Q. How are NRIs from UAE/Gulf countries different from NRIs in US, UK, Canada, Australia, etc.?
|UAE & Gulf Country NRIs||Other Country NRIs (U.S.A., U.K., Canada, Australia, etc.)|
|1. No citizenship entitlements||Gradual progression towards citizenship.|
|2. High probability of returning back to India.||Low probability of returning back to India.|
|3. Investments are mainly concentrated towards India.||Limited exposure to investments in India.|
Q. What should a person do before leaving India to become an NRI?
- Execute documents with banks to redesignate Resident Indian bank accounts to NRO A/c.
- Execute documents to open a NRE bank account.
- Execute documents to redesignate status in investments like Mutual Funds, Shares (Demat A/c), etc. to NRI status.NRI can continue holding shares purchased in the demat account on non-repatriable basis.
- Open a NRE-PIS account if you want to trade in shares on a regular basis.
Q. What should an NRI do before coming back to India from abroad permanently from compliance perspective?
NRI returning to India for permanent settlement may continue to hold or own all types of foreign Assets
- foreign currency,
- foreign securities,
- bank deposits,
- Immovable properties if the same were held/owned by them when he was residing abroad for unlimited amount and for unlimited period, irrespective of the amount.
They are also allowed to gift such acquired property to any relative* including the person who is resident of India.
Returning NRI are also allowed to purchase and sale the above mentioned foreign assets. However the payment for such purchase is to be made from Resident Foreign Currency (RFC) account maintained with bank in India for unlimited amount and for unlimited period, irrespective of the amount.
An resident holding any foreign assets or has signing authority in any foreign account is compulsorily required to file the income tax return irrespective of the amount of taxable income under Section 139(1).
Procedure by NRI on Return to India:
|Insurance companies, Mutual Funds, shares held in companies||Inform regarding the status of change from Non resident to Resident.|
|Bank Accounts||Inform regarding the status of change from Non resident to Resident and convert the various bank accounts.|
|Old Bank Account||New Bank Account|
|NRO Account||Resident Saving Account|
|NRE Account||Resident Savings account or Resident Foreign Currency Account(RFC) Account|
|FCNR Account||Can be continued till maturity|
Taxability of returning NRI Bank Interest Income
|Account||R & OR||R but NOR||Non Resident|
|FCNR Account Deposit*||Taxable||Exempt||Exempt|
|NRE Account converted to Resident savings Account*||Taxable**||Taxable||Not Applicable|
|NRE Account converted to RFC Account*||Taxable||Exempt||Not Applicable|
* NRI are allowed to hold the FCNR and NRE term deposits till maturity with the
same interest rate, until completion of the term.
**Interest is taxable in India from the date of return to India and conversion to Resident savings account.
Note: Interest on any deposits & debenture interest taxable at concessional rate of 20% for returning NRI under section 115H.
Q. How can an NRI transfer the funds to India and take those funds back abroad?
- Transfer can be made to NRO, NRE A/c of self or gift to relatives under Income Tax Act (section 56) or remittances to own account are tax free in India.
- Transfer of funds abroad:
From NRE A/c: Freely repatriable without limit
From NRO A/c: Under the ‘Remittance of Assets’ scheme of RBI up to USD 1 million per person per year.
Q. What are the Income Tax compliances that an NRI has to undertake?
- Non resident under the Indian Income Tax Act.
- Only income which is sourced from India is taxable in India.
- Income Tax Return is required to be filed by a NRI only in respect of Indian Incomes on which appropriate taxes are to be paid or refund can be claimed.
- Foreign Assets and foreign incomes of NRI are outside the jurisdiction of the Indian tax authorities
- Who is required to file Income Tax return in India?
- Person whose income exceeds Rs. 2.5 lakhs in India (before giving effect of deductions under Chapter VI-A and certain capital gains exemptions).
- Person who wants to claim refund of any taxes which have been withheld (TDS deducted).
- Following categories of persons irrespective of the income:
- Deposited an amount exceeding Rs.1 crore in current accounts by any mode during the year.
- Has incurred electricity expenditure in aggregate exceeding Rs.1 lakh during the year.
Incurred an expenditure exceeding Rs. 2 lakh on travel out of India from Indian bank account during the year for himself or any other person.
Q. What are the issues faced by an NRI in buying/selling any immovable property in India with regard to procedural aspects?
- Immovable property can be freely purchased and sold by NRI in India without any restriction through NRO bank A/c on a non-repatriable basis.
- NRI cannot engage in real estate business in India, i.e. involving buying and selling on a regular basis to derive profit.
- Sale proceeds of two residential house (purchased from foreign exchange) properties are repatriable without any limit. Further sale of residential properties will fall within the remittance of assets scheme for NRI.
How is income on sale of immovable property taxed for NRI in India?
|Type of Income||Taxation levy for NRI||TDS rate
(withholding tax rate)
|Sale of Immovable Assets including Agricultural Land located within specified area.||Period of holding more than 2 years – Long Term Capital Gain.
20% Tax after indexation on Capital Gain. (U/s. 112)
|20% on the capital gains
|Period of holding less than 2 years – Short Term Capital Gain.
At slab rates.
|30% + surcharge (if applicable)
Q. What are the most suitable investment options for an NRI in India?
- Fixed Income Investments:
- Fixed deposits of reputed companies in India through NRO bank A/c
- NRE Fixed Deposits
- FCNR term deposits
- Equity Investments:
- Investment in equity shares
- Investment in Equity Mutual Funds
- Investment in Portfolio Management Services (PMS)
Q. Why should an NRI invest in $ terms to maintain global diversification in the investment portfolio?
- Participate in the best global corporations
- Geographical Portfolio Diversification
- U.S. Dollar denominated exposure
- Attractive Valuations
- Corpus for foreign currency expenditures
- Rich dividend yield
U.S. Dollar denominated exposure
- Depreciation of the Indian Rupee in the last few years.
|July 2014||July 2015||July 2016||July 2017||July 2018||July 2019||July 2020|
Indian Rupee has depreciated against the US$ at the rate of 3.61% p.a. on a compounded basis in last six years.
Q. How can an NRI invest in $ terms to maintain global diversification in the investment portfolio?
Q. What are the differences between a Mutual Fund and a Portfolio Management Service (PMS)?
|Equity based Mutual Fund||Equity based PMS|
|1.||No requirement of any Account.||1||Operations by a Portfolio Manager through PIS Account.|
|2.||Taxation on each sale
Short term gain : 15%Long term gain : 10%On dividend income: Tax free in the hands of Mutual Fund.
Short term gain : 15%Long term gain : 10%On dividend income: 20%.
Restriction on percentage of allocation by the fund towards a particular script or sector.
(On repatriable basis)
Sectoral and company specific caps for NRI.
Rs. 50 lakhs
|5||Inflow or outflow by other investors has an impact on the investment.||5||There is no impact of transactions of other investors on our investment.|
Q. What is a Double Taxation Avoidance Agreement (DTAA) and how does it impact an NRI?
- Double Taxation Avoidance Agreement (DTAA) is agreements entered into between countries, between India and another foreign state.
- The basic objective is to avoid, taxation of income in both the countries (i.e. Double taxation of same income) and to promote and foster economic trade and investment between the two countries.
- ALL BENEFITS of DTAA are available to respective Tax residents. To become a tax resident of UAE, stay in UAE should exceed 183 days in the relevant calendar year.
Q. What are the tax concessions available in DTAA for an NRI from UAE/Gulf Countries?
Major Tax concession in DTAA with U.A.E., Oman, Qatar & Kuwait
- Capital Gains on sale of Mutual Funds (Debt based or Equity based being short term or long term) and bonds cannot be subjected to tax in India for tax residents of UAE.
- ITO (IT) 2(1) Mumbai vs. Shri Satish Beharilal Raheja ITA NO.4627/Mum/2009
- The Dy. Commissioner of Income-tax (International Taxation) Kochi vs. Sri.K.E.Faizal ITA No.423/Coch/2018
|Rates under Indian Income Tax||Type of income in India|
|20% + Surcharge (If applicable)||Slab rates|
Concessional Rates in DTAA
|Sr. No.||Country of tax residence||Type of income in India|
Q. Can an NRI from UAE take Insurance policy from India and is it worth taking?
Following options of insurance are available in India for an NRI:
- ULIP – An Insurance plan combining the features of investment (as per the choice of policyholder) and insurance risk cover over the life of the insured.
- Guaranteed Return Income Plans – A lucrative Insurance plan for retirement planning, assuring tax free return of premium payments at an attractive rate of return in future, in parts or full along risk cover over the life of the insured.
- Term Plans – An affordable insurance plan, providing financial protection to the nominee in case of death of the person insured.
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