FERA stands for the Foreign Exchange Regulation Act, 1973, by the Indira Gandhi’s government;...
This article throws light on the things which is to be carried by an NRI during first visit in India. The point of discussion in this article can be classified into four broad categories. The first category is clarifying the residential status, the second category is there any amount tax which is to file in India (Income Tax Return filing), third is what deductions can be claimed and fourth is how to avoid double taxation. This is important from the point of view Foreign Exchange Regulation in India.
On the basis of this criterion, we can decide the things to carry out for an NRI during first visit to India.
It is interesting to point out that India has the largest count for the NRI’s living abroad, be it in America, the United Kingdom, and Australia. NRI taxation comes under the Income Tax Act, 1961, applies to the earnings which have been earned outside India. NRI have their bank accounts, they have been investing in various sectors such as bank, deposits, property, shares, house property etc. They are free to increase their property, and at the same time, they are bound by the provisions of Income Tax Act, 1961.
A. Knowing the Residential Status
It is essential for the NRI to visit for the first time to acknowledge and verify the residential status. The residential status in India is dependent on the period of stay in India in a particular Financial Year. This acts as a criteria for the non-resident as per the global standards, as the resident of India, his income would be taxable, but when it comes for the non-resident, the income would be taxable other sources. To compute from the Foreign Exchange Regulations (FEMA), the residency test parameter differs from the test provisions prescribed under the Income Tax Act, 1961, which is entirely irrelevant for the tax purposes.
B. Computation of Residential Status
The person who resides in India, for minimum or at least or less than 181 days in any previous year, without losing his non-residential status and who leaves India for the employment or as a member of the crew of Indian an Indian ship. The 60 days period is shifted to the 182 days period computation for NRI during first visit to India, for clarifying his residential status for multiple income tax purposes. The finance Act 2020 has redefined residential status to 120 days.
C. Determination of his Taxable Income
The amount of taxable income shall be calculated based on the income from the sources earned/ accrued or due or outstanding on his account.
If your status is clarified to be NRI, the income which earned or accrued in India is taxable in India. This means, the salary which is received in India, or compensation for service provided in India, income from House Property situated in India, capital gains on transfer of assets situated in India, income from Fixed Deposits or interest on savings, bank accounts, are all examples of income earned or accrued in India. These incomes are taxable for an NRI. The income which is earned outside India is not taxable in India.
D. Heads of Income which are covered here are as follows
The income is arising in India if you are an NRI towards the services rendered in India, or if the employer is the government of India, services are provided for outside India, then also it is taxable in India.
The property which is rented for lying vacant in India. The rental received is taxable in India.
Interest on the fixed deposits and savings account held in Indian bank accounts is taxable India.
E. Deductions Under Section 80C
A maximum of deduction available to the NRI is 1.5 lakhs, this is allowed under section 80C on the gross total income of an individual.
F. Other Deductions by the NRI during first visit/
A valid foreign Bank Account by the Non-Resident in refund cases is necessary. That CBDT clarified that the non-residents, who claim Income Tax refunds, without having valid bank account in India, are required to give details of their at least one foreign bank account, while filing their Income Tax Returns.
G. Filing of Income Tax Returns
The NRI during the first visit who have their taxable income less than the normal limit does not require filing the return, but if the basic income is under exemption limit and in case, he makes a long-term capital gain, he is required to file income tax return.
H. Double Taxation Avoidance Agreement
The person who is an NRI during first visit, he can claim the benefit of the DTAA. Either the income shall be entirely exempt, or may be taxable at the lower rate according to the Income Tax Act, 1961. If the income is taxable under DTAA, the NRI’s shall have to pay their taxes, and they are eligible to claim the credit of such taxes, paid against the tax liability, in their own country of residence.
Read our article:Double Taxation Avoidance Agreement for NRI
Frequently Asked Questions for the NRI during the first visit
Q1. Is NRI taxable on the income he receives in India, in his country of residence? What is the role of Double Taxation Agreement?
Answer: An NRI in the receipt of his income in India is taxable in India on such income that is where India is the source state has the right to tax such income. NRI being a resident of a country, its state will have the right to tax such income as it is a residential state. This way, he is being taxed twice. India has entered into the DTAA with the countries, where the taxpayer to claim credit for the foreign taxes paid while filing the return of his income.
Q2. Is it necessary to update KYC status?
Answer: It is important for a non-resident to update KYC status. This helps the bank or financial institution process documents of the NRI. KYC is crucial when it comes to financial and banking activities.
Q3. Is it important to update your status as a non-resident Indian (NRI)?
Answer: In order to file return of Income Tax it is important for them to update their status as Non-Resident. It helps to collect your TDS refund.
Q4. How to collect your investment?
Answer: It is important to collect the status of all your investments from India in the form of Demat Account. It should be converted into non-residential status. Another method which would be utilised would be utilising the NRO or NRE Account.
Q5. What happens if the NRI during first visit comes with medical insurance cover of their country?
Answer: The insurance cover of their country will not be applicable in India.
It can be concluded that NRI during the first visit has to clarify from being NRI after determining the residential status. The status will clarify over the position for the computation of his taxable income. This taxable income is computed form various heads that is whichever applies to the assessee. There will be shift in the banking, as the NRI no more can hold the regular bank accounts in India, and have to open their Non-Residency (NRO) Account, NRE -Non-Resident External or FCNR account. The funds are used for the transferring foreign incomes in India. The bank account operations will be as per the foreign exchange regulation (FEMA). In this way the tax payer who is an NRI has to carry the documents for his/NRI during first visit.
Read our article:Can an Indian Citizen Borrow from a Foreign National/ NRI?