7 Crypto Tax Questions For Your CA Chartered Accountant

It doesn't matter whether you're a die-hard crypto trader or whether you occasionally dabble in crypto investing. If you've traded cryptocurrencies during the year, tax filing can get tricky. In case you've been under the impression that crypto transactions are anonymous and you don't really need to worry about paying taxes on them, you are wrong.

The India Income Tax Department had asked top crypto exchanges like WazirX, Coindcx, others for information on their India-based customers. What's more, they actually used this information to send out letters to suspected tax evaders. 

This is all to say that the India Income Tax Department is taking crypto taxation very seriously. So if you've been less than 100% when it comes to filing your crypto tax returns, this is the time to make up for it. If you're feeling overwhelmed and are not sure where to start, sit with your CA / Chartered Accountant and check whether they're up for the task of handling your crypto taxation. You can ask them these 7 questions to make sure they're up-to-date with the latest in crypto taxes and can help you sort out your crypto tax woes in time.

1. What kind of tax am I expected to pay on my cryptocurrency?

The India Income Tax Department treats cryptocurrency as property which means crypto transactions are treated in the same way as property transactions. To put it simply, if you sell crypto within one year of buying it, you will be subject to Short-term Capital Gains Tax (SCGT). If you wait for over a year, you will have to pay Long-term Capital Gains Tax (LCGT).

2. I have some transactions where I didn't sell my crypto for regular currency. I sold some Ethereum and bought bitcoin instead. Do I need to pay taxes for such a transaction?

This is a doubt that a lot of people have. If you didn't technically "sell" the cryptocurrency, do you still need to pay capital gains tax? However, the India Income Tax Department is quite clear about this. "Disposal" of any capital asset constitutes a taxable event. Disposal can mean a number of different things — from selling crypto to exchanging crypto for other cryptos, using crypto to purchase other goods, or even gifting crypto.

So how do you calculate your capital gains in this case? When it comes to crypto-to-crypto exchange, you need to keep accurate records of all your transactions. If you haven't done so yet, you can use crypto tax software to get your records in order. In this case, the fair market value of the crypto that you exchanged as on the date of the transaction will be the sales proceeds. You can then deduct the cost of purchase from the sales proceeds to calculate your capital gain.

3. Some part of my salary is paid to me in bitcoin. How do I report this income given that the price of crypto keeps fluctuating?

The salary you receive in crypto has to be added to your taxable income when it comes to calculating your taxes. The India Income Tax Department follows a fairly straightforward rule here — the fair market value of the bitcoin on the date that you received it is what will be added to your gross income. In this case, it's important for you to maintain accurate records as to when the cryptocurrency was credited to your account.

4. I am mining cryptocurrency. Do I have to pay self-employment tax? What expenses can I deduct when I report my taxable income?

The answer to this depends on the nature of mining. For instance, you might be mining bitcoin but as an employee working for someone else. And the bitcoins mined are not in your name. In this case, you would be treated as an employee and would not be subject to self-employment tax.

You might also be mining cryptocurrency but as a hobby, rather than a full-time business. In this case, it is not a self-employment activity and you wouldn't have to pay self-employment tax. At the same time, you wouldn't be able to deduct any mining-related expenses either.

If you're mining cryptocurrency in your own name and as a business, you would be considered self-employed and expected to pay self-employment tax. You would also be able to deduct certain expenses (hardware and software costs, electricity and utility bills, etc) from your profits in order to determine your net taxable income.

5. What about the tax treatment for cryptocurrency that you receive in a hard fork. Do I need to disclose this in my tax return?

Most experts believe that the fair market value of the coins received on the date of the fork is ordinary income and is taxable. Plus, this fair market value also becomes your cost basis when you end up selling the forked cryptocurrency.

6. What if I haven't maintained accurate records of my crypto transactions? What can I do to remedy the situation now?

For starters, you can use our services to help you organize your transactions and maintain accurate records. If there are still some discrepancies (for instance the exchange you used is no longer operational), utilize an estimate and explain why you have used such an estimate in your tax returns. This will safeguard you from a hefty penalty in case the Income Tax Department decides to pursue the discrepancy.

7. I have not been reporting my crypto investment in my tax returns for several years. What can I do about it now?

Since the India Income Tax Department is cracking down on crypto tax evasion, you need to act quickly. Schedule an appointment with us and we shall help you navigate this treacherous path. 

Bottomline

These are some of the most common questions that crypto investors are currently plagued with and your CA / Chartered Accountant should have strong, confident answers for these. If you're an active crypto trader and you feel like your CA / Chartered Accountant isn't as well-versed in crypto tax matters as they need to be, hiring a crypto tax accountant like us might be a good idea.

 DISCLAIMER

The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is Mumbai's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA

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This article - Residential Status – FEMA 2021 would be pertinent for NRIs and would help them in understanding their Residential Status under FEMA 2021. This article is written in FAQ style to address most common questions & issues.

How to determine residential status of a person under FEMA?

ANSWER: "Person resident in India" means—

(i)  a person residing in India for more than one hundred and eighty-two days during the course of the preceding FY but does not include—

A.  a person who has gone out of India or who stays outside India, in either case—
•  for or on taking up employment outside India, or
•  for carrying on outside India a business or vocation outside India, or
•  for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

B.  a person who has come to or stays in India, in either case, otherwise than—
•  for or on taking up employment in India, or
•  for carrying on in India a business or vocation in India, or
•  for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

Explanation:
a) The residential status of a person leaving India will be determined as under:
If a person leaves India for the purpose of employment, business or for any other purpose that indicates his intention to stay outside India for an uncertain period; then he becomes a person resident outside India from the day he leaves India for such purpose.

b) The residential status of a person returning to India will be determined as under:
If a person comes to India for the purpose of employment, business or for any other purpose that indicates his intention to stay in India for an uncertain period; then he becomes a person resident in India from the day he comes to India for such purpose.

Under FEMA, stay for a period of 182 days is also stated. However, it shall be noted that the residential status of a person in our opinion is primarily determined basis the intention of the person to stay in India.

ii) any person or body corporate registered or incorporated in India,

(iii) an office, branch or agency in India owned or controlled by a person resident outside India,

(iv) an office, branch or agency outside India owned or controlled by a person resident in India.

"Person resident outside India" means a person who is not a resident of India.

Residential status as per FEMA under various scenarios for person leaving India on 1st June 2019:

ANSWER:

What is the residential status of students from India going abroad for studies?

ANSWER: It is observed that when students leave India for taking up a course of specified duration, such stay outside India exceeds the period officially intended. While taking up studies, or further advance courses, students may have to take up job or seek scholarship to supplement income to meet their financial requirements abroad. As students have to earn and learn and may even borrow, their stay for educational purposes gets prolonged than what is intended when leaving India.

It is clear that their stay  and intention to stay outside India is for an uncertain period when they go abroad for their studies; they  are treated as  Person resident outside India as per the circular issued by RBI.

Can the residential status of person vary for the same FY as per FEMA and the Act?

ANSWER: Yes. The residential status of a person for a particular FY may vary as per FEMA and Income Tax i.e. a person may be a “resident” person in India as per the Act and a person resident outside India as per FEMA and vice versa. 

Who is a PIO?

ANSWER: Person of Indian Origin (PIO) means a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions:

• Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
• Who belonged to a territory that became part of India after the 15th day of August, 1947; or
• Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); or
• Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c)

Who is an OCI?

ANSWER: The Constitution of India does not allow holding dual citizenship i.e. Indian citizenship and citizenship of a foreign country simultaneously.

However, after repeated demand from persons of Indian origin for allowing dual citizenship, Government in 02.12.2005 started Overseas Citizen of India scheme. However, it is to be noted OCI is not dual citizenship of India. Registration as an OCI provides the registrant few benefits as specified in FAQ. h below.

However, as per Gazette notification No. 26011/01/2014IC.I published on 09.01.2015 all the existing PIO card holders registered as such under new PIO Card scheme 2002, shall be deemed to be Overseas Citizens of India Cardholder (OCI).

Therefore from 09.01.2015, one can only register as OCI cardholder and existing PIO cardholders may be considered as OCI cardholders.

Who are eligible to be OCI holder?

ANSWER: A foreign national is eligible for registration as OCI holder if one falls under any of the below criteria:

•  who was eligible to become a citizen of India on 26.01.1950** or
•  was a citizen of India on or at any time after 26.01.1950 or
•  belonged to a territory that became part of India after 15.08.1947
•  Person of Indian Origin (PIO) card holders are deemed to be OCI

Children and grandchildren including minor children of the above referred persons are also eligible for OCI, provided his/her country of citizenship allows the same in some form or other under local laws, and is eligible for registration as an OCI.

However, if the applicant had ever been a citizen of Pakistan or Bangladesh, he will not be eligible for OCI.

•  Spouse of foreign origin of a citizen of India or spouse of foreign origin of an OCI card holder registered and whose marriage has been registered and subsisted for a continuous period of not less than 2 years immediately preceding the presentation of the application.

Provided that for eligibility for registration as OCI, such spouse shall be subjected to prior security clearance from a competent authority in India.

**Any person who, or whose parents or grand-parents were born in India as defined in the Government of India Act, 1935 (as originally enacted), and who was ordinarily residing in any country outside India was eligible to become citizen of India on 26.01.1950. An OCI card holder is eligible to visit India without obtaining a VISA.

What are benefits of becoming an OCI?

ANSWER: Few major benefits of becoming an OCI are as below:-

•  A multiple entry/ multi- purpose life-long visa for visiting India
•  Exemption from registration with local police for any length of stay in India
•  OCI may be granted Indian citizenship after 5 years from date of registration provided he/she stays in India for 1 year before making application
•  Employment allowed in all areas except mountaineering, missionary and research work and other work requiring PAP/RAP (PAP-protected area permit, RAP- Restricted area permit)

This article - Residential Status – Income Tax Act 2021 would be pertinent for NRIs and would help them in understanding their Residential Status under Income Tax Act 2021. This article is written in FAQ style to address most common questions & issues.

When is an individual considered as a Resident in India under the Act?

ANSWER: An individual is considered as a Resident in India under the Act if :-

1. he stays in India for 182 days or more in a FY; or
2. he is India for 60* days or more in a FY and for 365 days or more in preceding 4 FYs.

*However, the condition of stay of 60 days is extended to 182 days for:

1. Member of the crew of an Indian Ship leaving India
2. Indian citizen leaving for purpose of employment
3. PIO or Citizen of India, being outside India, having come on a visit to India

When is an individual considered as a Non-resident (NR) in India under the Act?

ANSWER: If an individual does not satisfy any of the conditions for being a Resident in India as per prior question, he/she shall be considered as a NR in India.

When is an individual considered as a RNOR in India under the Act?

ANSWER: If an individual is a Resident of India for a particular FY (as explained in the above question)

AND

if the said individual is –

1. a NR in India in 9 FY out of 10 preceding FYs; or
2. is in India for less than 729 days in preceding 7 FYs,

then he/she shall be considered as a RNOR in India provided he satisfy either of the above additional condition.

However, if both the aforesaid additional conditions are not satisfied, then he/she shall be considered as ROR in India.

Whether date of arrival in India and date of departure from India to foreign country must be included while calculating number of days of stay in India?

ANSWER: Generally, while calculating the number of days of stay in India, date of arrival and date of departure in India shall be treated as days of stay in India. Normally, dates stamped on Passport are considered as proof of departure from and arrival in India.

However, in case where an individual is a Citizen of India and a member of the crew of a Indian Ship, on a voyage having originated from any port in India, with destination being any port outside India or vice versa, then number of days of stay in India for the said individual, shall not include the period beginning on the date entered into the Continuous Discharge Certificate (CDC) in respect of joining the ship till date entered into the CDC in respect of signing off from the ship.

An Indian citizen leaves India for the first time on July 1, 2018 for taking up employment abroad. He/she does not return to India till March 31, 2019. What will be his/her residential status for the FY 2018-19?

ANSWER: The individual in the aforesaid case stays in India for 92 days during FY 2018-19.

As per provisions of the Act, in the following cases, only the condition of stay in India for less than 182 days is applicable for determining Residential Status to be NR:

1. In case of a person, who is citizen of India or PIO being outside India, who is on visit to India;
OR
2. In case of a person, who is citizen of India, and leaves India for employment outside India or as a member of the crew of an Indian ship.

Accordingly, as his/her stay in India is 92 days which is less than 182 days, the residential status shall be a NR for the FY 2018-19 under the provisions of the Act.

It may be noted that the same conditions may not be applicable in case of family members of the person leaving India who has left India for the purpose of employment abroad.

Would the ANSWER: in the above example be different in case he/she was not an Indian citizen but a PIO?

ANSWER: As explained above, he/she is not an Indian citizen, so he/she would not be eligible to claim benefit of 182 days, even though he/she is a PIO. Hence, as his/her stay in India in the FY 2018-19 exceeded 60 days and for the 4 years preceding the FY 2018-19 exceeded 365 days, his/her residential status would be Resident of India.

A foreign citizen who is a PIO is settled overseas since 2004. She/he comes on a visit to India in FY 2018-19 on June 1, 2018 and leaves India on February 1, 2019. For the past 13 years, her/his days of stay in India were less than 180 days per year, however her/his total stay for the last 7 years in India was around 1000 days. What will be her/his residential status for FY 2018-19?

ANSWER: The individual in the aforesaid case stays in India for 246 days during FY 2018-19.

So, she/he shall be a Resident for FY 2018-19, as her/his stay in India for FY 2018-19 is more than 182 days. However, she/he shall not be ROR despite her/his stay for the past 7 years is exceeding 729 days, as she/he has been a NR for all the past 10 years by virtue of her/his stay in India being less than 182 days for the past 10 years. Accordingly, her/his residential status for  FY 2018-19 shall be that of a RNOR.

Who is treated as a PIO as per the Act?

ANSWER: A person shall be deemed to be of Indian origin if he/she, or either of his/her parents or any of his/her grand-parents, was born in undivided India (i.e., India, Pakistan and Bangladesh before 1947).

During FY 2018-19, an Indian citizen left India for the purposes of employment overseas on August 1, 2018. He/she came on a visit to India on January 20, 2019 and left for the foreign country on February 1, 2019. What shall be his/her total number of days of stay in India? What would be his RS?

ANSWER: His/her stay in India for FY 2018-19 will be 136 days (April 1, 2018 to August 1, 2018 - 123 days and January 20, 2019 to February 1, 2019 - 13 days). The day of leaving India and returning to India both will be calculated as ‘stay in India’ for the purposes of counting number of days of stay in India. He would be a NR of India for FY 2018-19.

An Indian citizen is leaving India for the first time for taking-up employment overseas. What is the best time for his/her departure from India?

ANSWER: As it is his/her first year of leaving India for the purposes of employment, being an Indian citizen, he/she will become a resident in India only if his/her stay in India for the concerned FY is 182 days or more. Hence, he/she should leave India on or before September 28 to maintain status of NR for that FY. This is on the basis that he/she does not return to India for any visits personal/ official until the end of such FY.

If he/she fails to do so, he / she will qualify as ROR and by virtue of taxation rules will be taxed on global income for residents, subject to DTAA benefits. There will also be an obligation to report foreign assets in India. Thus, he/she may need to plan his/her departure and subsequent visit appropriately keeping in mind the tax provisions.

If an Indian citizen settled overseas wishes to return to India for good, what is the best time for her/him to do so?

ANSWER: On the basis that he/ she was a NR in the previous FYs, she/he should try to come back on or after February 1 (or February 2 in case of a leap year). However, if her/his stay in India in prior 4 previous FYs does not exceed 365 days, then she/he may return after October 2 (or October 3 in case of a leap year). In both the cases, she/he will continue to remain NR for that FY.

A Karta has an HUF comprising of himself, his wife, two sons and an unmarried daughter. The family is based in India, except for the Karta who resides overseas for his employment purposes. He visits India once in four months and takes the financial decision on his stay in India. Will the HUF be categorized as a resident?

ANSWER: An HUF will be categorized as NR only when it is wholly controlled and managed from outside India. Accordingly, because the HUF will be managed wholly in India, as the decisions are taken when Karta comes India, its residential status shall be Resident. Further, the HUF will not be considered ROR-Resident if its Karta has been a Resident for less than 2 FY out of 10 FY preceding that FY, or has not during the 7 FY preceding that FY been in India for more than or equal to 730 days. Accordingly, if the Karta is not ROR-Resident, the HUF shall not be ROR-Resident.

An Indian citizen stays in India for less than 182 days in FY 2018-19 and leaves India for the first time for the purpose of self-employment / business outside India. What will be his/her residential status for the FY 2018-19?

ANSWER: The expression ‘employment’ may also include business and self-employment.

So, in case of a person, who is citizen of India, and leaves India for self-employment or business outside India, then only the condition of stay in India for less than 182 days may be applicable for Residential Status to be NR.

Accordingly, he/she shall be a NR for the FY 2018-19 under the provisions of the Act, as his/her stay in India is less than 182 days for the said FY.

The same provisions may not apply for the family members accompanying such person.

An Indian citizen leaves outside India for the first time for the purpose of education (PHD) in FY 2018-19 in July 2018 What will be his/her residential status for the FY 2018-19?

ANSWER: In case of a person, who is citizen of India, and leaves India for employment outside India, then only the condition of stay in India for less than 182 days may be applicable for Residential Status to be NR.

However, in the above case, the individual is leaving for education purpose and not employment, so the condition of physical presence of 60 days during the FY and the more than 365 days during the immediately preceding FY is required to be evaluated.

As he is going outside India for first time and has been in India for more than 60 days during the FY 2018-19, he will qualify as ROR-Resident.

This post covers the FAQs on Sale of Immovable Property by NRI in India 2021.

How is Capital Gains on sale of Immovable Property computed and what are the rates of taxation?

ANSWER. Capital Gains on Sale of Immovable Property in India generally refers to the difference between the sale consideration received and purchase price paid for acquisition of the property (subject to other conditions and exemptions available). Capital Gains may be classified as ‘Short Term Capital Gains’ (STCG) or ‘Long Term Capital Gains’ (LTCG) based on provisions of the Act.

Classification of Capital Gains

Capital Gains on sale of an asset may be classified into LTCG and STCG based on the period of holding as follows:

* Plus applicable Surcharge and Health and Education cess on Income Tax

Manner of Computation of Capital Gains

Illustrative Computation of Taxable Capital Gains in case of Sale of Immovable Property is as follows:

What is Cost of acquisition and Indexed Cost of acquisition for computation of Capital Gains?

ANSWER. Cost of acquisition generally refers to consideration paid for purchase of property. Cost of improvement generally refers to any capital expenditure incurred in making any additions or alterations to the Immovable Property. The cost of acquisition may vary based on several scenarios which are reproduced below:

Property held prior to April 1, 2001:

Where property has been acquired by a person before April 1, 2001 or where the property was acquired through gift or inheritance from the person who acquired the property before April 1, 2001, then the cost of acquisition is the higher of:

1. Actual cost of acquisition of the property or;
2. Fair market value as on April 1, 2001.

However, as per recent amendment in law, the fair market value as on April 1, 2001, has been capped as  not exceeding the ‘’stamp duty value’’ of the property. Further, the term ‘’stamp duty value’’ has been defined to mean the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.

Inheritance / Gift:

In case of inheritance/ gift, the aforesaid cost of acquisition/ improvement shall be the actual cost of acquisition/ improvement of the person from whom the asset is received. The period of holding will be considered from date of original acquisition till the date of sale.

However, there is some difference of opinion regarding whether the benefit of Indexation will be given from the date of Inheritance/ Gift or from date of acquisition of the person from whom the asset is received. The said issue is litigative and pending before Court of Law.

 Indexation: It is a process by which the cost of acquisition/ improvement of a capital asset is adjusted against inflationary rise in the value of asset 

A NRI is selling his residential house in India to a resident Indian. What are the tax obligations of the resident Indian purchasing property from a NRI?

ANSWER. The resident Indian is liable to deduct tax at 30% on STCG or 20% on LTCG arising to NRI from the consideration payable for purchase of Immovable Property and the failure to deduct tax attracts penalty and interest on the resident Indian

He may request NRI to arrange for a Tax Exemption Certificate (TEC) from the Tax Officer directing the amount of appropriate tax to be deducted and withheld from the sale consideration and deposit the same with the Tax Department within the prescribed timelines

It takes about 3 weeks to 6 weeks to obtain TEC from the Tax Department but that protects the resident Indian  from any liability.

What is Stamp duty Value and what if the Stamp duty Value of the Immovable Property sold is greater than the sale consideration?

ANSWER. In case of transfer of an Immovable Property, the Act provides that the actual sale consideration should be compared with the stamp duty value. Stamp duty value is the value assessed at time of registration of the sale of the property with the Registration Authority of the State Government in India. Accordingly, while calculating capital gains, the actual sale consideration is compared with the stamp duty value and higher of the two values should be taken as sale consideration.

However, as per recent amendment in law, only if the Stamp Duty Value exceeds the actual sale consideration by more than 110% of the sale consideration, then in such case while calculating Capital Gains, Stamp Duty Value shall be considered as Full Value of consideration for the purpose of computing the Capital Gains.

What are the options available to NRI to ensure minimum deduction of tax on sale of his Immovable Property?

ANSWER. The normal rate of tax deduction is at the rate of 30% (Plus applicable Surcharge and Health and education cess on Income Tax) on STCG or 20% (Plus applicable Surcharge and Health and education cess on Income Tax) on LTCG, depending upon the period of holding of the Immovable Property. 

However, NRI may be liable to tax at much lower or nil rate on account of:

1. Tax exemption for reinvestment in a residential house or specified Bonds or in CGAS (Capital Gains Account Scheme)
2. There may not be taxable gain on account of benefit of CII or benefit of step up to market value as on 1st April 2001 as cost.

In such a situation, NRI has two options:

1. Apply for Tax Exemption Certificate to Tax officer which directs the Buyer to deduct tax at the amount specified in the TEC.
2. File Return of Income and claim Refund of excess TDS withheld and deposited to Tax Department by the Buyer.
   
   

NRI has sold a residential house on September 1, 2020 after holding it for a period of ten years, and intends to claim exemption of tax on Capital Gains arising on sale of the said house. What are the options available with him to claim exemption? What are the timelines to claim such exemptions?

ANSWER. NRI has the following options to claim exemption of LTCG tax on sale of residential house which is held for more than two years.

Option 1 -- Reinvest in a residential house:

1. At present, NRI can avail exemption if long term capital gains arising on sale of a residential property are re-invested in one residential house property. The Government has extended the said benefit of re-investment to two residential properties, effective from AY 2020-21 i.e. from FY 2019-20 onwards.
2. The aforesaid benefit can be exercised only when the capital gains on sale of residential property does not exceed Rs. 2 crore. It is pertinent to note that the benefit of this provision can be availed, at the option of the person only once in his lifetime.
3. The exemption can be availed if a new residential house was purchased one year before the date of sale of the old residential house (i.e. by September 2, 2019), or purchases a new residential house within a period of two years from the date of sale of the old residential house (i.e. before August 31, 2022), or, construct a new residential house within a period of three years from the date of sale of the old residential house (i.e. on or before August 31, 2023).
4. If NRI has not purchased/constructed the new residential house before July 31, 2021 (i.e. due-date for filing tax return for the year in which the old residential house is sold), and he would like to claim tax exemption then he has to open a banking a/c under the ‘Capital Gains Account Scheme’ (CGAS) with a Nationalized Bank and deposit the amount of Capital Gains and utilize the said deposits for purchasing/construction of the new residential house within the time lines prescribed However, if the amount deposited in CGAS is not utilized wholly or partly in purchasing/construction of the new residential house property within the time lines prescribed in paragraph 1(iii) above, then such unutilized amount would be subject to LTCG tax in the 3^rd year from the date of transfer of old property.
5. Having obtained the tax exemption as above he must hold the new residential house for at least a period of 3 years from the date of its purchase/construction as otherwise he may lose the Tax exemption. If the same is sold before 3 years, while computing Capital Gains from sale of the said new residential house, the cost of acquisition of the new residential house shall be reduced by the amount of exemption claimed and thereby resulting into higher capital gains amount subject to taxation

Option 2 -- Invest in Specified bonds:

 NRI can reinvest the amount of LTCG arising on sale of residential house in Tax saving bond issued by :

1. National Highways Authority of India (NHAI)
2. Rural Electrification Corporation Ltd (REC)
3. Bonds as may be notified by the Central Government. (No bonds are notified by Central Government till date)

Investment is to be made in the above specified bonds within 6 monthsfrom the date of sale of the property.

He investment in specified bonds should not exceed Rs. 50 lakhs and NRI is required to hold the specified bonds for a period of five years. However, if the same is transferred or converted into money within 5 years then exempted capital gains will be taxable in year of ‘’transfer/conversion’’ of such specified bonds.

Further, any borrowings against security of these bonds shall tantamount to ‘’conversion/transfer’’ of such specified bonds into money.

Option 3 -- Investment in equity shares of a new eligible Indian company:

 NRI will be eligible to claim exemption in proportion of amount reinvested in equity shares of a new eligible Indian company or eligible start-up (as defined in Section 54GB of the Act) to the sales consideration received on sale of residential house.

There are several conditions to be complied with in order to claim this reinvestment exemption.

Option 4 -- Investment in units of specified fund:

The Government has provided for an additional amount of exemption of Rs. 50 lakhs that may be invested in the units of specified fund. However, no such specified fund has been notified till date

Whether the reinvestment options change if NRI sells a Capital Asset other than residential house (old capital asset)?

ANSWER.

Option 1 -- Reinvest in a residential house:

1.  If a NRI sells any Long Term Capital Asset, other than residential house, he is eligible to avail exemption from Capital Gains tax if he purchases a new residential house one year before the date of sale of the old capital asset, or purchases a new residential house within a period of two years from the date of sale of the old capital asset, or, construct a new residential house within a period of three years from the date of sale of the old capital asset
2. If NRI has not purchased/constructed the new residential house before July 31, (i.e. due-date for filing tax return for the year in which the old residential house is sold), and he would like to claim tax exemption then he has the option to open a banking a/c under the ‘Capital Gains Account Scheme’ (CGAS) with a Nationalized Bank and deposit the amount of net sale consideration and utilize the said deposits for purchasing/construction of the new residential house within the time lines prescribed However, if the amount deposited in CGAS is not utilized wholly or partly in purchasing/construction of the new residential house property within the time lines prescribed in paragraph 1(i) above, then such unutilized amount would be subject to LTCG tax in the 3^rd year from the date of transfer of old property.
3. Having obtained the tax exemption as above he/she must hold the new residential house for at least a period of 3 years from the date of its purchase/construction as otherwise he may lose the Tax exemption. If the same is sold before 3 years, while computing Capital Gains from sale of the said new residential house, the cost of acquisition of the new residential house shall be reduced by the amount of exemption claimed and thereby resulting into higher capital gains amount subject to taxation
4. If NRI invests the entire net consideration* from sale of such capital asset, he/she shall get total exemption of Capital Gains tax. However if he/she invests partial net consideration, then the exemption shall be available in the same proportion as the proportion of amount reinvested in the residential house bears to the sales proceeds received on sale of the old Capital Asset: The same is reiterated for ready reference as below :

 *Refer answer to FAQ a. above for meaning of Net Sale Consideration

NRI should not hold more than one residential house (other than the new residential house) on the date of sale of the old capital asset.

NRI should not purchase another residential house within a period of 1 year from the date of sale of old capital asset or construct a residential house within a period of 3 years from the date of sale of old capital asset. Ifsaid condition is not satisfied, then capital gains claimed as exempted above on sale of Capital Asset other than residential house property, shall be taxable in year in which such other residential house is purchased/constructed.

Invest in Specified bonds:

Similar to exemption mentioned in FAQ f (2) above.

Investment in units of specified fund:

 Similar to exemption mentioned in FAQ f (4) above.

A NRI sold his residential house and earned LTCG on such sale. He invested the said Capital Gains in another residential house situated in Dubai. Can he/she claim exemption from LTCG?

ANSWER.  Exemptions mentioned in FAQ f (1) and g (1) above are available if a new residential house is purchased in India. Hence, in above case, NRI shall not be eligible for claiming exemption from LTCG.

A NRI sold his residential house and earned LTCG of Rs. 65 lakhs on such sale. From the said Capital Gains, he purchased two residential houses of Rs. 35 lakhs and Rs. 30 lakhs in Mumbai and Bangalore respectively. Can he claim exemption from LTCG?

ANSWER. As stated in FAQ f (1), the Government has extended the benefit of re-investment to two residential properties with effect from AY 2020-21 i.e. from FY 2019-20 onwards. In this case, as the capital gains amount is less than Rs. 2 crore, the NRI can claim exemption from LTCG. However, such exemption can only be availed, at the option of the person only once in his lifetime.

Is filing of Return of Income compulsory for claiming the various exemptions from Capital Gains on sale of Immovable Property?

ANSWER. Yes, the NRI has to file the Return of Income by prescribed due date for claiming the exemptions.

What if the whole or any part of amount invested in Capital Gain Account Scheme is not utilized for purchase of new property within 2 year or construction of the new property within 3 years, as the case may be?

ANSWER. Amount which is not invested in the new property would be subject to the LTCG tax in the year in which the period of 3 years expires from the date of sale of old property.

l. NRI is the owner of a residential house, which was purchased by him in November, 2002. He died in December, 2012, leaving behind this house to his son. His son intends to sell this property in December, 2016. When, how and in whose hands will the Capital Gains be taxed?

ANSWER.

At the time of inheritance:

There shall be no Capital Gains tax in the hands of NRI or his son at the time of inheritance, i.e. on the death of NRI.

At the time of Sale by son:

At the time of sale of the inherited house, the son shall be subject to Capital Gains tax on such sale. The Capital Gains shall be computed as follows:

Further, since period of holding is more than 24 months, the Capital Asset shall qualify as Long Term Capital Asset and shall be eligible for indexed cost of acquisition for the period 2002 till the year in which the property is sold by son.

However, there is legal uncertainty and a possible litigation regarding whether the son will be allowed the benefit of indexation from the year in which the father bought the property (i.e. 2002) or the year of inheritance i.e. upon death of the father (i.e. 2012).

A NRI received advance money/ earnest money for the sale of an Immovable Property. Subsequently, the sale of property transaction was cancelled. However, the NRI retained the advance money/ earnest money as per the agreement. What will be the tax liability on such advance money/ earnest money retained?

ANSWER. Advance money/ earnest money retained by NRI received by him on or after April 1, 2014, shall be taxable under the head ‘Income from Other Sources’. NRI shall be required to pay appropriate taxes on the said income.

Is there any Capital Gain tax implication in case where property is compulsorily acquired by the Government authorities?

ANSWER. Compulsory acquisition of the property by any Government Authority is regarded as ‘transfer’ and/or ‘sale’ and is subject to capital gains as per the provisions of the Act.

This is a quick post for folks who want to DIY (do-it-yourself). I am listing steps with images to help you do it.

Step 1 - Go to Income Tax e-filing website

Step 2 - Select Prepare and submit online

Step 3 - Select ITR Form and Assessment Year

Step 4 - Fill Required Details

Step 5 - Put Employer Details, Residential Status, etc

Step 6 - Put Salary and Section 80 deductions information

Step 7 - Total Tax payable will be computed automatically

Step 8 - Verify TDS credit amount against 26AS

Step 9 - Net Tax Payable or Refundable will be shown. Put the Bank Details and submit the return

Step 10 - After submission, e-verify the return

Step 11 - Download a copy of ITR V. 

ITR-V stands for Income Tax Return Verification; the IT department generates this for taxpayers to verify the legitimacy of their e-filing. It is applicable only to those who file without a digital signature.

Step 12 - Put PAN number and Date of Birth in lowercase to open the PDF

Step 13 - If sending manually then

Print, sign and send ITR V to CPC Bangalore within 120 days from the date ofe-filing.

Making payments outside India requires certain compliances. One such compliance is to submission of Form 15CA and 15CB, when required. The various scenarios where you need to submit these forms have been discussed in this article.

The significant changes are as follows

If you are an NRI living abroad, Read here to know How to claim Benefits Under DTAA for NRIs. NRIs can avoid paying double tax as per the Double Tax Avoidance Agreement (DTAA). Usually, Non-Resident Indians (NRI) live abroad, but earn income in India. In…

There is a fair amount of confusion about NRI Taxation while Selling Property in India. It’s always challenging to manage a house property, especially when you are not around. As an NRI, you might have stayed abroad for many years and are now contemplating selling…

This article primarily focusses on PAN Application for NRI in India

This articles we will cover the following:

1. Whether it is mandatory for a non-resident Indian to have a PAN?
2. Application for allotment of PAN:
3. Documents to be enclosed along with PAN application Form
4. Foreign address
5. Fees
6. Correction of Mistakes in PAN card
7. Penalty for holding more than one PAN card
8. Penalty for non-compliance with provisions relating to PAN

So lets get started with each of above points 

1 Whether it is mandatory for a non-resident Indian to have a PAN?

Every person who is required to file a return of income or intends to enter into an economic or financial transaction where quoting of PAN is mandatory must have a PAN.

Transactions in which quoting of PAN is mandatory are as follows:

1. Sale or purchase of a motor vehicle or vehicle other than two wheeled vehicles.
2. Opening an account [other than a time-deposit referred at point No. 7 and a Basic Savings Bank Deposit Account] with a banking company or a co-operative bank
3. Opening of a demat account with a depository, participant, custodian of securities or any other person with SEBI
4. Payment of an amount exceeding Rs. 50,000 to a Mutual Fund for purchase of its units
5. Payment of an amount exceeding Rs. 50,000 to a company or an institution for acquiring debentures or bonds issued by it.
6. Deposits of cash exceeding Rs. 50,000 during any one day with a banking company or a co-operative bank.
7. A time deposit of amount exceeding Rs. 50,000 or aggregating to more than Rs. 5 lakh during a financial year with -
8. a banking company or a co-operative bank
9. a Post Office;
10. a Nidhi referred to in section 406 of the Companies Act, 2013 or
11. a non-banking financial company which holds a certificate of registration under section 45-IA of the Reserve Bank of India Act, 1934 to hold or accept deposit from public.
12. Payment of an amount aggregating to more than Rs. 50,000 in a financial year as life insurance premium to an insurer
13. A contract for sale or purchase of securities (other than shares) for amount exceeding Rs. 1 lakh per transaction
14. Sale or purchase, by any person, of shares of a company not listed in a recognised stock exchange for amount exceeding Rs. 1 lakh per transaction.
15. Sale or purchase of any immovable property for an amount exceeding Rs. 10 lakh or valued by stamp valuation authority referred to in section 50C of the Act at an amount exceeding ten lakh rupees.

2 Application for allotment of PAN:

A non-resident Indian ('NRI') can apply for PAN by submitting the Form No. 49A along with the requisite documents and prescribed fees at the PAN application center of UTIITSL or NSDL. He can also make an online application through the website of UTIITSL or NSDL.

Link: https://www.onlineservices.nsdl.com/paam/endUserRegisterContact.html

3 Documents to be enclosed along with PAN application Form

NRI is required to submit the copy of passport (alongwith PAN application Form) as proof of identity. He is also required to submit any of the following documents (alongwith PAN application Form)as proof of address:

1. Copy of passport; or
2. Copy of the bank account statement in country of residence; or
3. Copy of NRE bank account statement (showing at least two transactions in last six months period and duly attested by Indian Embassy/Consular office/high commission or Apostille or by the manager of the bank in which the account is held. The applicant may be a joint holder).

4 Foreign address

A foreign address can be provided as residential and office address by NRIs applicants, if they do not have any Indian address of their own.

5 Fees

Fees for processing of PAN application shall depend on the communication address provided by the applicant. Fee for processing of PAN is Rs. 107 if the communication address is within India, and Rs. 994 (Application fees +dispatch charges) if the communication address is outside India.

6 Correction of Mistakes in PAN card

All guidelines as followed while filling fields of name, address, signature, etc., of PAN application form should also be followed while filling up form for 'Request for New PAN Card or/and Changes or Correction in PAN Data".

There are two modes for filing this form: (1) Offline mode, i.e., submitting the application at the PAN application center of UTIITSL or NSDL, or (2) Making an online application through the website of UTIITSL or NSDL. The applicant has to submit the application along with the related documents and the prescribed fees.

7 Penalty for holding more than one PAN card

A person cannot hold more than one PAN. A penalty of Rs. 10,000shall be imposed under section 272B of the Income-tax Act, 1961 for having more than one PAN. If a person has been allotted more than one PAN then he should immediately surrender the additional PAN card(s).

8 Penalty for non-compliance with provisions relating to PAN

Section 272B provides for penalty in case of default by the taxpayer in complying with the provisions relating to PAN, i.e., not obtaining PAN, even though he is liable to obtain PAN or knowingly quoting incorrect PAN in any prescribed document in which PAN is to be quoted or intimating incorrect PAN to the person deducing tax or person collecting tax. Penalty of Rs. 10,000 under section 272B can be levied.

This article primarily focusses on NRI and Income Tax implications in India

This articles we will cover the following:

1. How do I Determine My Residential Status?

1. 1. 1. Is My Income Earned Abroad Taxable?
      2. Am I Required to File My Income Tax Return in India?
      3. When is the Last Date to File Income Tax Return in India?
      4. Do NRIs Have to Pay Advance Tax?

2. Taxable Income for an NRI

1. 1. 1.  Income from Salary
      2.  Income from House Property
      3.  Rental Payments to an NRI
      4.  Income from Other Sources
      5.  Income from Business and Profession
      6. Income from Capital Gains
      7.  Special Provision Related to Investment Income
      8. What are the Investments that Qualify for Special Treatment?
      9.  Special Provision Related to Long-Term Capital Gains

3. Deductions and Exemptions for NRIs

1. 1. 1. Deductions Under Section 80C
      2. Deductions allowed to NRIs under Section 80C

4. Other Allowable Deductions

1. 1. 1. Deduction from House Property Income for NRIs
      2. Deduction under Section 80D
      3. Deduction under Section 80E
      4. Deduction under Section 80G
      5. Deduction under Section 80TTA
      6. Deductions not Allowed to NRIs
      7. Investment under RGESS (Section 80CCG)
      8. Deduction for the Differently-Abled under Section 80DD
      9. Deduction for the Differently-Abled under Section 80DDB
      10. Deduction for the Differently-Abled under Section 80U
      11. Exemption on Sale of Property for an NRI
      12. How are You Taxed When You are a…
      13. Income Tax Filing for Foreign Nationals

1. How do I Determine My Residential Status?

You are considered an Indian resident for a financial year: i. When you are in India for at least 6 months (182 days to be exact) during the financial year ii. You are in India for 2 months (60 days) for the year in the previous year and have lived for one whole year (365 days) in the last four years If you are an Indian citizen working abroad or a member of a crew on an Indian ship, only the first condition is available to you – which means you are a resident when you spend at least 182 days in India. The same is applicable to a Person of Indian Origin (PIO) who is on a visit to India. The second condition is not applicable to these individuals. A PIO is a person whose parents, or any of his grandparents were born in undivided India.   You are an NRI if you do not meet any of the above conditions. For FY 2019-20 if an individual has come to India on a visit before 22nd March, 2020 and a) has been unable to leave because of lockdown on or before 31st March, 2020, period of stay from 22nd to 31st March shall not be considered. b) has been quarantined due to Covid19 on or after 1st March, 2020 and departed on evacuation flight on or before 31st March, 2020 or unable to leave India his period of stay from the beginning of quarantine to 31st march shall not be considered. c) has been departed on a evacuation flight on or before 31st March, 2020, period of stay from 22nd March 2020 to date of departure shall not be considered

a. Is My Income Earned Abroad Taxable?

An NRI’s income taxes in India will depend upon his residential status for the year. If your status is ‘resident,’ your global income is taxable in India. If your status is ‘NRI,’ your income which is earned or accrued in India is taxable in India. Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from fixed deposits or interest on savings bank account are all examples of income earned or accrued in India. These incomes are taxable for an NRI. Income which is earned outside India is not taxable in India. Interest earned on an NRE account and FCNR account is tax-free. Interest on NRO account is taxable for an NRI.

b. Am I Required to File My Income Tax Return in India?

NRI or not, any individual whose income exceeds Rs.2,50,000 is required to file an income tax return in India.     

c. When is the Last Date to File Income Tax Return in India?

July 31st is the last date to file income tax return in India for NRIs.

d. Do NRIs Have to Pay Advance Tax?

If your tax liability exceeds Rs 10,000 in a financial year, you are required to pay advance tax. Interest under Section 234B and Section 234C is applicable when you don’t pay your advance tax.

2. Taxable Income for an NRI

Your salary income is taxable when you receive your salary in India or someone does on your behalf. Therefore, if you are an NRI and you receive your salary directly to an Indian account it will be subject to Indian tax laws. This income is taxed at the slab rate you belong to.

a. Income from Salary

Income from salary will be considered to arise in India if your services are rendered in India. So even though you may be an NRI, but if your salary is paid towards services provided by you in India, it shall be taxed in India immaterial of where you are receiving the income. In case your employer is Government of India and you are the citizen of India, income from salary, if your service is rendered outside India is also taxed in India. Note that income of Diplomats, Ambassadors are exempt from tax. Ajay was working in China on a project from an Indian company for a period of 3 years. Ajay needed the salary in India to take care of the needs of his family and make payments towards a housing loan. However, since salary received by Ajay in India would have been taxed as per Indian laws, Ajay decided to receive it in China.

b. Income from House Property

Income from a property which is situated in India is taxable for an NRI. The calculation of such income shall be in the same manner as for a resident. This property may be rented out or lying vacant. An NRI is allowed to claim a standard deduction of 30%, deduct property taxes, and take benefit of an interest deduction if there is a home loan. The NRI is also allowed a deduction for principal repayment under Section 80C. Stamp duty and registration charges paid on the purchase of a property can also be claimed under Section 80C. Income from house property is taxed at slab rates as applicable. Nandini owns a house property in Goa and has rented it out while she lives in Bangkok. She has set up the rent payments to be received directly in her bank account in Bangkok. Nandini’s income from this house which is in India shall be taxable in India.

c. Rental Payments to an NRI

A tenant who pays rent to an NRI owner must remember to deduct TDS at 30%. The income can be received to an account in India or the NRI’s account in the country he is currently residing. Maria pays a monthly rent of Rs30,000 to her NRI landlord. She must deduct 30% TDS or Rs 9,000 before transferring the money to the landlord’s account. Maria must also get a Form 15CA prepared and submit it online to the Income Tax Department. A person making a remittance (a payment) to a Non-Resident Indian has to submit Form 15CA. This form has to be submitted online. In some cases, a certificate from a chartered accountant in Form 15CB is required before uploading Form 15CA online. In Form 15CB, a CA certifies details of the payment, TDS rate, and TDS deduction as per Section 195 of the Income Tax Act, if any DTAA (Double Tax Avoidance Agreement) is applicable, and other details of nature and purpose of the remittance. Form 15CB is not required when:

i. Remittance does not exceed Rs 5,00,000 (in total in a financial year). Only Form 15CA has to be submitted in this case.

ii. If lower TDS has to be deducted and a certificate is received under Section 197 for it or lower TDS has to be deducted by order of the AO.

iii. Neither is required if the transaction falls under Rule 37BB of the Income Tax Act, where it lists 28 items.

In all other cases, if there is a remittance outside India, the person who is making the remittance will take a CA’s certificate in Form 15CB and after receiving the certificate submit Form 15CA to the government online.

d. Income from Other Sources

Interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on NRE and FCNR account is tax-free. Interest on NRO account is fully taxable.

e. Income from Business and Profession

Any income earned by an NRI from a business controlled or set up in India is taxable to the NRI.

f. Income from Capital Gains

Any capital gain on transfer of capital asset which is situated in India shall be taxable in India. Capital gains on investments in India in shares, securities shall also be taxable in India. If you sell a house property and have a long-term capital gain, the buyer shall deduct TDS at 20%. However, you are allowed to claim capital gains exemption by investing in a house property as per Section 54 or investing in capital gain bonds as per Section 54EC.

g. Special Provision Related to Investment Income

When an NRI invests in certain Indian assets, he is taxed at 20%. If the special investment income is the only income the NRI has during the financial year, and TDS has been deducted on that, then such an NRI is not required to file an income tax return.

h. What are the Investments that Qualify for Special Treatment?

Income derived from the following Indian assets acquired in foreign currency:

1. Shares in a public or private Indian company
2. Debentures issued by a publicly-listed Indian company (not private)
3. Deposits with banks and public companies
4. Any security of the central government
5. Other assets of the central government as specified for this purpose in the official gazette

No deduction under Section 80 is allowed while calculating investment income.

i. Special Provision Related to Long-Term Capital Gains

For long-term capital gains made from the sale of transfer of these foreign assets, there is no benefit of indexation and no deductions allowed under Section 80. But you can avail an exemption on the profit under Section 115 F when the profit is reinvested back into:

1. Shares in an Indian company
2. Debentures of an Indian public company
3. Deposits with banks and Indian public companies
4. Central Government securities
5. NSC VI and VII issues

In this case, capital gains are exempt proportionately if the cost of the new asset is less than net consideration. Remember, if the new asset purchased is transferred or sold back within 3 years, then the profit exempted will be added to the income in the year of sale/transfer. The benefits above may be available to the NRI even when he/she becomes a resident – until such an asset is converted to money, and upon submission of a declaration for the application of the special provisions to the assessing officer by the NRI. The NRI may choose to opt out of these special provisions and in that case the income (investment income and LTCG) will be charged to tax under the usual provisions of the Income Tax Act.

3. Deductions and Exemptions for NRIs

Similar to residents, NRIs are also entitled to claim various deductions and exemptions from their total income. These have been discussed here:

a. Deductions Under Section 80C

Most of the deductions under Section 80 are also available to NRIs. For FY 2019-20, a maximum deduction of up to Rs 1.5 lakhs is allowed under Section 80C from gross total income for an individual.

b. Of the Deductions Under Section 80C, those allowed to NRIs are:

i. Life insurance premium payment: The policy must be in the NRI’s name or in the name of their spouse or any child’s name (child may be dependent/independent, minor/major, or married/unmarried). The premium must be less than 10% of sum assured.

ii. Children’s tuition fee payment: Tuition fees paid to any school, college, university or other educational institution situated within India for the purpose of full-time education of any two children (including payments for play school, pre-nursery and nursery).

iii. Principal repayments on loan for the purchase of a house property: Deduction is allowed for repayment of loan taken for buying or constructing residential house property. Also allowed for stamp duty, registration fees and other expenses for purpose of transfer of such property to the NRI.

iv. Unit-linked insurance plan (ULIPS): ULIPS is sold with life insurance cover for deduction under Section 80C. Includes contribution to unit-linked insurance plan of LIC mutual fund e.g. Dhanraksha 1989 and contribution to other units -linked insurance plan of UTI.

v. Investments in ELSS: ELSS has been the most preferred option in recent years as it allows you to claim a deduction under Section 80C upto Rs 1.5 lakhs, it offers the EEE (Exempt-Exempt-Exempt) benefit to taxpayers and simultaneously offers an excellent opportunity to earn as these funds invest primarily in the equity market in a diversified manner.

4. Other Allowable Deductions

Besides the deduction that an NRI can claim under Section 80C, he is also eligible to claim various other deductions under the Income tax laws which have been discussed here:

a. Deduction from House Property Income for NRIs

NRIs can claim all the deductions available to a resident from income from house property for a house purchased in India. Deduction towards property tax paid and interest on home loan deduction is also allowed. 

b. Deduction under Section 80D

NRIs are allowed to claim a deduction for premium paid for health insurance. This deduction is available up to Rs 30,000 ( increased to Rs 50,000 effective 1 April 2018) for senior citizens and up to Rs 25,000 in other cases for insurance of self, spouse, and dependent children. Additionally, an NRI can also claim a deduction for insurance of parents (father or mother or both) up to Rs30,000 (raised to Rs 50,000 effective 1 April 2018) if their parents are senior citizens, and Rs 25,000 if the parents are not senior citizens. Beginning FY 2012-13, within the existing limit a deduction of up to Rs 5,000 for preventive health check-ups are also available.

c. Deduction under Section 80E

Under this Section, NRIs can claim a deduction of interest paid on an education loan. This loan may have been taken for higher education for the NRI, or NRI’s spouse or children or for a student for whom the NRI is a legal guardian. There is no limit on the amount which can be claimed as a deduction under this Section. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. The deduction is not available on the principal repayment of the loan.

d. Deduction under Section 80G

NRIs are allowed to claim a deduction for donations for social causes under Section 80G. 

e. Deduction under Section 80TTA

Non-resident Indians can claim a deduction on income from interest on savings bank account up to a maximum of Rs 10,000 like resident Indians. This is allowed on deposits in savings account (not time deposits) with a bank, co-operative society or post office and is available starting FY 2012-13.

f. Deductions not Allowed to NRIs

Some Investments under Section 80C:

i. Investment in PPF is not allowed (NRIs are not allowed to open new PPF accounts, however, PPF accounts which are opened while they are a resident are allowed to be maintained)

ii. Investments in NSCs

iii. Post office 5-year deposit scheme

iv. Senior citizen savings scheme

g. Investment under RGESS (Section 80CCG)

Deduction under Section 80CCG or Rajiv Gandhi Equity Savings Scheme was introduced in effective assessment year 2013-14. The main purpose behind this deduction was to increase retail investor participation in equity markets. Upon satisfaction of certain conditions the deduction allowed is lower of 50% of the amount invested in equity shares or Rs 25,000. This deduction is not available to NRIs. No deduction under this section shall be allowed in respect of any assessment year commencing on or after the 1st day of April, 2018.

h. Deduction for the Differently-Abled under Section 80DD

Deduction under this Section is allowed for maintenance including medical treatment of a handicapped dependent (a person with a disability as defined in this Section) is not available to NRIs.

i. Deduction for the Differently-Abled under Section 80DDB

Deduction under this Section towards medical treatment for a dependent who is disabled (as certified by a prescribed specialist) is available only to residents.

j. Deduction for the Differently-Abled under Section 80U

Deduction for disability where the taxpayer himself suffers from a disability as defined in the Section is allowed only to resident Indians.

k. Exemption on Sale of Property for an NRI

 Long-term capital gains (when the property is held for more than 3 years) is taxed at 20%. Do note that long-term capital gains earned by NRIs are subject to a TDS of 20%.

NRIs are allowed to claim exemptions under Section 54, Section 54 EC, and Section 54F on long-term capital gains. Therefore, an NRI can take benefit of the exemptions from capital gains at the time of filing a return and claim a refund of TDS deducted on Capital Gains. Exemption under Section 54 is available on long-term capital gains on sale of a house property. Exemption under Section 54F is available on sale of any asset other than a house property. 

Exemption is also available under Section 54EC when capital gains from sale of the first property is reinvested into specific bonds.

i. If you are not very keen to reinvest your profit from sale of your first property into another one, then you can invest them in bonds for up to Rs.50 lakhs issued by National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC). ii. The homeowner has 6 months’ time to invest the profit in these bonds, although to be able to claim this exemption, you will have to invest before the tax filing deadline. iii. The money invested can be redeemed after 3 years, but cannot be sold before the lapse of 3 years from the date of sale. With effect from the FY 2018-2019, the period of 3 years has been increased to 5 years. iv. With effect from FY 2018-19, the exemption under section 54EC has been restricted to the capital gain arising from the transfer of long term capital assets being land and building or both. Earlier, the exemption was available on transfer on any capital assets. The NRI must make these investments and show relevant proof to the buyer to get no TDS deducted on the capital gains. The NRI can also claim excess TDS deducted at the time of return filing and claim a refund.

l. How are You Taxed When You are a…

i. Resident Individual on a Temporary Foreign Assignment

Rahul worked out of Singapore on a temporary assignment for 4 months and earned in Singaporean Dollars during that time. He got this income credited to a bank account here in India. He has returned back home now. How should he file his income tax return? Rahul’s taxes for this year will depend on his residential status. Since Rahul has not been outside of India for more than 182 days, he will be considered a resident. He will be required to file his income taxes in India this year. This will also include his salary earned during the foreign assignment in Singapore. If the assignment extends to more than 182 days, Rahul’s residential status will change and he will be required to pay taxes only on the Indian income earned thus far. Here, note that Rahul’s foreign income credited to an Indian bank account is taxable in India.

ii. Resident Individual recently moved abroad

Prashant moves to the US on a new assignment. He gets his US income credited to an NRE account in India. He continues with his FD investments and has some money put away in a savings account in India. He just received Form 16 from his Indian employer. Should he file his returns this year in India? NRI or not, every individual must file a tax return if their income exceeds Rs 2,50,000. But note that NRIs are only taxed for income earned/collected in India. So, Rahul will pay taxes on income earned while in India, and income accrued from FDs and savings account.

iii. Living in a Foreign Country

It’s been 3 years since Arjun moved to the US. He is paid in US dollars. He has his money invested in a savings account and FDs in India. He has bought an apartment and gave it on rent for Rs.35,000 per month. He gifts his parents a car and transfers Rs.10,000 every month to their account to help with their household expenses during the year. He also transfers Rs 20,000 in his father’s account to meet the cost of the insurance policy he has purchased for his parents.

  Arjun’s gift to his father and money transfer of Rs 10,000 to his mother are exempt from tax. Regarding the insurance expenses on his parents, Rahul can claim a deduction under Section 80D of Rs 20,000, since his father is over 65 years of age. He will be required to file a tax return in India as his gross income exceeds Rs 2,50,000.

iv. NRI Recently Moved Back to India

Returning NRIs assume RNOR (Resident, Non-Ordinary Resident) status when: a. You have been an NRI in 9 of the 10 financial years preceding the year of your return b. You have lived in India for 2 years or less (729 days or less) in the last 7 financial years The IT Department allows RNORs to continue to enjoy exemptions available to NRIs for a period of 2 years after their return. Therefore, deposits held in foreign currency, which are exempt for an NRI, shall be exempt to returning NRIs for 2 years. After these 2 years, returning NRIs are treated as resident individuals.

v. A resident with Global Income

If you are a resident Indian, your global income is taxable in India. This income may have been earned or received outside – but it shall be taxed in India. In case this income is also taxable in another country, you can take benefit of DTAA (Double Tax Avoidance Agreement).

If you are a resident and have earned any income from abroad, remember to disclose it in your income tax return.

m. Income Tax Filing for Foreign Nationals

An expatriate in India is someone who comes to live in India but is not a citizen of India.

5. How can NRIs Avoid Double Taxation?

NRIs can avoid double taxation (meaning: getting taxed on the same income twice in the country of residence and India) by seeking relief from DTAA between the two countries. Under DTAA, there are two methods to claim tax relief – exemption method and tax credit method. By exemption method, NRIs are taxed in only one country and exempted in another. In tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence.

6. Frequently Asked Questions

Contribution towards an EPF account provides a benefit to individuals by way of a deduction under Section 80 C. Let’s discuss what would be the income tax or TDS implications of EPF withdrawal. Interestingly, EPF withdrawal is taxable under certain circumstances and exempt under certain circumstances. If…

In July 2018, Shayna sold a property in Mumbai. Shayna is 26 years old and works as a freelancer consultant for Graphics Design. She did not know about payment of TDS on sale of Property at the time of sale. Also, even the buyer was unaware about the income tax provisions of TDS on sale of Property.

Let’s understand about the tax liability and payment of TDS when selling the Property. To make things little easier to understand, I have created these slides which explains all the provisions in detail:

Other Thing that you should know:

What is Form 26QB?

Form 26QB is the for that has to be filled by the buyer or his CA. It is basically a a return cum challan which has to be filed within 30 days of the next month (of the sale of property). If the buyer fails to deduct then he will get a notice for non-filing of Form 26QB

What exactly is Form 16B? 

Form 16B is a TDS certificate for TDS deducted on a successful sale of property or home. As soon as the buyer makes the payoff of TDS on behalf of the seller, a TDS certification gets generated after a short time of making the payment to the government. The purchaser can then obtain this certificate often known as Form 16B and provide to the seller as a testament to TDS submission. 

What are the Modes of Payment?

The payment of TDS can be done any of the following ways: 

• On the web by means of the e-tax payment option.
• On the web by means of net banking account of the buyer.
• Physically going to any authorized bank branches 

Responsibilities of an individual Deducting TDS on Sale of Property or home 

There are specific fundamental duties explained below of person who is liable to deduct tax at source: 

• To get Tax Deduction Account Number also known as TAN and quote the same in all the documents pertaining to TDS.
• To deduct the tax at source at the appropriate rate.
• To pay off the tax deducted by him or her at the source to the credit of the Government by filing Form 26QB on or before the due date.
• To file the regular TDS returns.
• To download and issue the TDS certificate or Form 16B to the payee in respect of tax deducted by him by the due date stipulated by law in this respect. 
  
  

Is TAN Mandatory for a Person Accountable for Deducting TDS? 

Yes, everybody responsible for TDS is required to obtain TAN. Tax deduction and Collection Account Number is a ten-digit alpha-numeric unique identification number allotted to the deductor and must be quoted in all communication of the deductor thereby. 
For those who don’t have TAN, the payment of tds is to be filed with the help of Form 26QB and then issuing a certificate for tax deduction under Form 16B. Form 26QB is available in the e-payment section of Tax Information Network (TIN ) of the Income Tax Department .

Frequently Asked Questions

What are the consequences a deductor would face if he fails to deduct TDS or after deducting the same fails to deposit it to the Government’s account?

A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit it to the credit of Central Government’s account:

Levy of interest: As per section 201 of the Income-tax Act, if a deductor fails to deduct tax at source or after the deducting the same fails to deposit it to the Government’s account then he shall be deemed to be an assesse -in-default and liable to pay simple interest as follows:

at 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and

at 1.5% for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.

Levy of penalty: Penalty of an amount equal to tax not deducted or paid could be imposed under section 271C.

What if the payer does not deduct tax at source, will the payee face any adverse consequences by means of action taken by the Income-tax Department?

It is the duty and responsibility of the payer to deduct tax at source. If the payer fails to deduct tax at source, then the payee will not have to face any adverse consequences. However, in such a case, the payee will have to discharge his tax liability. Thus, failure of the payer to deduct tax at source will not relieve the payee from payment of tax on his income.

Thanks for Reading

This article is focussed on NRI Taxation - House Property. There is a good quantity of confusion concerning tax implication for NRIs that wish to sell any house property that they will have in India. This article explores what proportion tax is due and TDS deductible just in case of NRIs wish to sell their property. 

NRIs selling house property got to pay tax on the Capital Gains. The tax that's due on the profit depends on whether or not it’s a Short-Term or long-term capital gains.

When a house property is sold, after a period of 2 years (Reduced from 3 years to 2 years in Budget 2017) from the date it was owned – there is a long-term capital gain. In case it held for 2 years or less – there is a short-term capital gain.

Tax implications for NRIs also are applicable in the case of inheritance. Keep in mind the date of purchase of the initial owner to decide whether or not it’s a long-term or short-term financial gain. In such a case the value of the property shall be the value to the previous owner.

How much tax is payable?

Long-term capital gains are taxed at 20% and Short-Term gains shall be taxed at the applicable tax rates for the NRI.

TDS Deductible

When a NRI sells property, the buyer is liable to deduct TDS @ 20%. And in case the property has been sold before two years (reduced from the date of purchase) a TDS of 30% shall be applicable.

How to save tax on capital gains?

NRIs are allowed to claim exemptions underneath section 54 and Section 54EC on long-term capital gains from sale of house property in India.

Exemption underneath Section 54

It is obtainable once there's a long-term financial gain on sale of a house property of the NRI. The house property can be self-occupied or let-out. Please note – you don’t have to invest the complete sale receipt, only the amount of capital gains. Of course, your purchase price of the new property could be more than the amount of capital gains. However, your exemption shall be restricted to the overall financial gain on sale. Also, you'll be able to purchase this property either one year before the sale or two years once the sale of your property. You're additionally allowed to invest the gains in under-construction property, however construction should be completed inside three years from the date of sale.

From 2014-15, it's been held that ONLY one house property can be purchased or constructed from the capital gains to get this exemption. Additionally, beginning assessment year 2015-16 (or Financial Year 2014-15) it's obligatory that this new house property should be located in Republic of India. The exemption underneath section 54 shall not be obtainable for properties bought or made outside India. (Do keep in mind that this exemption is taken back if you sell this new property inside three years from the date of its purchase).

If you've NOT been able to invest your capital gains till the date of filing of return (usually 31^st July – it got extended by one month this year) of the yr within which you've sold-out your property, you're allowed to deposit your gains in PSU bank or other banks as per the Capital Gains Account scheme, 1988. And in your return claim this as an exemption from your capital gains, then you don’t have to pay tax on it.

Exemption underneath section 54F

It is available when there's a long-term capital gain on the sale of any capital asset other than a residential house. To get this exemption, the NRI needs to purchase one house property, within one year before the date of transfer or two years after the date of transfer. In case of construction of property, it should be within three years from the date of transfer of the asset. This new house property should be located in Republic of India and should not be sold-out within three years of its purchase or construction.

Also, the NRI should not own more than one house property (besides the new house) and nor should the NRI purchase within a period of 2 years or construct within a period of 3 years any other residential house. Here the ENTIRE SALE receipts are required to be invested. If the entire sale receipts are invested, then the capital gains are fully exempt otherwise the exemption is allowed proportionately.

Exemption is additionally obtainable underneath Section 54 EC

You can also save the taxes on your long-term capital gains by investing them in certain bonds. Bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) are specified for this purpose. These bonds are redeemable after three years and should not be sold-out before the lapse of three years from the date of sale of the house property. Note that you just cannot claim this investment underneath any other deduction. You're allowed a period of six months to invest in these bonds – (and make sure that you invest in them before the IT Return filing date). From 2015, you are allowed to invest a maximum of Rs fifty lakhs only in a financial year in these bonds.

The NRI should make these investments and show relevant proofs to the Buyer of property – to be certain that he does not deduct TDS on the capital gains. The NRI can also claim excess TDS paid at the time of return filing and claim a refund.

Thank You for reading.

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