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Income from sale of personal effects is not taxable in India

LiveMint logoLiveMint 19-06-2017 Sonu Iyer

We had been living in West Asia since November 2016. However, we want to wind up and move back to India, rather prematurely. We had bought a lot of new household goods and assets while we were there, including a car. We can sell that and a lot of the large white goods. We will bring back with us what we can but we will also have some cash. Please explain how this money will be taxed in India. I fall in the highest tax bracket.

—Sivan Gurumurthy

Taxability in India depends on the following factors:

(a) Source of income

(b) Residential status

Typically, source of income lies where the services are performed, or where the asset, from which the income arises, is located.

Residential status in India is determined based on your physical presence in India in the current financial year (FY) (1 April to 31 March) and preceding 10 FYs .

If an individual satisfies any of the basic conditions mentioned below she would qualify as a resident, otherwise she would qualify as a non-resident (NR):

Basic conditions:

a) Stay in India during the FY is 182 days or more; or

b) Stay in India during the relevant FY is 60 days or more and in the 4 immediately preceding FYs is 365 days or more.

The 60 days mentioned above are extended to 182 days in case of Indian citizens going outside India for employment outside India.

A resident would qualify as a resident and ordinarily resident (ROR) if both the below mentioned conditions are satisfied otherwise she would qualify as a resident but not ordinarily resident (RNOR):

Additional conditions:

a) Resident in India in 2 of 10 FYs preceding the relevant FY; and

b) Stay in the 7 years preceding the relevant FY aggregates 729 days or more.

An individual qualifying as ROR is taxable on her global income and is required to report her global assets in her India tax return. However, an individual qualifying as NR or RNOR is taxable only on her India-source income (this is, income earned in India or received in India).

Assuming that this is the first time you went outside India, you would most likely qualify as an ROR in India for FY 2017-18 (as you would satisfy the basic as well as the additional conditions given above) and accordingly your global income would be taxable in India and global assets will need to be reported in India. Benefit may be claimed under the Double Tax Avoidance Agreement between India and other country in case of double taxation.

Hence, any income received while you were outside India will be taxable in India as per the applicable slab rates. Any income from sale of goods that are in the nature of personal effects such as white goods, car or any other movable property held for personal use is not taxable in India. Cash, if it represents income earned (other than from sale of goods in the nature of personal effects) outside India will be taxable in India as you qualify as ROR in India. There should be proper explanation with respect to source of cash.

Sonu Iyer is tax partner and people advisory services leader, EY India.

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