Income Tax Compliance Obligations

Under Indian tax law, every NRI whose total annual income in India surpasses the government’s basic exemption threshold must:

• Compute Total Income: Collate all India-sourced earnings—salary, rent, dividends, capital gains, etc.—and determine taxable income.
• Discharge Tax Liability: Deposit the computed tax before the due date.
• File Return: Submit the appropriate ITR form online by the prescribed deadline.

Crucially, your tax liability hinges on your residential status under the Income Tax Act, which we determine upfront to ensure accurate filings.

Residential Status under the Income Tax Act

Your status dictates the scope of taxable income in India. The Act classifies individuals as:

• Resident and Ordinarily Resident (ROR)
• Resident but Not Ordinarily Resident (R-NOR)
• Non-Resident (NR)

Determination is based on days spent in India during a financial year (April 1–March 31) and preceding years. Note: Short visits (< 182 days) for employment, ship crew service, or brief visits by citizens/persons of Indian origin do not count toward residency.

Selling Immovable Property: Procedure & TDS Management

When an NRI sells real estate in India, the buyer must deduct withholding tax (TDS) on the gross sale consideration:

• Long-Term Capital Assets (> 36 months): 20% + surcharge & cess.
• Short-Term Assets (≤ 36 months): Taxed at slab rates.

Key steps to optimize TDS and capital gains tax:

• Valuation Report (Pre-April 1, 1981 Acquisitions): Obtain from a government-recognized valuer to establish indexed cost of acquisition.
• Inclusion of Improvement Costs: Compile invoices for renovations or extensions to include in cost computations.
• Lower/Nil TDS Certificate: Apply via Form 13 to restrict deduction to capital gains rather than entire sale value.
• Review Sale Agreement: Vet drafts prepared by the buyer’s counsel.
• Coordinate TDS Deduction: Ensure the buyer deducts and deposits the correct amount at sale closing.
• Repatriation Certificate: Secure a CA certificate to facilitate fund transfers to your overseas account.
• Return Filing: Report capital gains and TDS details in your ITR along with Form 16B.

Leveraging Double Taxation Avoidance Agreements (DTAAs)

India’s network of DTAAs prevents taxing the same income twice. Under treaty provisions, you can:

• Claim Tax Credits: Offset Indian tax paid against your overseas tax liability.
• Benefit from Reduced Withholding Rates: Many treaties cap interest/dividend withholding at 10–15% versus domestic rates up to 30%.

To avail treaty benefits:

• Obtain a Tax Residency Certificate (TRC) from your country of residence.
• Submit Form 10F and the TRC with your ITR or TDS forms.

FEMA & Foreign Exchange Compliance

Under FEMA, your residential status and transaction type determine permissions:

• Capital Account Transactions: Prohibited unless explicitly permitted (e.g., sale of immovable property, PIS investments).
• Current Account Transactions: Generally permitted (e.g., remittance of dividends, interest).

Residence Classification under FEMA:

• Non-Resident: On departure for overseas employment—regardless of days in India thereafter.
• Resident: On actual return date to India.

Bank Account Re-designation:

• Notify your bank to convert resident accounts to NRO/NRE/NRO to RFC accounts upon status change.
• NRIs may repatriate up to USD 1 million per financial year from NRO/RFC accounts.

Compliance Filings:

• Submit relevant FEMA forms (e.g., Form 15CA/15CB) for cross-border transactions.
• Inform RBI/banks of status changes to avoid transactional blocks.

Planning for Returning NRIs (RNOR Status)

Returning NRIs may qualify as Resident but Not Ordinarily Resident (RNOR) for up to two years, under which:

• Foreign-Sourced Passive Income (interest, dividends, royalties) and foreign business income remain tax-exempt in India.

Action Points:

• Plan your return date to maximize RNOR benefits.
• Notify banks and authorities to re-classify your accounts (RFC, NRO) appropriately.
• Strategize repatriation of overseas assets and income into your RFC account.

Advisory & Assistance for Fund Remittances

Inward Transfers:

• Ensure proper documentation (Form A2, remitter declarations, CA certificates) for transparency.

Outward Repatriation:

• Up to USD 1 million per year, subject to tax compliance.
• File Form 15CA with a CA-issued Form 15CB for each remittance.

NRO → NRE Transfers:

• Permitted up to USD 1 million/year post-tax.
• Furnish remitter declarations, CA certificates, and FEMA undertakings.