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"What is the difference between personal taxation of an NRI and of a resident but not ordinarily resident?"

Readers' Note: Please keep your questions short.

I am an NRI currently holding an NRE savings a/c. I have two proposals with me: a) To get a new flat in India or b) To transfer this amount to my dependants in India as gift. Are these subject to tax? If so, how much will the tax be? Is there any way I can reduce the tax payment?

-- S S DAS

Based on the information provided by you regarding your residential status, the amount remitted into your NRE a/c would be from the income earned by you outside India and hence not taxable. As you are planning to utilise this savings in either of the two modes, ie, 1. Buying a new flat in India or 2. Gifting a sum to dependants in India,
The tax implications for each of the above mentioned options are discussed hereunder:

1. New Flat -- The mere acquisition of a flat does not attract income tax. However, any income accruing from the ownership of the flat in the form of rent/annual value of the house (if it is not self occupied and it is the only residential property owned by that person in India) and/or capital gains (short term or long term) arising on the sale of this house or part thereof is taxable in the hands of the owner.
2. Gift to dependants in India -- Gift given is not chargeable to any tax as Gift Tax Act has been abolished with effect from October 1, 1998 and there is no Income Tax chargeable on the recipient of the gift.

-- R Balaji

1. The tax incidence of an individual arises based on two broad factors, viz, a) Residential status of the individual
   b) The place from where the income/deemed income arises or is deemed to arise.
   The following chart indicates tax incidence on income in different situations:
   Where tax incidence occurs in the case of

   Where tax incidence occurs in the case of
   	Resident and ordinarily resident	Resident but not ordinarily resident	Non-resident
   Any income received in India	Yes	Yes	Yes
   Any income deemed to be received in India	Yes	Yes	Yes
   Any income accruing or arising in India	Yes	Yes	Yes
   Any income deemed to be accruing or arising in India	Yes	Yes	Yes
   Income received and accrued outside India from a business controlled in or a profession set up in India	Yes	Yes	No
   Income received and accrued outside India from a business controlled or a profession set up outside India	Yes	No	No

   
   
   
   
   
   
   
   
   
   
   

2. As explained above, in the case of an NRI making remittance into NRE/FCNR a/c in India from income earned outside India, then the amount of remittance is not taxable under the Income Tax Act, 1961.
3. 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.

The foreign exchange regulations permit an NRI to maintain his NRE Account for a certain period of time even after he loses NRI status. Proviso to the said section grants exemption from tax to the NRI till such time as the NRE Account is allowed to be maintained under the foreign exchange regulations.

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

I am an NRI for the last two years with negligible income in India. However, I got arrears of my salary this financial year (about Rs 70,000). This was sent to my bank account in India. Do I have to pay tax on this, and if so, how much? Am I allowed to avail the facility to reduce tax liability through contribution under Section 88? I have PPF accounts (self, wife and children), ULIP and RBP of UTI. Can I contribute from the above money in these avenues to reduce my tax liability? If yes, how much do I need to invest to bring the tax to zero? Do I have to file a tax return?

-- J P Painuly

Based on the information provided by you, it seems like you have gone abroad for employment with a company other than an Indian company and have not been deputed by an Indian company for services outside India. Also, it seems that you receive consideration for services rendered outside India. With these presumptions your query has been answered as follows:

Any income received or accruing or arising in India is taxable in India under the Income Tax Act, 1961. The Act, however, prescribes the minimum threshold limits (currently, Rs 50,000) up to which the income is not taxable. Hence in your case we would like to clarify that income in India is taxable if it exceeds the specified threshold limits.

Generally salary income is taxable on 'due' or 'receipt' basis, whichever is earlier. Hence in your case, the arrears of salary received by you from your former employer in India would be taxable in the year of receipt only if it has not been taxed earlier on due basis. However, you would be eligible to claim relief on the tax payable in terms of section 89(1) of the Income Tax Act, 1961, read with rule 21A as under:

1. 1. Calculate the tax payable on the total income, including the additional salary, of the relevant previous year in which the additional salary is received.
2. 2. Calculate the tax payable on the total income, excluding the additional salary, of the relevant previous year in which the additional salary is received.
3. 3. Find out the difference between the tax in the two scenarios.
4. 4. Calculate the tax payable on the total income, including the additional salary, of the previous year to which such salary relates.
5. 5. Calculate the tax payable on the total income, excluding the additional salary, of the previous year to which such salary relates.
6. 6. Find out the difference between the tax in these two scenarios.
7. The excess of tax computed at (3) over tax computed at (6) is the amount of relief admissible under section 89(1). However, no relief is admissible if tax computed at (3) is less than tax computed at (6).

Section 88 provides that an assessee shall be entitled to a deduction from the amount of tax payable of an amount equal to 20 pc of the aggregate of sums invested. The maximum aggregate amount of investment permitted is Rs 60,000 pc. An additional sum of Rs 10,000 pf can qualify as investment under this section if used to purchase debentures or equity shares of a public company engaged in infrastructure or units of mutual funds referred to in S.10 (23D). Hence investments would need to be made dependant on the tax payable by you.

An NRI need not file his return when his income taxable in India is less than Rs 50,000 for the financial year 1999-2000, as also in case of NRI having only "investment" income from which tax has been deducted at source.

I have been in Australia for more than 182 days (NRI status) on temporary work permit. I have opened an NRE account in India where I keep on sending money for my family in Australian dollars. Am I liable to tax in India, since I am paying tax in Australia. If this account is operated by my wife for withdrawing money, is there any tax she needs to pay on the amount in that account? Secondly, if I invest certain amount from that account for deposits or national saving certificates will they attract any tax? In short will I need to pay tax in India ever?

-- Deepak Karanjikar

Section 5 of the Act deals with the scope of income of an assessee. The salary earned by you as an NRI in Australia falls outside the ambit of this section and is, consequently, not liable to tax in India. Further, since the Act provides that all income earned and received abroad which is exempt will not attract any tax when it is remitted into India, also no tax is attracted on withdrawal of money from this account.

If you invest in the certificates of NSC VI and VII issue, the interest receivable on these investments are not taxable.

I am employed with an International Oil Company with Paris as its head office. My work schedule permits me to return to my family in India every 4 weeks and for a given year I am in India for less than 180 days. I have been in such an employment for the past 10 years and have been maintaining FCNR, NRE accounts etc. My question is whether I qualify as an NRI as I noticed from one of your replies that every year I fulfill the first condition but am more than 365 days during the previous 4 years (second condition ).

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

-- Suresh Bhat

In the case of an Indian citizen or a person of Indian origin (who is abroad) who comes to India on a visit during the previous year, the only condition that he has to satisfy to become a resident is that he has to stay in India for at least 182 days during the previous year.

I am an NRI based in the US and need to send money to my family in India. I am already paying federal and state taxes here. Do I need to pay tax again in India?

-- Mani Konar

Your NRI status confers exemption on all income earned and received by you outside India. Further, since the Act provides that all income earned and received abroad which is exempt will not attract any tax when it is remitted into India, the income earned in the US by you will not qualify for tax when you send it to your family at a later date.

Earlier:

"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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