A N Shanbhag, the highly respected investment guru, and his son Sandeep Shanbhag, answer your questions on NRI investment.
A Rediff India Abroad feature:
For the new financial year (08-09), the tax-free limit (income below which tax is not payable) for senior citizens has been increased to Rs 225,000. This information was given to me by my cousin in India. I am 68 and living in the United States. I have some Indian income in terms of interest from bank deposits and rental income. I wanted to confirm if the information provided by my cousin is correct or not.
-- S Krishnan
While it is true that for the financial year 2008-09, the basic exemption limit for senior citizens (65 years and above) has been increased to Rs 225,000, the same is only applicable to Resident Indians and not to Non-Resident Indians. For NRIs, the general limit of Rs 150,000 is applicable. Incidentally, this general limit too has been increased from the earlier Rs 110,000.
1. What is the minimum time required to be outside India to qualify as an NRI and be exempt from paying income tax in India? Is it 182 or 183 days? Are the days of leaving India and arriving back in India (the dates stamped on your passport) counted in the tally of days outside the country?
2. Is it necessary to file Income Tax returns if an individual has attained NRI status for a particular year? If the answer is no, what if proof of IT returns is required while buying a house, car, etc (upon moving back to India)? If the answer is yes, on what basis would we be taxed?
You have to consider time spent in India and not outside India to determine your NRI status. If, in any financial year, you spend 182 days or more in India, you will be a Resident of India. If you do not satisfy this condition, by default, you will be an NRI.
Both days of leaving and arriving back in India (as stamped on your passport) will be considered in calculating the 182 days as specified above. If your Indian income is less than Rs 150,000, you do not need to file a tax return as no tax is payable by you.
The income you earn as salary as an NRI will be considered as your foreign income and hence not be taxed in India. If you do desire to file an IT return for the purposes as specified by you, you may file a nil tax return.
I would like to express my serious concern related to the tax deduction at source for the interest paid to my Non-Resident Ordinary (NRO) account. I did not find any obvious reason for deducting 30 per cent of earned interest, especially in view of government-stipulated norms and the ruling of the court of authority on this issue.
I refer to the Authority for Advance Ruling in V Ravi Narayanan In re (2008) 300 ITR 62 (AAR) where the court has ruled that interest from NRO account is to be treated as income in the nature of investment income vide clause (1)(b)(i)(A) of Part II of Schedule I of the Finance Act, 2007, and that the applicable tax rate is 20 per cent.
In view of the above, can NRIs in general ask for a refund of excess tax deducted by various Indian banks?
An AAR ruling is applicable to that particular assessee only and for that particular case. It is not the law and the bank cannot act based on an AAR ruling.
The interest on NRO is fully taxable at the rates applicable to Residents.
It is mandatory for the banks to apply TDS (withholding tax) on NRO interest as per Section 195 of the Income Tax Act. Unless the same is amended, the bank has no option but to deduct the tax as specified under the law.
The TDS is not the same as your tax liability. This liability will be computed on the basis of the income tax rates which again depend upon your income and the exemptions, deductions and rebates you can claim. The TDS can be set off against your actual tax payable and pay only the difference. In case the TDS is higher than the tax liability, you will get a refund.
I live in the US and to give a loan to someone in India for business. Will he be able to remit my money back to the US with interest? And if yes, then what are rules regarding this?
AP DIR Circular 24, a government notification dated September 27, 2003 grants general permission to borrow up to $250,000 or its equivalent in foreign exchange on a repatriable basis by an individual Resident from his close relatives (as defined in Section 6 of the Companies Act) resident outside India subject to the following conditions:
The loan is free of interest;
The minimum maturity period of the loan is one year;
The amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the Non-Resident External/Foreign Currency Non-Resident (NRE/FCNR) account of the Non-Resident lender.
A Resident, not being a company incorporated in India, may borrow in rupees on non-repatriation basis from an NRI or a Person of Indian Origin (PIO) subject to the following conditions:
The term of the loan does not exceed 3 years.
The loan is utilized for meeting the borrower's personal requirement or for his business purposes and under no circumstances is used for re-lending or for investment in shares, securities or immovable property.
The rate of interest does not exceed 2% over the bank rate prevailing on the date of availing of the loan.
The amount of loan is received by way of inward remittance from outside India or out of NRE)/NRO/FCNR account of the lender maintained with an authorized dealer (bank) in India.