Legal & income Tax

FAQs

There is no tax implication in India since you are not withdrawing the pension fund.

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.

You can file a revised return correcting the status before the completion of the assessment. There is no concept of a joint return of income. Each one of you will have to file a separate return of income. In the event of her being treated as a resident and ordinary resident only her global income gets taxed in her hands and there is no fear of your income being included in her hands.

Follow-up:

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.

The related tax rebate and deduction is available to both residents and non- residents. On the specific issues therein kindly take the advice of a local consultant.

For a period of 2 years after your return to India you will be treated as a resident but not ordinary resident. Hence the income earned in US will not be taxed in India. There is no need to file any return of income since there is no income earned in India.

Stock options will be taxable, as you are not employed by the company as an employee. The basis of taxation may be an issue since the unlisted stock may be difficult to value appropriately.

The provisions of Income tax Act on the subject are clear. Only interest in respect on moneys standing to the credit of NRE Account is exempt. The option of maintaining different accounts in India is not only a taxations issue but also considering various parameters like yield, repatriation issues, convenience of operations etc. We would refrain from advising on the investment issues since that is specific and need-based.

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.

Kindly take the assistance of a local Accountant since this has to be handled with manual intervention. Metro cities are Mumbai, Delhi, Chennai, and Bangalore for this purpose.

Shares listed in US exchanges should be held for 3 years to qualify as long-term capital asset. The rate of tax will be 20% with surcharge and cess added. Dividends will be taxed at normal rates applicable to individuals. Mutual funds will be treated like-wise.

No tax implication on borrowings, but gifts may be taxed. Borrowing by non-resident may require RBI approval.

If shares in Indian listed co. are held for more than 12 months, only securities transaction tax would apply and not capital gains tax. If, however, this condition is not satisfied, the applicable tax will be deducted by the bank remitting the money and they will issue you a tax certificate. Otherwise you can approach the local tax officer in India and obtain a certificate for lower withholding of taxes.

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.

If you are a resident in India during the year under consideration you will be liable to long-term capital gains tax at 20% plus surcharge.

Short- or long-term capital gain will depend on the date of vesting of the stock options and not from the date of allotment. The gains are certainly taxable in India since you are working in India and a resident in India. Being a green card holder, your tax liability will have to be examined under the US law independently.

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.

Yes to questions 1 & 3. No restriction on q 2. On any issues in US please consult US tax specialist.

Taxability in India depends upon residential status. No tax in India will arise on your return, for the income already earned in UAE, subject to the residential status aspect already mentioned.

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

While there are standard books on NRIs, which can be of some help it would be ideal to consult a tax specialist for a detailed guidance and for filing of return of income etc.

You entire capital gains on the sale on house will be exempt since you have reinvested the capital gains on the purchase of a new flat within the stipulated time in sec 54 of the Income tax Act. The question of investing in other instruments is not required in view of the total exemption on investment in residential house itself.