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.

Quick notes on Form 940

by Mounica Kota | Dec 17, 2018 | Form 940

Quick notes on Form 940

Form 940 to report your annual Federal Unemployment Tax Act (FUTA) tax. Together with state unemployment tax systems, the FUTA tax provides funds for paying unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. 940 forms must be mailed or e-filed to the IRS. For more information talk to our Aotax customer support executive.

Short note on filing an amended tax return

by Mounica Kota | Dec 17, 2018 | Taxtips

Short note on filing an amended tax return

Filing an Amended Tax Return corrects information that changes Tax calculations and may result in additional refund / reduced tax liability. This includes making changes to filing status and dependents or correcting income credits or deductions.

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