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The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

Readers' Note: Please keep your questions short.

I am working for an Indian company on L1 visa in the US. I am here for a year from July 1999 to June 2000. I get a salary in India and an allowance/salary in the US. The allowance statement I get in the US has the following composition:
Gross pay - $ 4000
Deductions:
Tax (federal, social security, medicare, state) - $ 1160
Indian salary - $ 400
Net pay - $ 2440
If I save some money from the 'net pay', can I bring it back to India? If yes, how much tax would I have to pay on this money?

— Nitin Gupta

According to the information provided, you are an NRI for the Assessment Year 2000-01.

Your NRI status confers exemption on all income earned and received by you outside 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.

If you are receiving the living allowance from your employer by virtue of a contract of employment in India, the allowance is still taxable. You are eligible for a deduction under section 80RRA, of upto 75 per cent of the amount remitted by you into India within six 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 and conditions of your service outside India are approved in this behalf by the central government or the appropriate authority. The balance 25 per cent is taxable at the marginal rate of tax.

I am a software engineer based in India. I was on contract employment abroad through an Indian company from August 1996 to December 1997. I would like to clarify the following:
1. I still hold an NRE (currently minimal balance available), NRNR and FCNR accounts which were peiodically renewed. Can I still renew these deposits? What would be the tax related issues?
2. From January 1998 to May 1999, I was in India and I have filed my tax returns. During this period what happens to the above accounts and the status on their tax benefits?
3. From June 1999 to December 1999 (nearly five and a half months), I was abroad on a business visit through the Indian company. I received a salary in India and an allowance abroad. I brought my savings in allowance to India through traveller's cheques. Is this taxable? If not, can I do bank transactions with the money? If I give a gift to my parents, is it taxable?

— Ramesh N

Regarding Non Resident accounts, the opening, closing and the duration for which the account can be held after losing the Resident status is governed by the exchange control regulations. The interest earned on NRE and FCNR accounts are exempt from tax under section 10(4)(2) of the Income Tax Act, 1961 till such time that the foreign exchange regulations permit the holding of such account by the assessee after losing the status of an NRI.

The living allowance from your employer in India is still taxable. You are eligible for a deduction under section 80RRA, of upto 75 per cent of the amount remitted by you into India within six 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 and conditions of your service outside India are approved in this behalf by the central government or the appropriate authority. The balance 25 per cent is taxable at the marginal rate of tax. The salary earned by you in India is also subject to Income Tax.

I have an offer in a multinational to work as a software engineer and will be leaving for Detroit next week. When will I attain the NRI status? Will I have to pay tax in India for the income in the US? If yes, how much?

— Richards

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

A person attains the status of an NRI, if he does not satisfy both the above conditions.

Your NRI status confers exemption on all income earned and received by you outside 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. In your case, if you are eligible to any living allowance in Detroit by virtue of a contract of employment with an entity based in the US, it is deemed to have been earned outside India and hence not taxable.

However, if you are receiving the living allowance from your employer by virtue of a contract of employment in India, the allowance is still taxable. You are eligible for a deduction under section 80RRA, of upto 75 per cent of the amount remitted by you into India within six 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 and conditions of your service outside India are approved in this behalf by the central government or the appropriate authority. The balance 25 per cent is taxable at the marginal rate of tax.

I have been working in the US on an L1 visa since November 30, 1998. I want to send money back to India into my mother's account. The amount is usually around $ 2000-3000 every two-three months. I want to know the tax implications of such deposits. I also intend to buy a house in Mumbai with the money that I am able to save here. Will I have to pay tax on the money I transfer for the purchase of the flat?

— Satish R

Based on the information provided by you regarding your residential status, we assume that you are a non resident Indian for the purpose of Income Tax Act, 1961. Hence, the amount remitted into your NRE account would be from the income earned by you outside India and hence not taxable.

As you are planning to acquire a new flat, there is no flow of income to you and hence the mere acquisition 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 will be taxable.

I have been staying out of India since February 1999 and would stay abroad till December 2000. I am getting a salary in India, on which I am paying tax. I also get a salary in the US and pay tax on it. If I save some money in the US and take it back to India, am I supposed to pay tax on this money in India? I have already paid tax on this salary in the US and I have got documents to prove it.

— Kapil Khanna

For assessment year 1999-2000, you were outside India for less than 182 days and hence your status is resident. For that year, your salary earned in the US will also be taxable in India. However, you will be eligible for tax credit on the tax paid to the US government.

For assessment year 2000-01, you will be outside India for over 182 days and hence your status is non resident. So the income earned by you will not be charged to tax in India.

A musician from India coming to the US for a concert tour, earns an income in US dollars, pays tax on this income in the US, and files an NRI Tax Return according to US Tax laws. He then transfers his income to his bank account in India. Will he have to pay tax in India on the difference between his US income and the tax paid in the US? What would the rate be? What happens if he keeps his dollar income in a US bank account? Is he required to disclose the information about this account to RBI in India?

— Balwant N Dixit

The question of whether the musician will be taxed in India or not will depend on his residential status. If he is an NRI according to the Indian Income Tax Act, then his income will not be taxed in India whereas if he is Ordinary Resident, his income in the US will be taxed in India. However, as per the Double Taxation Avoidance treaty between India and the US, he will be eligible for Tax Credit on the amount of tax paid to the US government. The residential status can be determined as under:

An individual is treated as resident under section 6 of the Income Tax Act if he fulfills any of the following two conditions: 1. He stays in India for that previous year for 182 days or more, or 2. He is in India for that previous year for 60 days or more and 365 days or more during the four years preceding the relevant previous year.

If the individual is not satisfying any of the above conditions, then he will be a Non resident. For persons going abroad for employment, 60 days in (2) above is relaxed to 182 days.

In case the musician is a globe-trotter and remains outside India for more than 182 days then he will be considered an NRI and will not be charged for income earned outside India. However, in case he is a resident he will have to pay tax in India (nevertheless, he will be allowed credit for the tax paid in US).

In case such a person is taxable in India, due to being a resident under the Act, he can claim a relief under section 80RR of the Act. The deduction will be equal to 75 per cent of such income as is remitted in convertible foreign exchange into India within six months from the end of the financial year. There are certain other conditions which need to be satisfied by an assessee for claiming benefit under the section.

If he is an NRI, he can maintain his bank account in the US or in India. If he is resident, then
a. He can keep foreign currency account provided he has earned Foreign Currency including any income earned on it through employment, business, or vocation outside India taken up or commenced while he was resident outside India and such stay was for a continuous period of not less than 1 year.
b. Otherwise, he has to surrender the foreign currency within seven days on returning to India. However, he will be allowed to retain a maximum of US $ 2,000 for numismatic purposes or for personal use.

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