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"Do I need an income tax clearance certificate if I go abroad for a two-year contract?"

Readers' Note: Please keep your questions short.

I am employed as a software engineer with an MNC X in India. Currently, I'm posted to Malaysia to work for a company Y. As per my parent company's rules I'm entitled to $2,000 as my monthly allowance over here. This is in addition to my normal salary which gets deposited to my bank A/c in Delhi. My work permit papers say that I'm employed with the Malaysian company Y with a monthly salary of $6000 pm. Actually, the Malaysian company Y is paying me $2000 directly over here and sending $4000 to my parent company X in India. Although, the Indian company lists this $2000 as allowance in its internal rules. But, practically, I'm getting paid this amount directly by the Malaysian company. Can I treat this as income earned abroad ? Please advise me regarding my tax obligations when I take this money back to India. My total stay here is around 8 months.

-- Lovleen Chadha

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 *(note: 182 days to be substituted for 60 days in case of a person who proceeds abroad for the purpose of employment outside India)

Since we would require some more accurate information to determine your residential status for a particular financial year, applying the above rule you can determine your residential status for tax purposes.

Assuming that you are an NRI for the purpose of Income Tax Act, 1961, 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 Malaysia, 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 Malaysia is received by virtue of a contract with the Malaysian Company, it is deemed to have been earned outside India and hence not taxable.

However, if you are receiving the living allowance from your employer who is based in India, by virtue of a contract with your Indian employer the allowance is still 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.

The balance US $ 4,000 received by you from your Indian employer is taxable even though they are being reimbursed for by the Malaysian company. If you had received that income directly from your Malaysian company, you could have avoided the tax incidence on that income.

I am going abroad for employment on a two year contract. Will I need an income tax clearance certificate before I leave India? I have had different people tell me different things: A chartered accountant friend says "yes" and the officer-in-charge at the emigration section of Calcutta airport says "no". Whereas my travel agent says "no" and a tax consultant on a internet chat site of TOI says "yes". In case you were wondering what all these negetive and positive answers meant, they are responses to my question. I am more confused than I was before I set out to find the answer to my question.

-- Ajay Poddar

According to section 230(1) of the Income Tax Act 1961, you have to apply and take an income tax clearance certificate.

The section is reproduced below for your reference.

Subject to such exceptions as the central government may, by notification in the Official Gazette, specify in this behalf, no person (a) who is not domiciled in India; or (b) who is domiciled in India at the time of his departure, but- i intends to leave India as an emigrant; or ii intends to proceed to another country on a work permit with the object of taking up any employment or other occupation in that country; or iii in respect of whom circumstances exist which, in the opinion of an income-tax authority, render it necessary for him to obtain a certificate under this section,
shall leave the territory of India by land, sea or air unless he first obtains from such authority as may be appointed by the Central Government in this behalf a certificate stating that he has no liabilities under this Act, the Excess Profits Tax Act,1940, The Business Profits Tax Act, 1947, The Indian Income Tax Act 1922, The Wealth Tax Act 1957, or the Gift Tax Act 1958 or that satisfactory arrangements have been made for the payment of all or any such taxes which are or may become payable by that person:

Provided that in the case of a person not domiciled in India the competent authority may, if it is satisfied that such person intends to return to India, issue an exemption certificate either in respect of a single journey or in respect of all journeys to be taken by that person within such period as may be specified in the certificate.

You can make an application in Form No 31 to the competent authority. Also if you are assessed by an Assessing Officer anywhere in India, the application has to be acompanied by an authorisation in Form No 32 to be obtained by you from the Assessing officer.

I am an NRI working in the US. I am interested in investing in Indian Stocks, both through primary and secondary markets. My intention is not to do day-trading, but a long-term investment plan. Are there any companies which accept funds from me and buy-sell stocks on my behalf? If there are, can you please list some.

-- Ravi Pothukuchy

The above question does not pertain to personal taxation. Hence we are not in a position to entertain your question. Editor's note: We will soon be incorporating a personal investment center for NRIs in the Money Channel.

I am an NRI 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

Please be informed that Income tax is levied on income and not on any remittance. We will be able to comment on the taxability of your income only if we have full information about the sources of your income etc.

I am Tokyo-based NRI for the last five years.All my savings have been transfered to India and invested in the share market's Vyaj Badla scheme. Is the interest earned taxable? And if it is taxable would you please give me tax slabs if possible.

-- Paras

As per section 5(2) of the Income Tax Act 1961, a Non-Resident is liable to tax in respect of income which is received or deemed to be received in India by him or on his behalf or which accrues or arises or is deemed to accrue or arise in India during the previous year. In your case, the income earned is taxable as short term capital gains.

For the Assessment Year 2000-2001 the following are the tax slabs for Individuals

Net Income Range Rates of Income Tax Upto Rs 50000 Nil Rs 50000-Rs 60000 10 per cent of the amount by which the total income exceeds Rs 50000 Rs 60000-Rs150000 Rs 1000 plus 20 per cent of the amount by which the total income exceeds Rs 60000. Rs 150000 and above Rs 19000 plus 30 per cent of the amount by which the total income exceeds Rs 150000.

Earlier:

"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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