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"What is the tax status on an NRE deposit?"

Readers' Note: Please keep your questions short.

I am an Australian passport holder but was born in India. I would like to move to India for a while. Can you tell me whether it is legal to work in India and get paid in rupees?

— Ram Bindignavle

Your question does not come within the scope of Personal Taxation. As such we are not in a position to entertain it.

I am an NRI staying in the US on H1-B visa. I have rented a portion of my house in India and I am paying mortgage for it. What are the tax implications?

— Santhi Angappan

If the property is acquired or constructed with capital borrowed on or after April 1, 1999 and such acquisition or construction is completed before April 1, 2001, the deduction on account of interest will be Rs 75,000. Otherwise it would be Rs 30,000.

You are liable to tax on the annual value of the property as determined under section 23 of the Income Tax Act, 1961. The annual value is the aggregate of the rent that is received or the fair rent value of the property after deducting municipal taxes, if it is paid by you. You are further eligible for certain deductions under section 24 for repairs (25 per cent of the annual value), interest as above etc on that part of the property that is let out. The balance is subject to the marginal rate of tax.

Further, you are also eligible for a rebate of 20 per cent under section 88 of the Income Tax Act. This rebate is available on the principal amount repaid to an approved Housing Finance Institution, from whom money has been borrowed for purchase or construction of house property, subject to a maximum amount of Rs.10,000.

I want to know the exact criteria for NRI status. I have been on employment outside India since December 1997 but I have visited India for 20 days in early 1998 and around 8-9 weeks in early 1999. What is my exact status for tax consideration?

— Yograj Singh

You have not given the exact details (dates) of your visit to India without which we are not in a position to determine your status for tax consideration. However we are providing you the definition of a Non Resident Indian.

Section 6 (1) of the Income Tax Act, 1961 contains the conditions whose fulfillment 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 four years immediately preceding the previous year.

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

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

At present I am in the US on a business visa for training from an Indian company. I continue to receive a salary in India and I am getting some compensation in dollars for expenses in the US. If I save some money from that compensation, can I bring it back to India? If yes, how can I do so? Will there be any tax on this money?

— Shailesh Thakker

You have not mentioned the period for which you are going to stay out of India. It is not possible for us to determine your residential status without the above information. Also you have not mentioned from whom you get the compensation for expenses.

Assuming that you receive the compensation from the Indian company, you will be liable to pay tax on the savings made by you from the compensation received in the US.

According to section 9 of the Income Tax Act 1961, certain incomes are deemed to accrue or arise in India even though they may actually be received outside India. Since, you are employed with an Indian company and have been sent for training purpose to US all the payments made to you are deemed to accrue or arise in India. Hence, you are liable to pay tax on the compensation paid to you in the US.

The former part of your question is outside the scope of personal taxation. You may kindly refer to FERA rules and regulations for that purpose.

I am an NRI living in the US. I am planning to buy gold coins and deposit in SBI Scheme. Is it legal for me to do that and if so what type of tax will I have to pay?

— Niattianand Adiyapatham

We may not be able to comment on the legality of the transaction. Regarding the taxability there is no income tax on such purchase and deposit. The liability to wealth tax on such investments depends on the nature of the scheme of SBI. If the said investment is treated as a foreign asset under the scheme, then it is exempt from wealth tax. Otherwise, it is subject to wealth tax.

I am an NRI working in the US. While I am here, I will invest in retirement plans (like 401K) in the US and if I retire in the US, I can withdraw from my investments and get taxed in the US, as per the prevailing rates. But if I retire in India and withdraw from my retirement funds invested in the US from India, 1. Will I have to pay taxes in India also (I suppose I will have to pay taxes in the US, since the investment is growing tax deferred)? 2. Can I continue to hold such money received in US dollars? What about tax deferred investments made in the US for my children's education? Will I be able to use this money in India and not pay tax in India?

— Shiva Narayanan

The taxability of the amount received by you in India would depend on the nature of the scheme of the retirement plan and the scheme of the flow of income. The nature of the receipt (whether it is income in your hands) can be determined only with full information regarding the above details.

I am a non-resident individual, residing in the US. I have NRNR deposits in India which I intend to transfer as term deposits to my son who is not an NRI. The Foreign Exchange Regulations Act states that a one-time gift is permissible, but the quantum is not stated anywhere. Please explain: 1) What is the meaning of one-time gift? Does it mean one-time gift year after year, or once in a lifetime? 2) What is the quantum of the gift? Does the Income Tax Act force assessees to file a return showing the gift from NRI?

— K V Nathan

Personal gifts received are exempt from income tax. The Income Tax return has provision for an assessee to disclose the income from various sources including exempt income. Regarding the quantum and the matters on foreign exchange regulations, it is outside the scope of personal taxation.

I am an NRI wishing to open an NRE account in India. Please advise if the deposit and interest are tax-free and whether the money is repatriable?

— Anurag Gupta

All deposits, interest and any other income accruing on the balances in the accounts are free of Indian Income Tax.

I was in the US from April 1, 1999 to Nov 2, 1999. From Nov 10, 1999, I am in Singapore. In the US, I was paid a salary by a US-based company. In Singapore, I earn a rupee salary in Indian rupees in India and my daily expenses are being paid on actual basis by the Indian company. It is not an allowance but reimbursement of expenses. In this case what will be my status for 1999-2000 as far as income tax in concern?

— Sunil S Nadgauda

For the year 1999-2000 you would enjoy an NRI status for income tax purpose. Since you have left India for employment purpose, the clause of 182 days and not 60 days will be applicable for you.

Earlier:

"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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