Legal & income Tax


He can retain the status of resident and not ordinary resident for a period of 2 years after his return to India. For this period his overseas income will not be taxed in India.


I have been a non-resident of India (living in the US) since 1998. I used to work for Life Insurance Corporation and still receive commissions from them as well as some dividends on shares of Indian companies and local bank interest. This all amounts to less than Rs 30,000/year. Unfortunately, I now learned that when my parents filed my returns on my behalf, they have been listing me as a "resident" as opposed to non-resident and my bank account is still resident, not NRO. Questions on correcting this situation:

A revised return can be filed before the completion of the regular assessment. You can file a letter to the dept indicating that the residential status has been wrongly mentioned as "resident" instead of "non resident". There will be no change in the tax calculation and the amount payable to the Govt. To our knowledge there is no automatic reporting to the US in respect of the dividends and interest earned.
This is not really a serious mistake but a mistake nevertheless. You can write a letter to the Assessing officer indicating that you are a non-resident and the assessment can be completed on that basis.
For the financial year under consideration you will be treated as a resident in India and your income earned in the US will be taxed in India. If you have paid tax in the US on the US income you can avail set-off of the tax paid in US in India pursuant to the Double taxation treaty.
This is an issue lacking clarity. On the Indian side it should be possible for you to contend that the benefit is referable to the US employment and further if your status is not changed to resident and ordinarily resident, the case becomes stronger. If the value is high please take proper professional assistance. Taxability in US should be checked with a US tax consultant.
On the face of it, on both legs of the transactions, the recipient will be exposed of income tax under the provision of gift being treated as income by virtue of section 56(2) (v) of the Income Tax Act.
Test of residence in India is purely a matter of the Indian Income tax Act and has nothing to do with the tax treaty with the U.S. It goes by the period of physical stay in India. The treaty is relevant for examination only with reference to treaty specific reliefs. Once your residential status is frozen the question of world income being taxed in India comes into operation.
My questions are:
  1. Are the capital gains (original investment of 2.5 lakhs in 1990 - sold for 6.11 lakhs in 2005 leading to capital gains of 3.61 lakhs) taxable?
  2. Since I have reinvested the entire proceeds into real estate - the sole flat in my (and my wife's) name, do I still owe any capital gains tax?
    No capital gains will arise if the entire proceeds reinvested in another house property.
  3. Do I need to set up a PAN with the IT Dept.?
    You will need to file a tax return and claim the exemption. PAN is required.
  4. If this flat is rented out, can the proceeds be remitted to me in US$?
    Yes. There may be a quantum ceiling of USD 10,000 per annum.
  5. If and when this flat is sold, what portion can be remitted abroad? What portion must be retained in Rupees?
    Entire portion can be repatriated.
  6. If I were to finance the 80% portion with some Indian bank (like HDFC or ICICI), are there any tax benefits for me?
    Interest on loans can be deducted against the rental income