said Act.

You have to file your returns indicating your status as an NRI. You need not disclose your savings in the return as there is no such requirement.

I am an N.R.I. living in the U.S.A. as a "Green Card" holder. All of my salary income is from the U.S. I jointly own a flat in Mysore (Karnataka, India) with my mother. My share (50 %) of the flat is financed from H.D.F.C.

In September 1998, the flat was given on rent for Rs. 3450 per month. This means that I am receiving rent of Rs. 1725 every month, into my N.R.O. account in India. This is my only Indian income. Therefore, I have the following seven (7) questions :

1. Since the total annual rental income (Rs. 20,700) is less than ceiling of Rs. 50,000 - am I correct in assuming that I have zero tax liability in India ?
2. Just because I may have zero tax liability in India - am I correct in assuming that I do not have to file a tax return?
3. If indeed, I have to file a tax return in India - can I file late returns for 1998 and 1999?
4. Do I need to first apply for a PAN (Permanent Account Number)?
5. Is there a penalty for filing late returns?
6. What is the mailing address for filing Indian tax returns from U.S.A. -should I send the returns to Bangalore/ Mysore ?
7. Can I claim a tax deduction - if I send the rental income of Rs. 1725 back to my mother as pocket money?

-- Chandrasekha, Rajnish

An individual is required to furnish his return of income if his income exceeds the maximum amount not chargeable to tax. As your income does not exceed the maximum amount not chargeable to tax, you are neither liable to any tax nor required to furnish your return of income.

I am a software Engineer, in a IT firm in India. When I joined in my company my Gross salary was below RS 50,000. After that I was deputed to USA, and now Gross Salary is RS. 195,000. I never submitted my tax returns. (We will get our salary after deduction of TAX at Head Office, Mumbai). Can you please explain me about below points:

1. Is it a crime that I am not submitting my tax returns? I am in USA and none of my relative are in a position to submit my returns. I don't have a PAN numbers also.
2. I am saving some amount of USA $ in a US Bank and I want go back after six months to India. Is it necessary to take my amount though NRI account for getting tax relaxations or can I take travelers checks.

-- Sai Mohan

Non furnishing of Return of Income is not a crime, but attract certain penal interest and penalty under section 234A and 271F of the Income Tax Act, 1961. Since your income exceeds the maximum amount not chargeable to tax, you are required to apply for a Permenant Account Number.

The rule regarding remittance of money into India is contained in the exchange control regulations and all remittance into India has to be channelised only through the banking channels. I took up a job in USA in august 99. So I have a resided in India for only 4 months in this financial year. My employers have offices in India also. But I have been recruited for their US operations only. Am I an NRI? Do I have to pay any taxes for this financial year? Do I have to file tax returns in India?

-- Surya Kant Mishra

Section 6 (1) of the Income Tax Act, 1961 contains the conditions whose fulfilment or otherwise would determine the residential status of an assessee. A person attains the status of a resident Indian for the purpose of tax if he satisfies atleast one of these two conditions:

1. he is in India in the previous year for a period of 182 days or more; or
2. he is in India for a period of 60* days or more during the previous year and 365 days or more during the 4 years immediately preceding the previous year. *(note: 182 days to be substituted for 60 days in case of a person who proceeds abroad for the purpose of employment outside India)

   From the above you will observe that if you have proceeded abroad for the purpose of employment, then you are an NRI for the purpose of Income Tax Act, 1961. The Income Tax Act, 1961 specifies that an NRI is liable to tax on all income arising or is deemed to accrue or arise in India. So you are liable to tax on any income earned by you in India during the financial year and accordingly file your return.

   Earlier:

   'I am an NRI getting salary from a US firm. Can I invest in Indian securities? What are the tax implications?'

   I am an NRI but I have investments in India. I get dividend & interest from such investments. Do I have to file my return and pay any tax on such income?

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