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For RNOR, foreign income is tax-free in India

By A N Shanbhag & Sandeep Shanbhag
July 17, 2009 16:51 IST
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A N Shanbhag, investment guru, and his son Sandeep Shanbhag, answer your questions on NRI investment.

My son is a non-resident Indian and I am in government service. He has both a non-resident external and a non-resident ordinary account here in the United States.

Shortly I will retire and get my retirement benefits (all tax-free). After I get my retirement benefits, I want to gift some amount to my son and deposit the same in his NRO account. My queries are:

1) Can I do this?

2) If yes, what is the limit which I can gift him?

3) What is the tax implication for him?'

Also, he recently got married and his wife also shifted from India and is an NRI now. Is it mandatory to convert her savings accounts here to NRO?

-- Ashok

You can gift any amount without any limit to your son by crediting the same in his NRO account. As his father, by law you will qualify to be a relative of his and hence there will be no tax implication of the gift, either on him or on you.

Regarding your other query, yes, it is mandatory for all NRIs to redesignate/convert their resident bank accounts into NRO. NRIs are not allowed to hold resident bank accounts.

While trying to figure out my RNOR status, I keep getting confused. I think it has something to do with my weak maths! Anyway, I still can't figure out till when will my RNOR status last.

I returned to India on June 18, 2007. I had moved to Canada in December 1998. Between December 1998 and June 18, 2007, I visited India for a total of about 90 days.

-- Atul

A resident but not ordinarily resident is a transitionary status between being an NRI and being a full-fledged resident in India. As an RNOR, your foreign income will continue to be tax-free just like it is for an NRI.

As per data provided, you will be an RNOR for 07-08 and 08-09. From 09-10, you will be a full fledged resident.

While I have been an American citizen for many years I now also am registered as an OCI. When leaving for the US on July 3, I will have spent one year continuously in India. I inherited some apartments from my parents which I have given on rent. Can I transfer the proceeds of the rent income to Germany on a monthly basis? Must the (savings bank) account into which the rents are paid be of a specific category?

-- P M Goel

If you spend more than 182 days in India in any financial year (Apr-Mar), you will be a resident of India in that year. Since you are leaving for the United States on July 3, in the fiscal year 09-10 you would not be spending 182 days in India and hence you will be an NRI.

NRIs cannot have regular resident savings bank accounts. Instead, they are supposed to open NRO accounts.

Therefore, the rent should be credited to the NRO account.

You may transfer the proceeds of the rental income to the USA on a monthly basis, though doing so at a lesser frequency (say every six months or every year) may prove to be more convenient.

The reason for this is that every time you intent to remit the proceeds abroad, your application for the same has to be accompanied by a certificate from an Indian chartered accountant certifying that taxes due if any on the amount intended to be remitted have been paid.

I am an NRI settled in the USA.I have NRE and NRO accounts in India. I know that interest from NRE account is tax free. Interest from NRO account is taxed by way of TDS at the rate of 12.5 % (not 33% due to DTAA with Kuwait) by the bank.

The interest earned by me from NRO account is more than Rs 1.5 lakh (Rs 150,000) per year. My only income in India is the above two incomes (NRE and NRO interest) and nothing else.

I do not wish to claim any refunds from the tax department as banks are already cutting the TDS as per DTAA. So am I correct in not filing tax returns as per IT act/rule 115G (return of income not to be filed in certain cases).

-- Kumar Viswanathan

Under Section 115G of the Income Tax Act, a tax return need not be filed if the taxpayer's total income consists only of investment income or long-term capital gains.

Now, investment income means any income derived from a foreign exchange asset and in turn a foreign exchange asset means any specified asset which the taxpayer has acquired or subscribed to in convertible foreign exchange.

Therefore, as per a strict reading of the above, if your have made the NRO fixed deposits through foreign exchange only and there is no Indian income that has been used to purchase the deposits, section 115G will be applicable and a tax return need not be filed. It would however be advisable to maintain the TDS (tax deducted at source) records on file.

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A N Shanbhag & Sandeep Shanbhag
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