NRIs and Indian Taxation

•             Applicability of Income Tax depends on a person's residential status. A person (taxable entity) can be termed as either Resident or Non-Resident.

•             A person is classified as Resident if he stays in India for 182 days or more in a given financial year.

•             A person will be classified as Resident even if he stays only for 60 days or more and 365 days or more in previous 4 years. This 2nd condition is not applicable for Indian Citizens/Person of Indian Origin

             Going abroad for Employment

             Coming to India for temporary visit.

•             All other persons are classified as Non Residents (NRIs). For them only Indian Income is taxable while for Residents all income (Indian and foreign) are taxable.

•             The above definition is given as per Income Tax act. There is another definition given by FEMA act which is very liberal. Bank deposits are covered by FEMA act and not by Income Tax act.

•             As per FEMA act – if a person goes out of India for Job/Business or any purpose indicating indefinite stay, he is a Non Resident. Also a person who normally stays out of India and visits India for any temporary visit is a Non-Resident. In both the above cases number of days of stay is immaterial.

•             FEMA act - If a person do not fall any of the above 2 categories then he will be Non Resident only if he stays in India for 182 days or less.

•             Interest from NRE and FCNB deposits are tax free as per FEMA act.

•             Students studying abroad are NRIs.

•             For Non-Residents - Foreign Income not Taxable at all, Indian income is Taxable, Non-Residents to file income tax returns if their Indian income is above minimum slab (at present 1,50,000 Rs).

•             NRI Can Avail Concessional Rate @ 20% of Income Tax for Investment Income invested out of Repatriable funds.

•             NRO deposit – TDS is deducted at 30% + cess on interest income and if interest is more than basic limit - at present 1,50,000 Rs then NRI has to file Returns (although TDS is deducted).

•             NRI Can obtain Certificate from IT officer for lesser/nil rate TDS.

•             Gift Tax abolished wef 1-9-2004.

•             Gift from other than relative is a Taxable Income – Income Tax applicable.

•             Capital gains Tax – part of Income Tax, applicable on sale of land, house, Mutual Fund, Shares, Jewellery. Divided into Short Term and Long Term based on holding period of the asset.