Dubai: There are only two things certain in life: death and taxes, Benjamin Franklin, who was credited with drafting the Declaration of Independence and the American constitution, said and his utterances made in 1700s hold true even today.
Non-resident Indians (NRI) are required to pay an income tax on income of more than 250,000 Indian rupees that is earned in India. Naveen Sharma, immediate past chairman of Institute of Chartered Accountants of India Dubai Chapter spoke on a host of tax issues concerning the Indian population residing overseas.
Tax implications for NRIs:
The law suggests that any Indian resident or non-resident having an income of 250,000 Indian rupees earned in India should file their income tax returns.
A person would be considered as NRI if he has not stayed in India for 182 days in a financial year.
“The tax implication would depend on the residency status. First we need to check our status whether we are resident and non-resident. If you are not a resident in India for 182 days then you are a non-resident. Then your foreign income is free. If you were in India for the past 365 days or more in the past four years. Then your foreign income is non-taxable. But if you are wealthy, and if you have rental income, income from shares, or bonds, or movable property or a running business and that income is more than 250,000 rupees, then you will have to file tax returns,” he said.
A citizen’s resident status would determine the types of accounts he/she can open.
“There are three importance laws that you need to take into consideration — income tax, Foreign Exchange Management Act and customs. Even if you are leaving India for good and for employment from day 1 you are non-resident. What it means to us it means is that only non-resident can open NRI accounts or foreign currency accounts. Resident Indians don’t have that flexibility. Whether we can invest as an NRI depends on your FEMA (Foreign Exchange Management Act) status,” Sharma said. In the first year as an NRI if you stay in the UAE for more than 100 days then income from the UAE would be subject to tax.
Moving back home
If a NRI plans to go home for good, he/she needs to take a few steps before leaving the country as per the laws of the countries involved.
They will have to change the status of the FCNR (Foreign Currency Non Resident Account) or NRE or NRO accounts after getting all the settlement from employers. Sharma says that income which is earned outside India won’t be subject to taxation.
“The first thing that you need to do is transfer of residence if you are shifting back to India,” Sharma said.
“You have household goods, electronics and car. If you are going back to India within 2 years of becoming an NRI, you will have to take back goods for your consumption and not for commercial purpose. There are 3 sub sections. The time limit for taking these items back is 30 days without paying any duty. If you are using electronics, then items worth up to 150,000 Indian rupees is completely free. You can take back your supercars, but there is a catch. You won’t be able to take back left hand cars, You can take the right hand car for free,” he said.
There is exception to the above rules on keeping the FCNR accounts to people who are NROR (Resident But Not Ordinarily Resident).
“Going back to the tax, as a resident of India, your foreign income or rental income is taxable along with India income. There are some sub clauses, if you are living in the UAE or outside India and you are an NRI for 9 out of 10 years in that situation you will be NROR or if you have not lived in India for the last 729 days in the last 7 years, you are also an NROR. Your taxation would be similar to non-resident, which means foreign income won’t be taxable. It depends upon the duration. If you have been living in India for 5 years, then your UAE income would also be taxable in India,” he said.
UAE income may come in the form of rent from a residential or commercial property. In the first nine months of 2018, Indian buyers were the second biggest after the UAE nationals and were involved in 4,676 investments worth Dh8.6 billion.
The UAE government also need to complete formalities to ensure smooth passage if they want to return back.
“If you are shifting back to India, you cannot ignore the UAE laws. You need to close your salary, business account and take no liability letter from the banks. You should well in time. You should do the same with credit card. You should ensure these steps if you want to come back to the country,” he said.
Tax on sale of property in India
The seller will have to pay capital gains tax either short or long term in case of sale of immovable property.
“You have to pay the tax on the sale of immovable properties. But first we must see if its short-term capital gain or long term capital gains.
You’ll have to pay short-term capital gains tax if you are holding a property for 24 months. If you are selling after more than 24 months, long term capital would applicable. The rate would be lower than that of short term capital gains tax,” he said.
The seller may claim many exemptions.
“If you bought another residential property before one year of your transfer or within two years of the transfer or you construct another house in the next 3 years, you can claim exemptions under Section 54 of the Income tax act. If you have purchased India in say 1998, the government will use cost indexation in terms of using inflation and also capital appreciation. Government has come out with an index with an improvement due to wear and tear,”
The seller need not pay capital gains of the gain is less than 250,000 Indian rupees.
Finance Minister Nirmala Sitharaman proposed to levy gift tax in the budget, which was commonly used to subvert tax payments.
“There is a lot of debate on the gift tax. There is an important change that has come. If I’m lucky to receive the gift from someone of more than 250,000 Indian rupees. You would be exempt from the tax if you get the gift from a the list of specified people. The limit is 250,000 rupees. The receiver will have to pay the tax and not the giver,” he said.
The Finance Bill 2019 has imposed tax on any sum of money paid or any property situated in India, transferred by a person resident in India to a person outside India, as it would be deemed to accrue or arise in India. The changes will be applied for all such transfers made on or after July 5, 2019.
Sharma said: “We have seen tragic instances of death in families here in the UAE. The law is quite different. If you die while an NRI the conditions would differ on your assets outside and inside India.” The bank would freeze the account in case of death and DIFC Will would be executed incase it exists.
“Your bank account would be frozen, and your DIFC Will will be executed and your property would be handed over to people mentioned in the Will. If you don’t have a Will but have a nomination then the money would go to them. If it’s a joint account, it would be more complex. The account would be frozen. The Will in India would be executed, and it can be done in the consulate. Without the Will, the family would lose the assets that you generated for their betterment,” he said.