Understanding Non-Resident External accounts
I am a United States citizen of Indian origin. I plan to spend
a major part of my time (over six months) in India with my
children. I will not be in India for business or employment
but only for leisure. Will my status change to that of a resi-
dent? Also, I have no income arising from India; will I have
to declare my global income to Indian tax authorities?
Residential status is decided by the number of days a person stays in India and not by your status (Person of Indian
Origin, etc.) or the extent of investments abroad or whether
you are in India for employment or otherwise. For the first
two years of becoming an Indian resident, you will have
Resident but not Ordinarily Resident status — where your
foreign income will continue to be tax-free in India.
Thereafter, as per law, your global income will become taxable in India.
If you do not wish to disclose your overseas income in
India, then you will have to manage your stay in India in
such a way that you do not exceed 182 days in any financial
I am returning to India permanently in April 2012 after
working in the United Arab Emirates for five years. Though
I will stop working by next month, my employment pro-
ceeds including provident fund and gratuity will be received
in India only by July-August 2012. Will I have to pay income
tax on this gratuity remitted to India in the next financial
year, when I will be an Indian resident?
India’s Foreign Exchange Management Act Section 6(4)
has granted general permissions to a persons residing in
India to hold, own, transfer or invest in foreign currency,
foreign security or any immovable property situated out-
side India if such ‘foreign currency assets’ were acquired,
held or owned by such person when he was resident outside
India. All the funds arising from your income for the years
when you were a non-resident Indian would be tax-free in
India. However, your foreign earnings from employment if
at all exercised in the FY 2012-13 would be taxable in India.
Consequently, your salary or that portion of your gratuity,
which is assignable to the period beginning from April
would be liable to tax in India.
I moved to Singapore from India November 14, 2011.
Hence for the FY 2011-12 I am still a resident of India.
1. For the FY 2012-13, whether the period of 182 days stay
outside India would start from April 1, 2012? or November
2. When can I open Non-Resident External/Non-Resident
Ordinary accounts? Is it compulsory to start these accounts
after becoming a NRI?
As per FEMA, you become resident outside India if you
travel outside India on business or employment. Hence you
can open NRE/NRO accounts from November 14, 2011.
You are an NRI from the FEMA point of view, and legally required to inform all your banks and the companies
where you have investments about the change in your status, within a reasonable time. The banks will re-designate
your accounts as NRO. You can use this account the same
way as you used it before becoming an NRI. It is illegal for
a NRI to continue to hold their normal resident bank
Your status for income tax purposes for 2011-12 is that of
a resident and for 2012-13 is likely to be that of a NRI. For
the 182 days period, your stay in India is reckoned from
April 1 to March 31 of each financial year.
I am a naturalized US citizen. Recently I inherited some
immovable property and shares from my father. I don’t have
use of these assets in India and hence am planning to sell the
same and get the money in the US. Will I have to pay any tax
upon inheritance? What about remittance of the money?
There is no inheritance tax applicable in India and hence
you have no tax liability. However, there may be liability
that arises in the US — you will need to check on that
through a local tax consultant. Till you sell the assets, there
would be no tax, but upon sale you will have to pay capital
gains tax. To decide whether the assets are long-term or
short-term, the holding period of your father can be added
to yours. If you sell the shares on the stock exchange after a
minimum holding period of a year, there would be no tax.
For the property, after a holding period of three years, you
will have to pay tax at 20 percent after deducting indexed
cost from the sale proceeds. Again, the cost to be taken is
that paid by your father when he bought the property. If he
too has inherited it or received it as a gift, the cost to the
first owner will be considered. You can remit the sale pro-
ceeds to the US once the taxes are paid or provided for.
What are the disadvantages of filing a belated return if I
have missed the July 31, 2011 date? What happens if there is
a refund and I file a belated return?
Under section 139(1) of the Indian income tax act, an
income tax return must be filed if the income chargeable to
tax is over the tax threshold, even if it comes below the
threshold after claiming deductions on or July 31 of the
next financial year. This is so even if the TDS covers the tax
It is okay even if the return is not filed by July 31, if correct taxes are paid. However, late filing of return suffers
from the embargo on carry forward of loss from:
1. Speculative loss
2. Long or Short-term capital loss
3. Loss from owning and maintaining racehorses.
Readers who wish to ask A N Shanbhag a question can
fill in the following details and mail the coupon to: The
Business Editor, India Abroad, 42 Broadway, 18th Floor,
New York, NY 10004
Or fax it to 212-727 9730
A N Shanbhag is an investment consultant and author of In the
Wonderland of Investment; How to Convert a Taxpayer into a
Taxsaver; NRI Investment Guide. This article does not constitute
tax or legal advice. Consult your tax or legal advisor before making
any tax- or legally-related investment decisions. The authors may
be contacted at email@example.com
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