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If you are leaving India, you can redesignate an account as NRO

LiveMint logoLiveMint 28-08-2017 Archit Gupta

After working for 37 years in West Asia, I returned to India in November 2016. Though I was planning to go back within 6 months, I have put that plan on hold for now. So I have to change my residential status from NRI to RNRO for the next 2 years, and subsequently to ‘resident’ for income-tax purposes, to manage my NRE fixed deposits and FCNR fixed deposits. Also, my children are permanent residents (green card holders) in the US and will be eligible for citizenship in 2021. After that, I will be applying for permanent residency in the US and migrating there. In that scenario, can I again change the status of my accounts?

—Narayanan Kutty

To begin with you must find out your residential status in India as per the income tax Act for each financial year. And file your tax returns accordingly.

Please note that as soon as you come back to India for an uncertain period and plan to stay permanently, you must re-designate your non-resident external (NRE) accounts as resident accounts, which are called resident foreign currency (RFC) accounts. Foreign Currency Non-resident (FCNR) deposits may be held till maturity and then converted to a resident account. Once these accounts become resident accounts, income earned from them will also become taxable in India and TDS will be deducted.

If you plan to go for an uncertain period and leave India for an extended stay outside, you are eligible to re-designate your accounts as Non-resident Ordinary (NRO) accounts. 

I am a US citizen, permanently residing in the US. I retired from the Indian Army and receive pension from the Government of India. I have an NRO account in a public sector bank in India. I pay tax on the pension received from India to the US Treasury and submit the IRS form 6166 (Tax Residency Certificate) to the bank in India every year. Till the month of May 2017, it was not deducting tax deducted at source (TDS) from my monthly pension. However, suddenly it deducted TDS from my June and July pension. Have the rules changed? If not, what remedy do I have to avail double taxation relief? I have made several calls to the bank branch in India but they have given no definitive answer.

—Amrit Sibal

Any person making a payment to an NRI from India must deduct TDS. So the bank should have deducted TDS on payments made to you, unless payments made to you were less than the minimum taxable income of Rs2.5 lakh.

You must file a tax return both in India and the US. You can take benefit of Double Taxation Avoidance Agreement, for which you need a tax residency certificate. Your income will not be doubly taxed.

I have been offered a job by a UK-based company to handle its market in India. I will be staying in India and working for this company. As it doesn’t have any office in India, my contract will be from the UK, and the company will be sending my salary into my Indian bank account. I am confused about my taxes as I will be based in India. If the UK company provides me a salary slip, will it be valid for filing taxes in India? If yes, what should be the structure or bifurcation of the salary? If any taxes are deducted there, how will that impact how I pay taxes here in India?

—Name withheld on request

Since you will be staying in India, your status will be resident in India as per the income tax Act. Any salary or income earned by you will be taxable in India. So you have to report your income from the UK company while filing your tax returns in India. And pay tax on it in India. In case the company deducts any tax in the UK, you can take benefit of it in your tax return in India. This can be done by referring to the Double Taxation Avoidance Agreement between India and the UK. The Agreement ensures that taxpayers do not have to pay tax twice on the same income.

You can use the salary slips issued to you to report your salary income and file your tax return in India.

Archit Gupta is founder and chief executive officer of ClearTax

Queries and views at mintmoney@livemint.com

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