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.

How to account for your Indian investments while filing for US taxes?

by Mounica Kota | Nov 29, 2018 | Investment & Income, Tax Planning

How to account for your Indian investments while filing for US taxes?

The sole intent of investments is to increase your net capital over a period of time. indian investments With the advent of newer methods, individuals now have more avenues to invest their money and their money works harder. However, amidst all this one must not forget about the US taxes. While there are various reasons for the same, coming under the radar of the IRS is something that you wouldn’t want to happen.

If you are an NRI and have investments in the home country India, some or all of it might be taxable. Thus, it is crucial to be cognizant of them and includes them in your tax returns as and when it is required. Here are some of the leading investments that you can make and how they are impacted by taxes.

Fixed Deposit

NRI’s can either have NRO or NRE accounts with leading Indian banks. For that matter, individuals can choose to invest their money with the help of Fixed Deposits. The basic structure of a Fixed Deposit is quite similar to other capital investments. There is an initial amount and that increases year on year due to interests. Thus, during its maturity, it is similar to other capital assets, where your investment grows over time.

The interest that you have earned on FD’s must be first converted into USD for the specific fiscal year and then reported in Form 1099-NT. You might still have to pay taxes to the IRS on your FD. This example would make things a bit clearer. Let us assume you have earned an interest of INR 15,000 on your FDs and the Indian Government levies a tax of 15%. Should your tax bracket in the USA be 30%, you will have to pay the additional 15% to the IRS under the DTAA or Direct Tax Avoidance Agreement between the USA and India.

Mutual Funds and Stocks

Mutual funds and stocks are quite popular among investor for their incredibly high returns. Thus, there would be no surprises if an NRI invests in these assets. However, just as a fixed deposit, you will have to pay taxes on the dividends earned on these mutual funds or stocks. Stocks and dividends come under the purview of the capital gain taxation system. For any gains in short term or less than a year, you will be charged 15% by the Indian Government. Similarly, for long term gains, if the amount exceeds INR 1,00,000 you will have to pay 10% taxes on the same. Should your investments exceed $10,000 you need to declare the same using Form 8938 and FBAR.

Real Estate

There is no denying the fact that Real Estate has always been one of the most lucrative investment opportunities. Whether you are looking for a place to settle down in the future or buying it for outright investments, real estate is a lucrative market. But should you pay taxes for any real estate that you hold in India? Well, yes and no. As long as you hold property in India, you need not to worry about any taxations. However, if you sell a property while staying in the USA, capital gains tax is applicable on the same. And you are liable to pay the appropriate taxes in the US.

Also, there aren’t any specific rules or regulations for rent. Thus, you can declare them under other income in your Tax Returns. Being aware of the different taxes on your financial assets is important to keep the IRS from digging deeper and finding any discrepancy with your tax filing.

Tax implications for your Indian Properties

by Mounica Kota | Nov 29, 2018 | Blog, Investment & Income, Tax Planning, Tax Preparation

Tax implications for your Indian Properties

Tax implications for your Indian Properties.The real estate market has always been one of the most lucrative ones for investment. Tax implications for your indian properties.This applies to residents of India as well as non-resident Indians. However, there is a small aspect that not many are aware of or pay a lot of importance to, taxation.

If you are a currently in the United States of America and there is a property that you own in India, you are liable to pay taxes owing to certain terms and conditions. We will find out more about those situations or scenarios where you will end up paying taxes for those properties.

Resident status

Before we get to other details, it is important to know your residential status. A Non-Resident Indian is an individual who still holds an Indian Passport but has emigrated to another country on a temporary basis. This could either be related to work opportunities, education or residence. Any individual who spends more than 182 days outside the country would fit into the category.

Tax Implications

Taxes on your Indian property will only come into the picture if you earn more than INR 2,50,000 in India, excluding any sort of capital gains taxes. There are two major possibilities for earning money from your Indian property. You can either rent it or sell it to earn a profit.

Income from Rent

Any form of rental income exceeding INR 2,50,000 would be taxed like it is for a normal Indian resident.

The municipal tax is the first one to be deducted from your total rental income.
From the remaining, amount a standard deduction of 30% is allowed. It can also be used to offset any interest on a home loan that you pay for the property.
In the event, that you own more than one property but do not use it for residential purposes, you can claim it as self-occupied. In such cases, a notional rent is calculated on the property and taxes are applicable on the other properties.

Capital Gains

As the name suggests, this scenario would come into the picture if you sell a property and make some profit out of the transaction. There are two simple variables to such transactions. Firstly, the duration for which you held the property before selling it. And secondly, the cost variance in buying and selling the same.

If you hold on to a property for less than 2 years and decide to sell, it would come under the purview of short-term capital gains. In such cases, the gain is taxed as per the income tax slabs.
If you hold on to a property for at least 3 years before selling it, the same would qualify as a long-term capital gain and taxed accordingly. According to the current laws, it would stand at 20% and you would end up paying cess and surcharge on the top of it.

Certain Exemptions

NRIs can also benefit from certain tax exemptions that are in place.

Section 54

If you buy a property and decide to sell the same after 2 years from the purchase, and reinvest the total amount in buying another property within a span of 2 to 3 years, the profit that you make from the previous transaction is exempted.

Section 54EC

In the event that you hold on to a property for three years or more, it would qualify as a long-term capital tax. However, the gains on the transaction can be completely exempted if you decide to reinvest the same in bonds issued by NHAI or REC within 6 months of the sale.

These are some of the major tax implications that you need to be aware of, regarding your Indian properties.

Can an NRI continue his PPF?

by Mounica Kota | Nov 29, 2018 | Blog, Investment & Income, Tax Planning, Tax Preparation

Can an NRI continue his PPF?

NRI have common doubt on Can an NRI continue his PPF? but this is one of the most common forms of investments for Indians is PPF. It is secured, and you know the exact returns on its maturity. Its long-term perspective also works well with a lot of investors. PPF is majorly risk-free and is tax-free as well, which attracts a lot of investors. However, things might change a bit if you are an NRI and have invested in PPF.

Sometime back the Department of Economic Affairs passed a ruling which put NRI’s at a back step. According to the modifications to rules, anyone who invests in PPF as a resident of India and later moves out of the country, the account will be closed. The rule was set to come into effect the moment an individual was deemed as a non-resident Indian or lost their resident status.

This had left a lot of NRIs confused and worried about their investments. But there is some relief for them as of now. On 23^rd of February 2018, the DEA released a memo which kept the previous decision on hold. In simple words, NRIs can continue to hold their PPF accounts until it reaches its maturity.

Yet one cannot invest any additional amount once their residential status changes. The PPF is a 15-year scheme which has provisions for extending the maturity date in the block of 5 years. However, it is not applicable to non-resident Indians.

Can NRIs open PPF Accounts?

The short answer is No. NRIs cannot open new accounts once their residential status has changed. Prior to 2003, NRIs were allowed to make additional contributions to their PPFs. Even then, it was only possible if your account was active prior to the change of residential status. An amendment in 2003 meant, that fresh contributions to PPF were not allowed anymore. However, they can hold to existing PPF contributions till their maturity.

Which Account Can NRIs use?

NRIs have the option to use either fund in their NRO or NRE account to pay for PPF. According to the PPF, a minimum investment of INR 500 must be made on a yearly basis to keep the account active. Failing to do so will make your account dormant. To revive the same, one must INR 500 for each year that you have missed along with a penalty of INR 50.

On Maturity

There are possibilities that you might still be an NRI when your PPF matures. In such cases, you would need to withdraw the remaining amount. As already mentioned, NRIs cannot extend their PPF duration. If the maturity date of your PPF is over and you haven’t withdrawn the amount, it would continue as ‘extended without contribution’.

What this means is that your PPF account will continue to earn interests, but you do not have to adhere to the minimum INR 500 rule anymore. The extension will take place in a chunk of 5 years for an unlimited number of times, as per the rule books.

Taxations

It is imperative that one takes a closer look at the taxation involved when they get into investments of any form. The case is no different when it comes to PPFs. If you are in India, the amount that you invest in PPF is tax deductible through Section 80C. And the returns that you receive on maturity is non-taxable as well, making them a worthy investment.

However, if you are an NRI and your PPF matures while you are in a different country, things pan out a bit differently. You most probably might have to declare the amount in your current residential country and pay appropriate taxes on the same.

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