It is a well- known fact, that most of the Indians are returning to their homeland to explore new avenues, but coming back is not the only thing on their minds; they need solutions for their taxes as well. Basically, most of them want to know what implications will their Non Resident Indian (NRI) status would have on their NRI tax liability in India.
Under Indian tax provisions, the residential status in India is based on the physical presence of the person in India during the tax year and if the person is not physically present in India for more than 182 days then he is considered to be Non-Resident of India (NRI). The tax year is calculated from April 1 to March 31. However, when a citizen of India or a person of Indian origin who is outside India visits India in any year, he would be regarded as Non-Resident if his total stay is less than 182 days in the relevant tax year.
The individual can also file is his existence as Not Ordinarily Resident (NOR) which will be based on his stay in India in the past years. But the glitch in NOR is he/she should be a non-resident in India in nine out of the ten years preceding the previous years. Taxability is completely dependent on whether an individual qualifies as a Resident, NOR or Non-Resident. A NOR or Non-resident is taxed NRI income tax on the income he earns in India.
An NRI can reap his tax benefits until he claims that he is a Non-Resident, but once he/she pronounces his residential status he will avail no benefits and will be considered as a full time resident of India and will have to follow the regular tax format instead of NRI tax rules. There are some special provisions under Indian tax laws wherein NRIs can opt for special NRI tax rates for specific investment incomes or capital gains from foreign exchange assets (e.g.: Shares in Indian company purchased in convertible foreign exchange).
Of course NRI’s do not arrive empty- handed; they will be carrying some wealth tag behind them. But they don’t have to panic, as assets located outside India owned by NRI’s shall not come under NRI tax bracket. NRI’s are also allowed to file exemption for the assets brought by them to India or assets acquired by such money. Up to seven years from the day of their return to India, they are exempted for the assets.
Further, income earned from the assets brought to India or funds parked in bank accounts or investments made in India will be taxable subjects to the limits specified by the Indian Income Tax Laws for the relevant year. Since, the NRI is returning back all for good, he does carry a handsome amount with him as a return for all the hard work been put over the years on foreign land. It’s but obvious that the sum would be invested in some or the other way in India or put in as expenditure. Looking at this, it’s possible to receive enquiry letter from the tax authorities for knowhow of the source of the funds. Here comes the challenge for NRI to explain, since the records maintained are very poor, specially if living in counties like UAE where there are no tax laws. The bank statements these days are provided for maximum of 2-3 years. The advice here is since there is no NRI tax as such if source of income is justified, but to state the records correct one should have a habit of maintaining financial records for all the years in India and as well on Foreign Land.
CA Ajay R. Vaswani is a Fellow Member of the Institute of Chartered Accountants of India. He qualified in the year 2012 and since then servicing international clients for taxation and other related activities in various countries. He is also Qualified Company Secretary, Bachelor of Commerce along with holding Diploma in Information System Audit and Bank Concurrent Audit by The Institute of Chartered Accountants of India. He has in depth study of Various Laws applicable to Non Resident Indians and has delivered in more than 300 lectures attended by over 4,000+ audiences.