Specialised practice
NRI Taxation
Indian tax follows residence, not citizenship or passport. Status is worked out afresh each year, and it decides how much of your worldwide income India is entitled to tax at all.
The first question in any non-resident matter is residential status for the year concerned. It is a factual test, turning largely on days of physical presence, and it is not a label that carries over from one year to the next. Status determines the scope of total income — whether India taxes only what arises here, or everything you earn anywhere — and almost every other question follows from it.
The problems that bring non-residents to a Chartered Accountant tend to be practical rather than theoretical. Tax has been deducted on a property sale at a rate far above the actual liability, and the money is stuck until a return is filed. The same income appears to be taxed in two countries. Funds need to move out of India and the bank is asking for certification. A notice has arrived at an Indian address that is no longer occupied.
Exchange control runs alongside all of this and is a separate code. A transaction can be entirely correct for income tax and still be impermissible under FEMA, or vice versa. Both have to be dealt with together, particularly where funds are being repatriated.
Residential status and scope
- Determination of residence in India for each year
- Scope of total income by residential status
- Income deemed to accrue or arise in India
- Resident but Not Ordinarily Resident, and the transition in and out of it
- Deemed residence for Indian citizens not liable to tax elsewhere
- Special provisions for computing the total income of non-residents
- Planning around the year of arrival and the year of departure
Compliance, treaty relief and certificates
- Return filing for non-residents and for RNORs
- Double taxation relief under an agreement, and unilateral relief
- Tax residency certificate, and the declaration in Form 41 (Form 10F)
- Tax residency certificate for residents claiming relief abroad — application in Form 42 (Form 10FA), certificate issued in Form 43 (Form 10FB)
- Deduction of tax at source on payments to non-residents
- Certificates for deduction at a lower rate or no deduction
- Certification for remittances — Form 146 (Form 15CB)
- Remittance declarations — Form 145 (Form 15CA)
- Tax clearance certificate where required on leaving India
- Reporting of foreign assets and income on becoming resident again
Property, investments and repatriation
- Capital gains on the sale of property and securities in India
- Tax to be deducted by the buyer when purchasing from a non-resident
- Exemption on investment in a residential house
- Exemption on investment in specified bonds
- Capital gains on foreign exchange assets
- Rental income from Indian property, and the deduction of tax on rent paid
- Repatriation of sale proceeds, inheritance and current income under FEMA
- NRE, NRO and FCNR accounts, and the movement of funds between them
When this applies
Situations this covers
You are selling property in India
Tax is deducted by the buyer at a rate applied to the whole consideration rather than to the gain, which often far exceeds the real liability. Applying for a certificate before the transaction is the point at which this is fixable.
You have just moved abroad, or just returned
The year of departure and the year of return are the years in which status is most often misjudged, and in which the scope of taxable income changes part-way through.
The same income appears to be taxed twice
Relief may be available under the treaty with the country of residence, but it has to be claimed correctly and supported by a residency certificate.
Funds need to be moved out of India
Repatriation of sale proceeds, inheritance or current income requires certification, and sits under exchange control as well as tax.
A notice has arrived while you are abroad
Proceedings do not pause because you are overseas. Portal-based assessment makes this manageable from anywhere, provided the correspondence is being seen.
You are returning to India for good
Becoming resident again brings foreign assets and foreign income into the reporting net, and there is planning to be done before the status changes rather than after.
Method
How the work runs
- 01
Fix the residential status, year by year
Days of presence are counted for each year in question. Nothing else can be decided until this is settled, and it is decided on facts rather than on assumption.
- 02
Map the income and where it is taxable
Each stream — salary, rent, capital gains, interest, dividends — is placed against the scope of total income for that status, and against the treaty where one applies.
- 03
Deal with deduction at source before the transaction
Where a certificate for lower or nil deduction is available, it is applied for in advance. Recovering excess tax afterwards means waiting for a refund.
- 04
Claim treaty relief properly
A residency certificate and the declaration in Form 41 (Form 10F) are obtained, and the relief is claimed in the return with the treaty article identified rather than asserted generally.
- 05
File, and reconcile against the credits
The return is filed and reconciled to the tax credit statement, so that deducted amounts are actually recovered rather than left unclaimed.
- 06
Document the repatriation
Certification and the accompanying declaration are completed — Form 146 (Form 15CB) and Form 145 (Form 15CA) — with the exchange control position confirmed alongside the tax position.
Questions
Commonly asked
General information on procedure. It is not advice on any particular matter.
Do I have to file an Indian tax return if I am a non-resident?
It depends on whether you have income arising in India and how much. A non-resident is taxed on income that accrues, arises or is received in India, and a return is required where that income exceeds the threshold. Even where filing is not compulsory, it is usually necessary in practice to recover tax deducted at source, which is frequently deducted at rates far above the actual liability.
I am selling a property in India. Why is so much tax being deducted?
Tax on a sale by a non-resident is deducted by the buyer, and unless a certificate says otherwise it is applied to the whole sale consideration rather than to the gain. On a property that has appreciated modestly, or been held a long time with indexation available, the deduction can be several times the real liability. The remedy is to apply for a certificate for deduction at a lower rate before the transaction is completed.
What is a lower deduction certificate, and when should I apply?
It is an order from the Assessing Officer directing that tax be deducted at a rate reflecting the estimated actual liability rather than the default rate. It has to be applied for and granted before the payment is made — it cannot be applied retrospectively. Where a property transaction is planned, the application should be made well ahead of the sale, since processing takes time.
Will I be taxed twice on the same income?
Ordinarily not, where India has a double taxation avoidance agreement with your country of residence — which it does with most. Relief may take the form of an exemption, or of a credit for tax paid in the other country. The relief has to be claimed with the relevant treaty article identified and supported by a tax residency certificate, so the paperwork is arranged before the return is filed.
What does RNOR mean, and why does it matter?
Resident but Not Ordinarily Resident is an intermediate status that many people returning to India after a long period abroad hold for a limited number of years. Broadly, foreign income is outside the Indian net during that period in a way it is not for an ordinary resident. It is a genuinely valuable window, and it is worth knowing in advance when it begins and ends.
Can I repatriate money out of India?
Generally yes, subject to the conditions and annual limits set under FEMA, and with the tax position settled first. Repatriation from an NRO account requires certification by a Chartered Accountant in Form 146 (Form 15CB), together with the remitter’s declaration in Form 145 (Form 15CA). Because tax and exchange control are separate codes, both have to be satisfied — a remittance can be correct for one and not permitted under the other.
A property sale, a remittance, or a filing to sort out?
The position is far easier to arrange before the transaction than to correct afterwards, particularly where tax is about to be deducted at source.
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