Tax India

Can NRIs file nil tax return?

A N Shanbhag & Sandeep Shanbhag

Mail your queries to [email protected]

Q : 1. What is the minimum time required to be outside India to qualify as an NRI and be exempt from paying income tax in India? Is it 182 or 183 days? Are the days of leaving India and arriving back in India (i.e. the dates stamped on your passport) counted in the tally of days outside the country? 2. Is it necessary to file income-tax (I-T) returns if an individual has attained NRI status for a particular year? If the answer is no, what if proof of IT returns is required while buying a house, car etc. (upon move back to India). If the answer is yes, on what basis would we be taxed?--- ArnavA : You have to consider time spent in India and not outside India to determine your NRI status. If in any financial year if you spend 182 days or more in India, you will be a Resident of India. If you do not satisfy this condition, by default, you will be an NRI. Both days of leaving and arriving back in India (as stamped on your passport) will be considered in calculating the 182 days as specified above. If your Indian income is less than Rs. 1.50 lakh, you need not file a tax return as no tax is payable by you. The income you earn as salary as an NRI will be considered as your foreign income and hence not be taxable in India. If you do desire to file an I-T return for the purposes as specified by you, you may file a nil tax return

Q: I have been given to understand that as an NRI, I can buy a maximum of two real estate properties. Is this true? What if I sell my existing properties (two in number). Then can I purchase more? --- V N Saldana

A : You may buy or sell any number of properties. However, in the case of residential property, as an NRI you would be allowed to repatriate the sale proceeds of a maximum of two properties over your life time. Therefore, if your final aim is to repatriate the money, after two properties bought in your name, it would be advisable to buy any further properties in the name of your immediate family members.

Q : I have misplaced my PAN and I need a duplicate. I need to pay income tax on my savings account in India. I am a NRI. Please advise the procedure for getting a duplicate pan number.--- K K Gupta

A : A specific form is available for requesting a duplicate PAN card. You will have to attach a photocopy of your lost misplaced PAN card along with an address proof. If you do not have a photocopy of the PAN card, you will have to file a complaint at the police station and attach a copy of such complaint.

Q: We have some bank accounts with my name first and my wife's name second.

We also have some other bank accounts with my wife's name first and mine second.

The money in these bank accounts has been from my earnings. Ideally we should have opened / kept all bank accounts with my name first.

Now the questions are as follows:

1. For Income tax purpose, will the income earned from the money lying in bank accounts with my wife's name first be compulsorily be considered as her income? 2. or can I claim that it is my money and I will pay the tax on that income also (along with my own income). In other words, my wife will not have any income at all; total income from all the banks will be mine. --- Shidhaye

A : Yes, as you yourself have observed, it is better to have your name first in all the accounts where the money belongs to you. The names of others as joint holders can be inserted for the sake of safety.

Nonetheless, it would be advisable to include the interest on the accounts standing with your wife's name first in your tax return.

Note that NRE and FCNR interest is tax-free. Therefore, only the interest on NRO will have to be shown in your account.

Q : My son had invested in shares, LIC, PPF, MFs etc. before he changed his status to NRI. The shares are in physical form in joint names with me, his father. Now that some of them are compulsorily traded in demat form we wish to open a demat a/c with a separate linked SB a/c and online trading a/c. We wish to know if

1. It is possible to have such a/c jointly with an Indian Resident.

2. My son does not wish to repatriate the earnings from these investments but wishes to utilise them for payment of LIC premium, contribution to PPF and for new investments in pension plans if permissible by FEMA rules.

3. He maintains a NRE account and his old SB a/c is still active. Does he has to close his old SB a/c --- Sudheer Moghe

A : Your son will have to open an NRO (Non PINS) demat account for the shares that he had purchased before becoming an NRI. This account can be jointly held with a Resident Indian. Earnings from the shares may be utilised for the purposes specified by you. Once a person becomes and NRI, by law he is not allowed to have Resident SB accounts. All such accounts can be either redesignated as NRO or closed.

Q: I am originally born in India, however, now I have acquired US citizenship. After a period of six years, I am going to India for the first time. My question is whether there is any limit on the funds (money) that I can carry into India and out when I return again. What are the legal formalities in this regard?

--- Clayton D'souza

A : Any person, whether NRI or PIO or a foreign citizen can bring into India foreign exchange without any limit.

However, if the aggregate value of the foreign exchange in the form of currency notes, bank notes or travellers cheques brought in by such person at one time exceeds the equivalent of US$10,000 or the aggregate value of foreign currency notes brought in by such person at any one time exceeds the equivalent of US$5,000, such person has to make, on arrival in India, a declaration to the Custom authorities in Currency Declaration Form (CDF). The CDF is provided by the custom authorities if needed.

And as far as taking back is concerned, it follows that such sum cannot exceed what has been brought in, in terms of the CDF.

: Me & my husband are US citizens but were born in India. My husband recently got a job in a software outsourcing company in India. He also has multiple entry visa for 10 years. We would like to know the following:1) Does he need any kind of 'work permit' to work & be paid in INR? For tax reporting purposes what kind of permit does he need in India? --- Shamina Sharma

A : Your husband would be an NRI working in India. Indian income of an NRI is taxable in India more or less on the same lines as a Resident Indian's. He would need to file tax returns in India in the regular course. In our opinion your husband would require a work permit to work in India. We suggest he apply for OCI (Overseas citizenship of India) in which case a work permit will not be required. All said, we strongly recommend that you consult an emigration lawyer before leaving for India.

Q : I have been an NRI for over four years now. This year I intend to send around $50,000 to India. Just wanted to know if I would be needed to pay tax on that? Also please let me know, what is maximum tax free amount I can send to India?

--- Kurush Canteenwala

A : Transfer by itself does not create any tax-liability. If the money transferred is capital in nature, the question of paying tax thereon does not arise. There is no maximum limit as such, you can send any amount. However, if the transfer is a compensation received in India against some service rendered or some goods exported outside India, the amount becomes chargeable to tax in the hands of the recipient.

If you are remitting the funds to your own account in India, as explained in the above para, there would be no tax. However, if you are sending the funds to some other person's account, the purpose for which you send the money is important. If it is a gift (or amount sent for household expenses) and you are relative of the donee, there is no tax. Otherwise, if the amount exceeds Rs. 50,000 during an FY, the whole of such amount will be charged to income tax of the recipient.

Q : I am currently working in UK on a client site for last 1 year. I have one NRE account. My query is "If I transfer money from my NRE account to my wife's account (in India), will she need to pay tax on that amount? If I transfer the money from my NRE account to my wife's account (In India) and she uses this money in a fixed deposit, then how much tax would she need to pay? Is there any upper limit to transfer the money in my wife's account?

--- Ashish Wagh

A: There will be no tax incidence either on you or on your wife resulting from the transfer of funds from your NRE account to your wife's account in India. However, if she were to invest the funds (open a Fixed Deposit as per information provided), the income / interest from the investment will be clubbed and taxable in your hands.

There is no upper limit on the amount that you can transfer to your wife's account.

Q :I propose to remit US$20,000 to my mother in India through my NRE account in India by way of gift. She proposes to invest in term deposit in Indian bank in her name. She has no other income in her name and hence the interest she earns will earn from the TDR will be below the taxable limit. Can she after one year remit the entire amount to me for my maintenance expenses? I understand a sum of $200,000 a year can be remitted that way. I will be grateful if you favour me with a reply.

--- SumiA : There would be no tax incidence on either you or your mother upon gifting to each other any sums of money. You are correct in observing that she can remit the entire amount back to you for maintenance expenses. The limit for maintenance expenses, however, is US$100,000 and not US$200,000. The US$ 200,000 limit is for investments abroad including gifts and donations. So technically she can remit to you US $300,000 p.a. which includes US$ 100,000 as maintenance expenses and US$ 200,000 as a gift.I am an NRI and I currently live in U.S.I am planning to purchase an investment property in Mumbai, India. This property will generate rental income for many years into the future till I sell it. The investment will be about Rs 1 Crore. The annual expected income from this property is about Rs 3 Lakhs. Now I have two approaches to purchase this property: I can buy it under my name, as an NRI.OR Under my father's name, who is a Senior Citizen. Which approach do you think has more tax benefits and why?--- Vrushabh

A: You will have to gift the amount to your father to enable him to buy the property in his name. You will lose title to that amount (and of course to the property). If your father has negligible income, the rental income will attract lower (or nil) tax. The same is the case with you if your Indian income is negligible, but your father is a better bet since he is a senior citizen. Again, this rental income may be (check with a consultant in the USA) taxable for you in the USA.

Q: I am working in Canada for past two years. I am on deputation to Canada. My Indian employer is paying me my Indian salary which is getting credited in my account every month. I have taken house loan in India from ICICI for which I am claiming the income tax benefit on the interest as well as amount paid as principal. My question is as an NRI, am I allowed to avail the tax benefit on the house loan. I am keeping the house locked currently but if I rent that house out then would I be still able to claim the tax benefit by showing earning from rent in my income and pay appropriate taxes in that.--- Laxman RaiA: Yes, tax benefits on home loans are common for residents and NRIs.If this is the only house that you own, if you keep it locked, you would be entitled to an interest deduction of Rs 1,50,000 per financial year. On the other hand, if you rent it out, the entire interest you pay (even if it over Rs 1,50,000) is deductible.What is the best time for NRIs to return?



Q: I want to return back permanently to India after completion of many years of living in the US. Can you please let me know if there is any best time for returning back in relation to tax and other related matters and the reasons behind it.

--- MichaelA: If you can, always plan to arrive into India after the 1st of October in any year. This way you can live in India for the rest of the year and yet be an NRI and not pay tax. Also, you can avail of the RNOR status for the next two years. Under RNOR status your foreign income if any is not taxable in India. Also depending upon the number of years you have stayed outside India, your income abroad could be tax-free up to three years after you become a Resident.

Q : I am a citizen of India and staying in India. I am working in a software company. My company wants to send me US for project related work. I have H1B VISA. My stay in USA will 1 year initially. The duration can be extended if needed. Here are my questions:: 1. Shall I be called a NRI during my stay in USA? 2. I have demat account here and I am possessing shares of different companies. Do I have sold them before moving to USA? 3. Can I sell them when I will be in USA? 4. Can I buy shares when I will be in USA? 5. Do I have to pay any tax for the trading? Please let me know.--- Pappu

A: A Resident is one who during a Financial Year (FY) which is from April to March, satisfies any one of the following 2 basic conditions: He is in India for at least a)182 days in the FY OR b)365 days out of the preceding 4 FYs AND 60 days in the FY. The stay in India need not be continuous. Most persons going abroad for an employment for the first time will have the status of Resident since they will be covered by the b clause above. Therefore, if an Indian citizen leaves India in any year for the purpose of employment, or as a member of the crew of an Indian ship, the 60 days in the clause b above is to be replaced by 182 days. In other words, they will be treated as Residents only if they are in India for 182 days or more in the current FY. A person who is not a resident is an NRI. You do not have to sell the shares of your existing companies. However, your demat account will be redesignated as NON PINS and you cannot buy any shares in such demat account. You will have to open separate demat account in your new status as NRI under the PINS scheme. Your bank will help out with the procedure for the same. You can continue to buy shares when you are in the US. The tax depend upon the nature of your trade, however, note that long-term gains are tax-free for all categories of investors, NRIs or otherwise.

: I am Canadian citizen migrated in 2001 from India. I am thinking to buy equity- oriented mutual fund for Rs 20 lakhs. Please advise how muck tax I have to pay in India for holding the fund more than one year. If I open NRE & NRO Account and redeem 50% of my holdings after one year & fund grows by 25% (assume). I request the mutual fund to deposit my cost of Rs 10 lakh to NRE account which is repatriable & Rs 2.5 lakh to NRO account. My concern is if I visit India can I withdraw cash from NRO account to use in India without any restrictions,

--- Somanath

A: No tax is required to be paid merely for holding the funds, whether for more than one year or not. Tax becomes payable only when you redeem the units.Equity-based MF schemes (65% or more exposure to equities) are governed differently from the debt-based schemes. In both the cases, dividend is tax-free in the hands of the investor. However, there is a dividend distribution tax @14.165% payable by the MF directly to the exchequer in the case of debt-based whereas the equity-based are exempt from this tax. Equity-based schemes are also exempt from long-term capital gains tax. The short-term capital gains are taxed @10.3% only. If you have used forex for purchasing the units, the sale proceeds are repatriable after payment of tax, if any. The repatriable amount can be credited to NRE account and also to NRO account. You can freely withdraw from either of the accounts for local disbursement.

Q: I started working in Japan since Nov. 2006. I understand that for income tax purposes, my status as a taxpayer is Resident Indian (182+ days in India). I understand from the DTAA between India-Japan that my income in Japan is taxable in India as my status is Resident Indian (Article 14/15, DTAA). I also understand that the taxes I have already paid in Japan can be deducted against my income tax payable in India (Article 23 of DTAA). Please let me know if I'm right on these counts.Also, since my earnings are in JPY (Japanese yen), how do I calculate the rupee equivalent of my income for income tax purposes?Is there any Chapter/Section of the Income Tax Act that discusses this issue?

--- Pramod A: 1. Yes, your understanding is perfect.2. For the purpose of converting your earnings in JPY to INR, the rate as on March 31 may to be taken for all forex income on which tax is payable in India.

NRIs can't gift their income...



Q: I am coming back to India in June 2007 after staying at UAE for 5 years. So my status would be ordinary resident for the financial year 2007-2008. I will get my gratuity which is occurred for last 5 years (2002-2007). During this period (2002-2007), I was having NRI status.So do I have to pay income-tax on this gratuity money to be received and remitted to India in June 2007? I have some other earning outside India like my salary during FY 2007-08 (My status will change to Ordinary resident as explained above). Can I gift this money to my close relative and escape taxation?

--- Praganesh

A: FEMA Sec. 6(4) has granted general permissions to a person resident in India to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such Foreign Currency Assets were acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. Therefore, all the funds arising from your income for the years when you were an NRI would be tax-free in India. However, your foreign earnings for FY07-08 would be taxable in India. Consequently, your salary for April to June and that portion of your gratuity which is assignable to this period would be eligible to tax in India.2. You cannot escape your tax liability by gifting your income to any person. You can lessen the burden by contributing up to Rs 1 lakh to avenues under the umbrella of Sec. 80C, such as PPF, Notified Bank Deposits, LIC etc.

Q: I am a legal resident of Switzerland. After retirement, I am planning to visit India, often myself (OCI Card holder) with my wife (PIO Card holder). However, we always want to come back to Switzerland as we are paying regular and relatively high Swiss income tax.During our stay in India, would like to keep our Non-Resident status to avoid taxation in India.Question:How many days can we stay in India, each year for the years?2008200920102011201220132014to be able to have a status as Non-Resident to avoid taxation?

--- Veerat A: You will have to take the precaution of not being in India for 182 days or more during a Financial Year (FY) which is from April to March for each of the years mentioned by you. This is as per current tax laws. However, note that in future, tax laws may change and this information may not hold good. Therefore, it is advisable to check the law as is applicable for each year that you travel to India. As mentioned before, in India the residentship status is applicable for the financial year and not calendar year. A financial year ranges from April to March. So as of now, in the year from April 2007 to March 2008, if you spend 182 days or more in India, you will lose your NRI status. Similarly, from April 2008 to March 2009 you should not be in India for 182 days or more and so on to maintain your NRI status.

Tax laws for NRIs


Q : I am an NRI settled in the US. My brother owns a successful event management firm and is looking for some additional funds to expand his business. As per the regulations, will I be allowed to invest in his business as a partner? And if yes, will I be allowed to transfer my share of the profits back to the US as and when required, of course, after payment of the applicable tax?

--- Shrinath

A : NRIs/PIO have to seek prior permission of Reserve Bank for investment in sole proprietorship concerns/ partnership firms with repatriation benefits. Under the general permission, An NRI or a PIO may invest by way of contribution to the capital of a firm or a proprietary concern in India on non-repatriation basis. Investment with repatriation benefits requires permission of the RBI. A person resident outside India other than NRI/PIO also require the prior approval for making investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India.In other words, the general permission is not available even for large listed companies. Special permission is required for repatriability.


Q : I am an Indian national & a Singapore Permanent Resident currently working in India. My headcount is Singapore and I am paid my training stipend by the Government of Singapore in my Singapore account.I currently have an NRE Savings account to transfer my stipend (in Singapore Dollars) to India and would like to open an NRO Savings account as well to reimburse my expenses from the company (Satyam Computers, India) while I am in India (in Indian Rupees).It has been two months since I shifted to India & hence am still a Non-Resident Indian (NRI) for the time being, but I will be based in India for 12-months due to which my status will change to a resident Indian.What is the implication of the same on my NRE & NRO accounts?

--- Amar Singh A : 1. If you are in India for 182 days or more in the FY (Apr-Mar), you will become a Resident. 2. However, there is a transitional status of RNOR between being an NRI and a Resident. You are likely to be an RNOR for two years but this would depend upon the number of years you were an NRI before coming to India. In the RNOR status, your foreign income is not taxable in India. 3. When your status changes to Resident, you should get your NRE/NRO accounts redesignated as Resident accounts. The interest from NRE account will be taxable during the FY for which you are Resident as per the Income Tax Act. The interest from NRO account was anyway taxable and will continue to be taxable even after redesignation.However, since Satyam is an Indian company, you may face a problem unless the company has taken a few necessary precautions. Many proactive companies in India have got their offices abroad incorporated in that country just to bypass this problem. Salaries paid from such offices are not taxable in India if the employee happens to be an NRI for tax purposes. You will do well by posing the same query to your employer.

Q : I am working in Canada since July 2006 and I have been paid from my Indian company in the form of allowances and not a salary and I am here on work permit. Now my question is should I need to pay the tax in India when I come back after a year for the amount that I have saved out of my allowances or it is considered as non taxable.

--- Raghu A : For FY 06-07, you would be an NRI and your foreign income would not be taxable in India. For FY 07-08, it depends upon when you return to India. If you return after October 2nd, you will continue to be an NRI and hence the income will not be taxable. However, if you return earlier, then the income would be taxable in India.

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Tax Enquires for NRIs with NRE/FCNR account

A N Shanbhag & Sandeep Shanbhag Q: I have some questions as below for NRE/FCNR account:1. Do I have any tax liability in USA; Do I have to reveal my investments through NRE/FCNR account in India while filing US tax? If yes what form do I use?2. Do I have to file tax return in India for the NRE/FCNR investments and interests?3. Can I freely move Dollars in FCNR account to and from India-USA (If money is matured or not invested in FD/mutual fund but sitting in savings account)?4. My impression is that, the benefit of investing money in NRE/FCNR account is that we can save tax on interest. So 6% interest earning in US gives 4.8% return after tax (For 20% tax bracket) where as 6% interest in NRE/FCNR accounts in India gives 7.2% return on investment after tax saving. Is it right????5. What are the benefits and disadvantages of keeping money in NRI accounts in rupees and US dollars? Meaning why people might prefer one on another?I really appreciate you taking time to provide valuable information to help me answer above questions. --- IswarA : 1. We regret legally we can answer queries pertaining only regarding Indian tax laws and Indian investments. Kindly get information on US tax laws from a consultant specialising and practicing tax laws of the US. 2. There is no legal obligation to file tax returns in India unless the income chargeable to tax, exceeds the minimum tax threshold of Rs. 1,00,000.However, income from some sources suffers TDS in India. For instance, TDS is required to be applied on interest from NRO and also income by way of capital gains without any threshold. Therefore, it is prudent to file the returns not only for claiming the refund, if any, but also to ensure continuity after the individual returns to India. 3. The funds from FCNR account can be freely repatriated to USA4. You are correct in observing that a 6% taxable rate in the US is equivalent of 4.8% after tax. However, you have to compare this 4.8% with the 6% tax-free that you get in India. 6% tax-free is equivalent of 7.5% (and not 7.2%) before tax. However, in order for comparisons, an after tax rate has to be compared with the equivalent tax-free rate and not the before tax rate. 5. The NRE account is maintained in Indian rupees and the FCNR in foreign currencies. These accounts can be opened and maintained by remitting funds through normal banking channels in freely convertible currency from abroad or by transfer of funds from NRE or FCNR accounts. If you feel that the rate of exchange of US$ is likely to rise more than the difference in the rates of interest earned between NRE and FCNR, you should opt for FCNR, otherwise opt for NRE account. Mail your queries to [email protected] : I am an NRI and have NRE and NRO account bank in joint names with my wife and adult son. We have recently jointly purchased a flat at Mumbai. It has now been let at a monthly leave & license fee of Rs. 50,000 less Tax.Can you please adivsea) if we have to file Tax Returns in India. If so, how do we go about registering with the tax authority?b) Tax is deducted at source from NRO account interestc) can tax deducted at source from a) & b) above can be reclaimed from the tax authorities?--- Vasant A : 1. You will have to get a PAN card if you do not have one. 2 & 3. The TDS is not the same as your tax liability. This liability will be computed on the basis of the income tax rates which again depend upon your income and the exemptions, deductions and rebates you can claim. You can adjust the amount of TDS (and advance tax paid on self-assessment) against your total tax liability through your tax returns.

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