Taxes on Investments in India- FD, Mutual Funds, Equity/Stocks, Real Estate, etc.

by Mounica Kota | Dec 26, 2018 | Tax Planning, Tax Preparation

Taxes on Investments in India- FD, Mutual Funds, Equity/Stocks, Real Estate, etc.

Taxes on Investments,Irrespective of which country you travel to, there is something that one must always be cognizant of, taxes. And things can get a bit tricky since you might have to pay taxes at both the places, the current country of residence as well as your country of origin. If you are an NRI and have investment interests back in India, there are some tax laws that you must be aware of.

Being aware of these tax rules would ensure that you are not caught in any crosswinds. And that you are on the top of any taxes that you are liable to pay. The following are the taxes on investments that NRIs must pay.

Real Estate

If you have a property that you have rented out, either for commercial or residential purposes, you are liable to pay taxes on the same. The calculation of taxes remains more or less similar to that of resident Indians. In such cases, an NRI can claim a standard deduction of 30%. On top of that, if they have an outstanding loan, they can claim the principal amount under Section 80C and deduct the property taxes as well.

If you have rented your place, the tenant must deduct 30% as TDS and then pay the rent. An individual making a payment (or remittance) to an NRI must also submit Form 15CA to the income tax department. In certain cases, you might even have to work with a chartered accountant and submit Form 15CB along with Form 15CA.

Fixed Deposits

For NRIs who like to invest in fixed deposits for steady returns, they will also have to pay taxes on the same. The same extends to savings accounts as well. If you have a NRO or FCNR account, then you need not worry about taxes. But for NRO savings account or normal savings account, you are liable to pay taxes as per the applicable tax slab.

Capital Gains

When you sell an asset for a price higher than what you had paid to buy, capital gains taxation comes into the picture. Capital gains taxes are defined by duration for which you are holding on to the assets for. You either end up paying short-term capital gain taxes or long-term capital gain taxes.

Depending on the asset class, the definition of a short-term or long-term capital gain changes. If you have any properties that you decide to sell after three years from the date of purchase, it would qualify as long-term capital gain. In such instances, the profit made on the transaction is taxable depending on the tax slab for the NRI. And should you decide to sell the property before the completion of 3 years, short-term capital gain is applicable.

Any investments made on Equity or Stocks or even Mutual Funds follow a similar school of taxation. However, the holding period differs slightly. If you hold on to Equity/stocks or mutual funds for at least a year, they qualify as long term capital gain and short term capital gain if it is held for less than a year.

For such short gains, one must pay 15% taxes on the gains. Whereas for long term gains, the taxes are 10% of the profit amount that exceeds INR 1,00,000.

These are some of the most common modes of investment and their implications on taxation. If you have invested in any of these avenues, it is recommended to pay the applicable taxes or reach out to a chartered accountant for additional help.

Tax Liability for NRI’s residing in the US for sending money to India

by Mounica Kota | Dec 25, 2018 | Tax Planning, Tax Preparation

Tax Liability for NRI’s residing in the US for sending money to India

Tax Liability for NRI’s residing in the US for sending money to india.A better working opportunity or an opportunity to secure a better future for yourself and your family or better earnings are some of the most common reasons for people to seek jobs abroad. It is only but natural that one would want to send money back to the country. Either to their existing savings account or to your family. One must be cognizant of the fact that two different countries and their respective tax laws come into the picture in such transactions. If you are an NRI who resides in the United States of America, what are the tax liabilities that you must adhere to? If you are sending money back to India, it largely depends on whom you want to transfer the money to. For starters, when an NRI sends money to their spouse, kids or parents, they might not have to pay any taxes. The reason being, it is considered as a gift from your income to them. And in India, a gift from earning heads is not considered to be liable for taxes. On the other hand, if you are sending the money to the savings account of someone else, it would be a source of income for them and they must pay applicable taxes on the same. Another important thing to keep in mind is the conversion of bank accounts. As soon as you become an NRI, the first thing that you must do is convert your savings account to NRO. Thus, a scenario where you would send money to your own savings account doesn’t arise in the first place.

Abroad to NRO

There are different ways by which you can submit money to your NRO account. You can either wire transfer the same, do online transfers or take the help of any other banking channel. The amount that you transfer is non-taxable either in India or in the USA. The simple assumption is that you have already paid taxes for the income that you receive in the USA. But if you earn interests from your NRO account, you are liable to pay taxes on the same. Of course, this taxation adheres to income tax laws of India. Thus, if the interest that you earn exceeds the basic exemption income of INR 2,50,000 for a fiscal year, you will have to pay taxes on the same. Remember, it is not mandatory to file your taxes if your only source of income is interests earned on a saving account. However, you can reclaim the money as a part of TDS that is already deducted.

Abroad to NRE

The other account that you can possibly convert your savings account to is an NRE account. And the taxes change by a considerable margin should you decide to transfer funds to your NRE account. Any amount that you transfer to your NRE account is non-taxable. Also, the interests that you earn on your NRE savings account is non taxable as per Indian tax laws. But for NRIs based out of USA, they would need to include the income from NRE accounts in their income tax filing, since it becomes a global income. However, if you choose to transfer the same to your spouse’s account, the effective taxation would come down by a considerable amount due to the lower tax bracket. For any money transfers to the savings account of your parents, they need not pay any taxes on the same. As already mentioned, the type of account that you transfer money to largely defines the amount of taxes that you are liable to pay.

Under what circumstances is it compulsory for an NRI to file his taxes?

by Mounica Kota | Dec 23, 2018 | Tax Planning, Tax Preparation

Under what circumstances is it compulsory for an NRI to file his taxes?

It is a common understanding that anyone who has a source of income in India and falls into the tax complusory for an NRI brackets must pay income taxes. But not many are aware of the fact that even NRIs might have to pay file taxes for their income in India. The NRI Taxation section of the Income Tax Act of 1961 governs thesetaxations. And there are a lot of differences when it comes to taxation for NRIs versus Indian residents.

Residential Status

The residential status of a taxpayer plays a crucial role in deciding the liability of taxes. Anyone who spends more than 182 days in India is considered as an Indian resident for that fiscal year. Similarly, if you have stayed for at least 60 days in the previous year and a total of 365 days or a complete year in the past 5 years in India, the status remains as an Indian resident. Otherwise, the taxpayer is considered as an NRI.
For Resident Indians, their global income is taxable in India. However, for NRIs the income accrued or earned in India is taxable. And irrespective of whether you are an NRI or resident, you must file tax returns if your income exceeds INR 2,50,000 for a fiscal year.

Taxable Income

If you earn money from any of the following avenues, your income is subject to income taxes. Of course, the actual amount of taxes largely depends on the income and the tax slab that you become a part of. Here are the incomes that you need to keep an eye on.
– Salary
If any of your services or employment is rendered in India and you are earning money on the same, it must be a part of income tax. For NRIs, if they receive income for the services that they provide in India, they will be taxed in India.
– Rental Property
If you own properties that you have rented out, you must pay taxes on the same. Tenants who pay their rent to their NRI must deduct 30% TDS. A tenant must submit Form 15CA to the income tax department. In certain cases, a certificate from a chartered accountant is needed (Form 15CB) in order to submit Form 15CA.
– Property
Any income that you receive from a property is also taxable as far as an NRI is concerned. The tax calculation remains more or less similar to that of a resident Indian. NRIs can take a standard deduction of 30%, benefits from any home loans on the property and deduct property taxes as well. NRIs can also seek for exemption under Section 80C for repayment of principal for any existing loans.
– Other income
Should you earn any interests in the form of fixed deposits or savings accounts which are held in India, you must pay taxes for the same. Any interest that you earn on NRE or FCNR accounts is non-taxable. However, for interests earned on NRO accounts, you must pay taxes. If you have any business set up in India and earn through them, the income is taxable in India.You must also pay taxes for capital gains of any form. Capital gain usually comes into the picture if you buy or sell properties, shares, securities etc. The profits that you make on these investments are taxable in India.
– Indian Assets
On investing in certain Indian assets, NRIs must pay as much as 20% in taxes. However, if it’s the only income for the fiscal year and TDS has been deducted, they need not file a return for the same.
These are some conditions where an NRI might need to file his/her taxes.

Income Tax Planning for an NRI planning to return to India

by Mounica Kota | Dec 23, 2018 | Tax Planning

Income Tax Planning for an NRI planning to return to India

Income Tax Planning for an NRI planning to return to India .It might so happen that one fine day you decide to pack your bags and come back home. When you do,there are a few things that Income Tax planning must take special care of. For starters, your investments and tax implications. In general, the tax laws for NRIs returning to the country are fairly generous. However, youmust not be complacent.

A bit of careful planning will ensure that you do not run into any surprises when you come to India, as far as your overseas income and investment are concerned.Tax Resident Status Your tax liability on the income largely depends on your residential status. The FEMA (Foreign Exchange Management Act) and the Income Tax Act govern all these tax rules and regulations. The FEMA keeps a track of all the transactions taking place outside the country for Indian residents. These transactions include foreign bank accounts,money transfers, remittances, lending, gifting, etc. Any investment in real estate or mutual funds is also taken care of by the FEMA. The income tax act on the other hand, looks after the tax liability arising out of such investments. As per the FEMA guidelines, an NRI is someone who currently stays out of India but either is a citizen of
India or a person of Indian origin. They must meet either of the following conditions to become a PIO or a person of Indian origin.

– Has held an Indian passport anytime during their lifetime.
– Has a spouse of Indian origin.
– Was a citizen of India or has grandparents or parents who are Indian citizens.

Foreign Assets
The FEMA offers strict and clear guidelines for foreign assets. As per the law, an NRI has the liberty to own, transfer, hold or invest in assets that are outside the country. However, this only comes into the picture if the person bought the asset during their stay abroad or if they have inherited the assets. And not otherwise.

Indian Assets
Should a person choose, they can hold on to their Indian assets during their stay in other countries. These include bank accounts, investments, assets etc. however, there are special accounts to hold these. Usually, the two bank account types available for NRIs are FCNR or Foreign Currency Non-Resident and
NRE or Non-Resident External Rupee. You can use these accounts to deposit any earnings from outside the country to your local bank accounts.

Income Tax Act
The income tax act has clauses with the help of which NRIs can save taxes on their global income for as many as three fiscal years. On coming back to the country, they must convert their NRE or FCNR accounts to RFC accounts. Any interests earned on FCNR and NRE accounts are exempted for NRIs and RNORs.

If an individual was residing in foreign country ordinarily, and brings in money to India, the same is exempted from taxes up to a period of seven consecutive assessment years. The only condition being that the wealth tax exemption is not applicable to income tax and assets which are brought during the stay in India.
For NRIs who receive their pension from former employer post moving to India may be taxable. Of course, if there is any double taxation agreement between both the countries, it would govern the taxes.
NRIs who are moving back to India permanently, need to consider the above points. Being aware of applicable tax laws and proper planning would ensure a smoother transition phase and allows users to benefit from tax breaks. Since returning NRIs have quite a few tax breaks available for them.

Checklist for an NRI filing return in USA and India for the same year

by Mounica Kota | Dec 22, 2018 | Tax Planning

Checklist for an NRI filing return in USA and India for the same year

NRI filing return,It is quite a common scene. Indians travelling to the USA in the search for better opportunities and a better future. If you are one of them, there are quite a few things that you need to keep in mind for filing return in the USA. The first of them being, the liability of taxes. And things can get a bit more complicated if you leave India in the middle of the year.

Should you pay your taxes in India or in the United States of America. This is a confusion that most NRIs have. The simplest way to handle such queries is to find out the residential status of an individual. The residential status of an individual for India or USA defines the tax liability that he or she must adhere to.

US Resident

In order to find out whether or not an individual is a US resident, they must take the Substantial Presence test. An individual must have either of the following criteria to meet the test.

Physically present in the US for at least 31 days.
Physically present in the US for at least 183 days in the previous three years.

If you want to check your residential status, you would need to count the number of days that you were physically present in the US. Should you qualify for either of these, you would be deemed as a US resident. If not, he/she would be a non-resident alien.

India Resident

To find out if your status is an Indian resident or not, you must qualify for any one of the following two conditions.

A person must have stayed in India for at least 182 days for a fiscal year.
A person has stayed for at least 365 days together over a period of 4 years.

For being an Indian resident, an individual can use either of the following conditions as well.

A person has been a resident of India for at least 2 years in the past 7 years.
The person has stayed for at least 730 days or more than that during a period of 7 years.

Apart from identifying whether or not you are a resident of a country, there are some other conditions as well. Here is when you would need to file taxes return.

US Tax Filing

Individuals who are residents of the USA, green card holders or a lawful US resident need to file for their taxes. Also, if you are a non-resident alien and have a source of income in the USA, you need to file taxes. A non-resident alien is taxed only on the US income whereas a resident is taxed on the global income.

India Tax Filing

The Indian tax laws say that a ROR must pay taxes on their Indian as well as global income as per the applicable tax slabs. Should an individual qualify as a ROR or resident, they would have to pay taxes to the Indian government.

There are chances or instances where one might have to pay taxes in both the USA and India. However, you need not to worry about such situations. Both the countries have a DTAA or double taxation avoidance agreement. This ensures that individuals do not end up paying taxes in both countries. If at all you have already paid taxes in one country, you can claim for tax credits.

Another example would be if a person stays in India for 90 days and moves to the USA, he must pay taxes only on his Indian income to the Indian government and likewise applicable taxes in the USA.

« Older Entries