The income tax complication with the financial New Year for the NRI’s residing in the US

The income tax complication with the financial New Year for the NRI’s residing in the US

by | Apr 30, 2019 | Blog, federal income tax, income tax, NRI, Tax Planning, Tax Preparation, Tax Refund

The income tax complication with the financial

New Year for the NRI’s residing in the US

As India is developing rapidly, globalisation has resulted in more opportunities. Stronger economic ties with developed markets like the US has made many Indian’s studies and work overseas. Such Non-Resident Indian’s living in the US, juggle between two different tax jurisdictions. NRI taxation rules are completely different as compared to the rules applicable to ordinary Indian residents. Hence, the tax provisions for Non-Resident Indians are separately dealt under ‘NRI taxation’ section of Income Tax Act, 1961. NRI taxation involves the host of obligations and reporting requirements along with changing tax provisions each year which makes it quite complicated. With the beginning of the new financial year, NRIs residing in the US may have to face challenges or tax complications in below areas.

Determining tax residential status in India

Primary challenge for NRI wanting to undertake tax compliance is determining the tax residential status for the year in India. Residential status is classified as Non-Resident Indian (NRI, Resident but not Ordinarily Resident (RNOR) or Resident and Ordinarily resident for tax purposes depending on number of days spent in India. It could get quite complicated to understand the status.

An individual is deemed to be non-resident in India if any one of the conditions below is satisfied.

  • Your stay in India during the previous year is less than 182 days
  • Your stay in India during the four years immediately preceding the previous year is less than 365 days and you have been in India for less than 60 days in the previous year.

A resident individual is considered as RNOR, if any of the below conditions are not satisfied or only one of the below condition is satisfied.

  • You are resident in India for at least two years out of 10 years immediately preceding the relevant year
  • Your stay in India is for 730 days or more for seven years immediately preceding the relevant year.

Important thing to consider here is previous year is period of 12 months starting from 1st April to 31st March.

Income tax return forms

Which ITR (income tax return) form to use for filing is the next challenge that you would face being NRI. With the change in norms, NRIs are now required to use either ITR2 or ITR3 for filing income tax. NRIs with no business/profession income can file income tax in ITR2. ITR3 needs to be used if you have business/profession income to report.

Tax treatment of investments and income

For NRIs, only income earned in India is taxable. When it comes to understanding exchange control norms and tax implications on making investments, it’s quite complex. To understand complex income tax provisions relating to income and investments in India comprehensively, it’s wise to seek expert help. As income earned by NRIs is subjected to double taxation, it becomes imperative for NRIs to understand tax implications before making investment choices. Also, there are provisions to save tax liability to an extent which needs to be carefully understood. With the complexities involved and time constraints, liaising with banks and other financial institutions where investments are held also could get challenging.

Tax relief claims

After understanding the tax treatment, there are also many provisions available for saving tax liabilities which can be beneficial for NRIs such as Double Taxation Avoidance Agreement (DTAA). However, the process of claiming benefits under DTAA could be challenging as one needs to provide extensive disclosures such as overseas tax residency certificate. Tax identification number of home country and details of assets held abroad etc.

Conclusion

A strong economy needs more stringent tax regime for the increased development. As India is aiming towards strengthening economy, tax regimes are getting stricter and stringent. Understanding the taxation process and keeping yourself updated on change in provisions and norms can help you effectively adhere to tax laws and stay tax compliant. Being an NRI, seek help of professional experts to file income tax returns and plan your taxes for the year ahead efficiently.

 

How to claim your TDS refund for the NRI’s residing in the US

How to claim your TDS refund for the NRI’s residing in the US

by | Apr 22, 2019 | Blog, income tax credit, IRS, NRI, Tax Payers, Tax Planning, Tax Refund, tax savings, TDS

How to claim your TDS refund for the NRI’s residing in the US

TDS refund For an NRI residing in the US, income tax is applicable for the income that is earned in India. Be it salary earned in India or for services rendered to India or on earnings from investments and assets, NRI is liable to pay income tax if the total income for the financial year is more than Rs. 2.5 lakhs.

In India, It’s not very simple when it comes to income tax rules for NRIs.As per tax rules, any payment to non-resident Indians (NRIs) is required to be made after deduction of tax deducted at source (TDS) even if the income of that person is less than Rs. 2.5 lakhs. However, NRIs are allowed to claim refund of TDS deducted at the time of income tax filing if he/she falls below the minimum taxable income i.e. 2.5 lakhs.

Here are some of the major income types on which TDS is deducted for NRIs.

  • Payments received for services rendered in India
  • Interest income earned on bank savings and deposit accounts – NRO accounts
  • Rental income from property owned in India
  • Sale of bonds, mutual funds and shares
  • Sale of property in India owned by an NRI

TDS refund can be claimed by NRIs residing in the US by filing the income tax return in India. Income tax filing is quite a simple process. As the new financial year begins, it’s also important for NRIs to know the time limit to file the income tax for claiming refund.

NRIs are required to file income tax return before 31st July of the new financial year. Any delay would attract penalty. For example, for the financial year 2018-19, income tax filing needs to be done by 31st July 2019 for claiming TDS refund.

Here are the few easy steps for NRIs to file income tax return in India

Reconcile your incomes and taxes with Form 26AS

After determining the residential status for the financial year, NRI‘s need to reconcile their TDS credit or advance taxes paid with the data reflected in Form 26AS.

Keep the necessary documents ready

Keep important documents such as PAN card, bank details, investment details, TDS certificates, passport and Form 26AS ready as these documents give you relevant information required for income tax filing.

File your income tax return through income tax e-filing portal

  • Log on to income tax e-filing portal with your e-filing account user ID and password. Download ITR2 or ITR3 form depending on your type of income.
  • If you earn any income from business in India, ITR3 would be applicable. ITR2 would be applicable if you are not earning any business income (excludes capital gain on sale of assets/property) in India.
  • Fill in all the relevant details and calculate your tax liability.
  • Once all the details are filled validate your form by entering one time password (OTP) sent to you on your registered number.
  • Save the validated XML file on your system and then upload the saved file with adding your digital signature to it.

Verify your income tax return

Once you are done with uploading your tax return file on income tax portal, ITR-V will be generated which needs to be submitted to IT department. On receipt of this, your income tax return will be processed.

It’s important to note that, refunding of TDS will take about 6 months’ time or more. However, the refund is issued with interest of 6% p.a which is applicable from the end of financial year.

NRIs residing in US can save on TDS through DTAA (Double Taxation Avoidance Agreement) as both the countries have signed tax treaties. In this case, as an NRI taxpayer you can avoid paying tax twice for the same income. DTAA either eliminates or reduces your tax implication on the income earned and taxable in India.

Conclusion

As an NRI, adhering to two different tax laws at once can be quite challenging. Knowing and understanding the process involved in the taxation can help you save tax liabilities. Keep yourself updated and seek a professional help whenever needed.

The income tax implications of selling your property in India for the NRI’s residing in the US

The income tax implications of selling your property in India for the NRI’s residing in the US

by | Apr 16, 2019 | Blog, global income tax, NRI, Tax Planning, Tax Refund

The income tax implications of selling your property in India for the NRI’s residing in the US

Indian real estate market is the third largest in the world. Attractive real-estate opportunities, RBI’s general permission and falling rupee value against dollars in recent times have created more interest among Non-resident Indians to invest in immovable properties in India. Along with buying a property of their own, many NRI’s may even have inherited properties in India. When it comes to dealing in property transactions for NRIs, taxation is one of the vital aspect to be considered. Let’s take a look at the income tax implications of selling property in India for NRI residing in the US.

Tax implications of selling property in India

Under the Income Tax Law in India, income from selling property is taxed under the head ‘capital gains’. Taxability on capital gains will be based on the period of holding of the property. Capital gains are taxable in the year of property transfer irrespective of receipt of sale consideration. Here are the tax treatment for capital gains arising out of selling of property in India.

  • Short-term capital gains: If you are selling the property before 24 months from the date of property purchase, gains are treated as short-term capital gains which are taxable at the normal tax slab applicable for you as an NRI. The buyer is liable to deduct TDS (tax deducted at source) at 30% rate irrespective of the tax slab.
  •  Long-term capital gains: If you are selling the property after 24 months or two years from the date of property purchase, gains are treated as long-term capital gains. For which, tax will be applicable at the rate of 20% with applicable surcharge and cess.

Capital gains are calculated as the difference between the sale value and cost of purchase. In case of inherited property, date and cost of purchase to the original owner (from whom the property is inherited) need to be considered for computing capital gains. In case of long-term assets, cost of purchase is indexed to adjust for inflation.

Tax exemptions to reduce tax-outgo

NRIs can claim tax exemptions under Section 54 and section 54EC on long-term capital gains arising out of sale of residential property in India.

  • Section 54: As an NRI if you sell a long-term residential property, you can claim tax exemption on the gains if you acquire another residential house either one year before the sale or two years after the sale of property. Exemption can also be claimed if you construct another residential house within a period of three years from the date of transfer of such property. However, exemption claim is limited to the lower of total capital gains on sale of property or cost of purchase/construction of new property. And, no exemption can be claimed in respect of property purchased or constructed outside India.
  • Section 54EC: As an NRI, you can also save tax on your long-term capital gains by investing in tax saving bonds issued by Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI). To claim the tax exemption on long-term capital gains on sale of property, you need to invest in these bonds within six months from the date of transfer of property. Maximum of Rs. 50 lakhs is allowed to invest in these bonds which are redeemable after three years.

In order to avoid the deduction of TDS, it’s important to produce the relevant proofs or certificate of exemption to the buyer. However, you can claim refund of excess TDS deducted at the time of filing income tax return.

NRIs residing in US needs to keep in mind the tax implications applicable for them in US (country of residence) while selling property in India. It’s important to report the income and related details without any errors. Erroneous tax returns can land you in trouble. IRS sends out more than 9.1 million of notices every year to tax payers for erroneous tax returns. Failing to respond to notice can attract penalties.

Conclusion

Selling property for NRIs is not really a complex thing if taxation and legal aspects are dealt properly. Seeking professional help can smoothen the process and help in saving the tax liability to certain extent.

 

 

 

The top 3 things to keep in mind if you are returning to India in this financial year 2019-20

The top 3 things to keep in mind if you are returning to India in this financial year 2019-20

by | Apr 9, 2019 | Blog, income tax, Tax Extension, Tax Planning, Tax Preparation, Tax Refund

The top #3 things to keep in mind if you are returning to India in this Tax financial year 2019-20

For a non-resident Indian, who lived in another country for many years, the decision of returning to India permanently is never an easy one. There are a lot of considerations to be made for this transition, specifically on financial year matters. To avoid financial loss during transition, Investments, transfer of assets most importantly, taxation process and planning needs to be done thoroughly. Tax Here are the three most important things to keep in mind for NRIs returning to India in this financial year.

Understand your tax status and tax implications

As you return to India permanently, your tax liability for the financial year largely depends on your tax status for the year. You are considered as Non-Resident Indian (NRI)if you satisfy any of the below conditions.

  • Your total stay in India is less than 182 days during the financial year. Or,
  • You are not present in India for 60 days or more and 365 days or more in the four financial years prior to the relevant tax year.

If your tax status is NRI for the year, your income earned outside India is not taxable. Only, income earned in India are taxable for the year.

There is another category of NRI called ‘Resident but Not Ordinarily Resident’ (RNOR).You can become RNOR, if your stay in India in the seven financial years immediately preceding the relevant financial year is less than 729 days or if you have been Non-Resident Indian (NRI) in nine out of ten financial years preceding the relevant tax year.

If you are returning to India, you can keep your RNOR status for up to three financial years after your return to India. You can benefit hugely out of this as your income earned in India is only taxed not the global income. With RNOR status, you can enjoy many tax benefits on various incomes. Here are some of them.

  • Pensions from pension scheme held overseas
  • Capital gains from sale of properties and shares held overseas
  • Interest income from Resident Foreign Currency (RFC) and Foreign Currency Non-Resident (FCNR) deposits
  • Interest on deposits held overseas
  • Dividends earned on securities held overseas
  • Rental income from properties held overseas

Once you lose RNOR status, you will become ordinary resident of India and then your global income will be taxed in India. If your overseas income is taxed abroad, then you can claim tax benefits under Double Taxation Avoidance Agreement (DTAA).

Act oninvestments and assets held overseas

Firstly, you need to jot down list of investments and assets held overseas. This can help you plan properly. If you are planning to dispose overseas investment and assets, you need to plan for transfer of proceeds. If you plan to hold the investments and assets as it is overseas, reporting of such assets for the taxation purpose overseas need to be planned carefully. In order to avoid double taxation, experts recommend to dispose foreign assets and investments and get the proceeds transferred to India when you are an NRI or RNOR.

Re-plan your financials

As you close your overseas bank accounts, investments and get the assets transferred to India, it becomes necessary to re-work on your financials. As you return to India, your bank accounts held in non-resident status needs to be re-designated as resident accounts. However, your Resident Foreign Currency (RFC) account and Foreign Currency Non-Resident (FCNR) accounts can be held till maturity. Similarly, all your investments in India needs to be updated with the change in status. Not just there will be change in your investments, assets and tax implications on them, but also there can be change in your income and expenses. Hence, re-planning your finances need to be kept in mind while returning to India.

Conclusion

To ensure smoother transition, every aspect needs to be well thought out and planned. You can take help of tax experts and financial planners to experience easy transition and for better financial decisions.

Things to take care of, when you visit India for your annual vacation this summer

Things to take care of, when you visit India for your annual vacation this summer

by | Apr 2, 2019 | Investment & Income, Tax Extension, Tax Planning, Tax Preparation

NRI’S Things to take care of, when you visit India for your annual vacation this summer

Non-Resident Indians living away from motherland usually plan their trip or vacation to India during winter as they could celebrate some of the popular festivals with family. Many NRIs also plan their annual vacation in summer as spring is the season of marriages and other celebrations to be with family and friends. Are you also a NRI planning your annual vacation to India this summer? Then, there are few more things to take care of apart from celebration and spending quality time with family and friends. Let’s take a look at important things to take care of during your India visit this summer.

Review you finances

As the new financial year has just began, first quarter of the year is the best time to have a look at your financial portfolio in India and act upon existing investments accordingly. India has numerous investment options. Explore investment options available for you in India to diversify your portfolio. Understand tax implications of investments that you are planning for the year. As you make financial plan, take your global income, expenses, investments, assets and loans into consideration to arrive at the better plan in align with your future financial goals. For retirement planning, if you are unsure of your returning back to motherland, have alternative and flexible plans in place.

Income tax filing and tax planning for the year

Being a Non-Resident Indian, you are required to file income tax return on your income earned in India in an applicable form (ITR2 or ITR3 depending on your income type). For the financial year 2018-19, you are required to file income tax in India before 31st July 2019. As you are visiting in the first quarter of the new financial year, you can take care of things related to income tax filing for the year gone by. Learning change in requirements, new rules and requirement of documents can help you out finish the filing process smoothly. You can also take a look at ways to save tax liabilities such as claiming benefits under Double Taxation Avoidance Agreement (DTAA).

According to latest income tax return forms, if you are claiming tax relief under Double Taxation Avoidance Agreement (DTAA), you will need to provide more extensive details such as overseas tax residency certificate, tax identification number of home country and assets held abroad etc.

You can also plan ways to save tax for the current financial year. Beginning of the year is the perfect time for tax planning. You can take help of professionals who expertise in taxes of both geographies so that you can plan your taxes efficiently and file your taxes smoothly in India.

Review your insurance portfolio and seek sufficient coverage

Take a look at your insurance portfolio and ensure you have sufficient insurance coverage. If the existing coverage is not sufficient, plan efficiently to manage future uncertainties. It’s important to understand that insurance planning and risk management is an integral part of your financial planning. Not just the life insurance, you need to pay attention to health coverage also keeping in mind of your plans to return to India in future.

If you are living in US, you would have created health savings account (HSA) for future medical needs as it is a tax-advantaged medical savings account. As per data, HAS investment assets approached 8.3 billion dollars by the end of 2017 with 22% increase in assets year on year. Though, HSA sounds interesting for NRIs build corpus to pay for eligible medical expenses, it’s important to have health cover in India as well for treatments undergone in India as well as for future coverage and tax benefits.

Conclusion

Make your annual vacation to India worthwhile this summer by effectively planning your financials and taxes along with having family fun time. Seek help of certified financial advisors and tax experts to plan ahead in an efficient manner.