Categories: NRI

How you’re taxed when you are NRI ?

How you’re taxed when you are:

  • The resident person on a foreign temporary assignment:

    • Rohit worked for four months out of Singapore on a temporary assignment and received during that time in Singaporean dollars. He has attributed this income to a bank account here in India. He has now returned home. How does he file his tax return on his income?
    • Rohit’s taxes will depend on his residential status for this year. He will be considered a citizen because Rohit has not been outside India for more than 182 days.
    • This year he will be expected to file his income taxes in India. This will also include his salary received in Singapore during the foreign mission.
    • Rohit’s residential status will change if the assignment lasts to more than 182 days and he will be expected to pay taxes only on the Indian income received so far. Remember that the foreign income of Rohit that is credited to an Indian bank account is taxable in India.
  • Living in a foreign country

    • Since 3 years Arjun moved to the US. They pay him in U.S. dollars. He has his money in India held in a savings account and FDs. He bought an apartment and rented it out for Rs.35,000 a month. He gifts a car to his parents and transfers Rs.10,000 to their account every month to assist with their household expenses throughout the year.
    • In order to cover the expense of the insurance policy he has purchased for his parents, he also transfers Rs 20,000 into his father’s account.

  • Arjun’s gift to his father and his mother’s money transfer of Rs 10,000 are exempt from tax. Regarding his parents’ insurance expenses, Rahul may claim a deduction of Rs 20,000 under Section 80D, because his father is over 65 years of age.
  • As his gross income exceeds Rs 2,50,000, he will be expected to file a tax return in India.

Resident Person recently relocated overseas:

On a new assignment, Sonu transfers to the US. In India, he gets his US income credited to an NRE account. He continues with his investments in FD and has some money put away in India in a savings account. He had just obtained Form 16 from his employer in India. Will he have his returns filed in India this year? NRI or not, whether their income exceeds Rs 2,50,000, every person has to file a tax return.

  • NRI Return back to India recently.
    • Returning NRIs assume the status of RNOR (Resident, Non-Ordinary Resident) when: a. In 9 of the 10 financial years previous to the year of your return, you were an NRI. b. In the last 7 financial years, you have stayed in India for 2 years or less (729 days or less)
    • The Income-tax Dept allows RNORs (Resident, Non-Ordinary Resident) to continue to benefit from exemptions made available to NRIs for a period of 2 years after their return.
    • Deposits kept in foreign currencies which are exempt from the NRI shall also be exempt from the repayment of NRIs for a period of 2 years. Returning NRIs are classified as resident individuals after 2 years.
  • A Global Income Citizen
    • Your global income is taxable in India if you are a citizen of Indian. This income may have been obtained or received outside of India, but in India it is taxed.
    • You can take advantage of DTAA (Double Tax Avoidance Agreement) if this income is also taxable in another country.
    • Remember to report it in your income tax return if you are a citizen and have received some income from overseas.
  1. How can Double Taxation Avoid by NRIs?

  • By seeking relief from DTAA between the two countries, NRIs may avoid double taxation (meaning: being taxed on the same income twice in the country of residence and in India).
  • There are two methods for seeking tax relief under DTAA: the form of exemption and the method of tax credit.
  • NRIs are taxed in only one nation by the exemption system and exempted in another. Tax relief can be claimed in the country of origin under the tax credit system, where income is taxed in both countries.
  1. How NRIs may claim Benefits under DTAA

The Double Tax Avoidance Agreement (DTAA) was amended as a measure to avoid this are as follows:

  1. Understanding DTAA

  • The Agreement on Double Tax Avoidance is a treaty signed by two nations.
  • Agreement is signed to make a country an attractive destination and to allow NRIs to get relief from several times having to pay taxes.
  • DTAA does not mean that the NRI can avoid taxation entirely, but it does mean that in both countries the NRI can avoid paying higher taxes.
  • The DTAA helps the NRI to reduce its tax effect on India’s revenue. The DTAA also decreases tax evasion cases.
  1. DTAA rates

  • This means that the applicable TDS will be in line with the rates set out in the Double Tax Avoidance Agreement with that country when NRIs receive income in India.
  • DTAA, which India has signed with various countries, provides a particular rate at which tax is to be deducted on the income paid to the citizens of that country.
  1. Types of income under DTAA

NRIs do not have to pay tax twice on the following income received from: Under the Double Tax Avoidance Arrangement.

  • provide services in India.
  • Salary collected in India.
  • House- based property in India.
  • Capital gains in India on the transfer of assets.
  • fixed deposits in India.
  • India’s savings bank account.

If income from these sources is taxable in the country of residence of the NRI, by taking advantage of the DTAA benefits, they can avoid paying taxes on it in India.

  1. DTAA methods

The advantage of DTAA can be exploited by two methods:

  • Tax credit: Tax relief can be claimed in the country of residence under this method.
  • Exemption: In each of the two countries, tax exemption under this method can be claimed.

In the DTTA with the resident country, the income on which an NRI can claim tax exemption/credit will be mentioned. For all countries, the DTAA provisions are not the same.

  1. Countries with whom India has a DTAA

With most major nations in which Indians live, India has signed a Double Tax Avoidance Agreement. There are some of these countries that are:

 

How Foreign stock declare in Income Tax Return

When it comes to disclosing foreign investments & Foreign stocks for income tax purposes, there are specific income tax guidelines to follow in India. The values of these Foreign stock investments, after being converted from foreign currency, should be declared in Indian rupees & we should be stated in Table A3 under schedule FA in your Income Tax Return.

USA INCOME TAX RETURN PREPARATION

  • Wages & Tax Statements Form – W-2
  • Estimated Tax Form – 1040-ES
  • C-Corporation Form – 1120
  • Individual Return Form-1040
  • Partnership Form-1065
  • S-Corporation Form-1120S
  • Non-Profit Corps. Form – 1041
  • Employer Quarterly Federal Tax Return Form – 941
  • Information Return Form – 5472
  • Entity Classification Election Form – 8332
  • Treaty-Based Return Positions Disclosure Form – 8833

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