Returning Indians

RETURNING INDIANS A returning NRI should know and understand various aspects of Foreign Exchange Regulations (FEMA), Indian Taxation and Banking Regulations in order to rearrange his financial affairs in India and outside India. Detailed information covering important aspects for such arrangement is explained here

FOREIGN EXCHANE MANAGEMENT ACT (FEMA) A) OVERSEAS ASSETS All kind of Foreign exchange / Overseas assets such as properties, bank deposits, stocks and securities, life insurance policies, loans, company deposits, debentures, bonds etc. acquired, held or owned by an NRI while he was abroad can be continued to be so held and deal in any manner even after the NRI’s return to India for permanent settlement. B) INDIAN ASSETS I. BANK ACCOUNTS. (In India) Returning NRIs, upon his return to India has to deal with his various accounts in India in the following manner: Account Description Treatment to be given NRO A/c Re-designate to Resident A/c. FCNR A/c Hold upto maturity. Upon maturity should be converted into Rupee Account or RFC A/c. NRE A/c Re-designate to Resident A/c or Transfer Balance to RFC A/c. II. RESIDENT FOREIGN CURRENCY ACCOUNT (RFC Account) o    A Returning NRIs, on becoming residents are free to open and maintain such accounts with authorised dealers. o    The funds held in RFC are fully repatriable and also denominated in Forex. o    Funds in RFC accounts can be remitted abroad for any bona fide purpose of the account holder or his dependants. II. SHARES SECURITIES ETC Returning NRI is required to inform all the companies, funds etc. as to change of residential status from NRI to Resident. INCOME TAX ACT 1.     The tax liability of a person returning India would depend on the Residential Status of a person as per the Income-tax Act, 1961. 2.     Under the Indian Tax Laws overseas income is liable to Tax in India only if the assessee is an ordinarily resident. 3.     A returning Indian who has been a Non Resident for 9 years or more, then for 2 successive years he shall be a resident but not ordinarily resident (RNOR). 4.     Interest on Non Resident External Account (NRE) and Foreign Currency Non-Resident Account (FCNR) [Section 10(4)(ii)] is Exempt in the hands of a person who is a Person Resident outside India as per section 2(w) of FEMA, 1999 and definition of 'Non-Resident' under Income Tax is not relevant for this sub section. 5.     Income in respect of Interest, premium on redemption, other payment on notified securities, bonds, certificates and deposits. [Section 10(15)(i)]. §  Interest on India millennium Deposits (IMDs)/Resurgent India Bonds (RIBs) issued by State Bank Of India (The exemption from tax continues even if the NRI becomes a resident and is also available to the nominee or the survivor of the NRI or to a donee to whom the bonds have been gifted by the NRI.)   6.     Interest paid by schedule banks to Non Resident or to a person who is not ordinarily resident on RBI approved foreign currency deposits (i.e. RFC deposits) is exempt (s. 10 (15) (iv) (fa)). The exemption, in respect of RFC account, continues till such time as the account holder continues to be “Resident but Not Ordinarily Resident”. 7.     NRIs have been offered a separate concessional tax regime in respect of certain types of income under Chapter XIIA comprising section 115C to 115I. As per section 115E, concessional tax of 20 percent is available in respect of investment income and 10% in respect of long-term capital gains from the specified assets, which are acquired out of convertible foreign exchange. The benefit of concessional tax treatment under chapter XIIA continues even after NRI becomes a resident. 8.     Pension: If you are likely to receive pension from your former employer after you return to India, it may be liable to tax in India subject to provisions of Double Taxation Avoidance Agreement between India and the country from which you are receiving it. WEALTH TAX       i.        Assets located outside India of Non-resident (NR) / Resident but Not Ordinary Resident (RNOR) are exempt from Wealth Tax.      ii.        If NRI return to India with the intention of permanently residing in India, the assets brought by him will be exempt. Also, the money and the assets acquired from the money, brought by NRI within one year after his return, will be exempt. This exemption is available to NRI for a period of seven years after his return to India. [Sec. 5(1)(v)] PIO CARDS The Government has announced a scheme for issuance of Persons having foreign of Indian Origin (PIO) Cards for Persons of Indian Origin living abroad and passports. The PIO cards, which would be extended to Persons of Indian Origin settled in countries other than Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan besides introducing a visa free regime, also confer some special economic, educational, financial and cultural benefits to the holders of these Cards. The following facilities shall be extended to the PIO Card holders: - a.     Visa free entry to India. b.     For PIO Card holders the requirement for registration with Foreigners Regional Registration Office has been done away with for continuous stay not exceeding 180 days. All future benefits that would extended to NRIs would also be available to the PIO Card holders. ASPECTS TO BE KEPT IN MIND BY RETURNING INDIAN A Returning Indian needs to plan his return to India. For the purpose, he needs advice / information on various aspects of Tax Laws / FEMA, 1999. 1.     What is your residential status under:                       i.        Foreign Exchange Management Act, 1999                      ii.        The Income Tax Act, 1961   2.     Planning the date and month of return to India so as ensure minimum tax liability in the year of return (i.e. April to March)? 3.     Holding and operating of non-resident Banking accounts on your return to India and Taxability thereof. 4.     Taxability of Income earned in and outside India                       i.        In the year of return to India.                      ii.        In the subsequent period.   5.     Application of Double Taxation Avoidance Treaty, if any applicable   6.     Advice / information on various aspects of Tax Laws / FEMA, 1999 in respect of holding of assets in and outside India / earning income in and outside India and its taxability?   7.     Assistance in Filing Return of Income. 8.     Reorganize your asset portfolio in India/outside India with professional assistance to ensure minimum tax. Thus we also advise on setting up Business/Investment Outside India.

 

Filing return of income in India

Filing Return of Income in India Who Should file Return of Income? You are liable to file Return of Income only if your taxable income* in India in the relevant Financial Year (April –March) exceeds the basic exemption limit (i.e. Rs.1,50,000/- for F.Y.2008-09) *-Non Resident Indian (NRI) earning below mentioned income shall be liable to file returns in India, irrespective of their Total Income being less than the Basic Exemption limit. • Income from Short Term Capital Gains on equity shares or units of equity oriented mutual fund. • Income from Long Term Capital Gains, which are chargeable to tax.

Exception: It shall not be necessary for a Non-Resident Indian to furnish a return of income if – a) his total income in respect of which he is assessable under this Act during the relevant financial year consisted only of investment income** or income by way of long –term capital gains **or both; and b) the tax deductible at source has been deducted from such income. ** “investment income” means any income derived [other than dividends from Domestic Company] from a foreign exchange asset; “Long –term capital gains” means income chargeable under the head “Capital gains” relating to capital asset, being a foreign exchange asset which is not a short - term capital asset; “Foreign exchange asset” means any specified asset which the assessee has acquired or purchased with or subscribed to in, convertible foreign exchange; Thus, if you don’t have any income which is chargeable to tax, you are not required to file return of income. Also, if you have only Investment Income or Income from Long Term capital gains or both (as explained above) and the tax has also been deducted at source from such income, then you are not required to file Return of income. However if you have short term capital gains on equity shares or units of equity oriented mutual fund (even if less than Rs.1,50,000/-i.e. the basic exemption limit )yet you are liable to file ROI. Legal Compliance 1- Income Taxable in India: A person who is Non Resident under the Provisions of The Income Tax Act, 1961 is charged to tax on the following Incomes: a. Income earned from any source in India e.g. Interest from investments in India, capital gains from investments and immovable property in India etc. b. Any other Income earned or received in India. c. Income other than the above is not taxable in India. 2- Due Dates for Filing Return of Income: Before the Prescribed Date After the Due Date, But before the Extended Date After the Extended Date Every person who is not carrying on business is required to submit return of income by 31st July every year for the income earned during the prior year ending 31st March provided his income exceeds the maximum amount not chargeable to tax i.e.1,50,000/-. If a NRI do not file the ROI by the prescribed date, 1.     He can file the ROI within subsequent 20 months 2.     He is liable to pay interest at 1 % p.m. on the tax payable. If the Tax is deducted at source from your Income in the Past years and you have not filed the Return of Income within the prescribed time, you may apply to Income Tax Department to condone the delay and accept delayed return and thus claim Refund of Tax. For Example Income for the year ending Actual Income Earned File the ROI by File the ROI by Extended date 31st March 2005 More than Rs 50,000 31st July 2005 31st March 2007 31st March 2006 More than Rs 1,00,000 31st July 2006 31st March 2008 31st March 2007 More than Rs 1,00,000 31st July 2007 31st March 2009 31st March 2008 More than Rs 1,10,000 31st July 2008 31st March 2010 31st March 2009 More than Rs 1,50,000 31st July 2009 31st March 2011 Impact of non-filing of ROI It may result in to penalty of Rs.5000 for each year. Also, one may be subject to prosecution u/s 276CC. Provided that a person shall not be preceded for penalty or prosecution for failure to furnish return of income, if- a) The return is furnished by him before the expiry of the assessment year; or b) The tax payable by him on the total income determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source (TDS), does not exceed three thousand rupees. i.e. his balance tax liability after considering TDS and Advance Tax does not exceed three thousand rupees. Why the NRI should file the ROI? 1. The tax deduction at source for NRI is prescribed at maximum rate in the Income –tax Act (11% to 34%). However, the actual liability to tax for the year computed in accordance with the provisions of the Act is generally lower for following reasons. i. Income up to the basic exemption limit of Rs.1,50,000/- (other than capital gains) earned by NRI is not liable to taxation. However, the tax is deducted at source at 33.99% from such income. ii. The income earned may not be liable to tax but the Payer in following cases deducts the tax. a) The Capital losses can be set off against Capital Gains but tax is deducted at source from capital gains without setting off the losses. b) The rate of TDS on NRO Account is 33.99 % (for Financial Year 2008-09) but tax chargeable on Income as per Double Taxation Avoidance Agreements (DTAA) with the country where NRI resides, may be lower. c) The reinvestments of capital gains, as prescribed may exempt it from tax but the tax may have been deducted from the capital gain received. In view of above, NRI should file Return of Income if his tax deducted at source is more than his actual tax liability. He is entitled to claim refund of Tax with interest at 6 %p.a. 2- Sometimes, NRI may incur short-term or long term capital loss on sale of investments. He can setoff such loss against long term capital gain from sale of investments in subsequent year or years provided he has filed Return of Income within the prescribed time for the year in which he has incurred loss. Hence the NRI should file the return of Income declaring loss in such a situation. 3. NRI may file Return of Income in some years and may not file in some years .But if he receives a notice from the Tax Department to file the Return of Income, he must respond by filing return of Income. 4. The updated tax information / records helps NRI to comply with the procedural documentations for repatriation of Income and Assets held in India. It also helps him to have ready records as & when he returns to India.