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Pension paid by the Government of India to NRIs is taxed in India

LiveMint logoLiveMint 01-05-2017 Sonu Iyer

I’m a British citizen. I get pension from Government of India and income from a rented flat. I file income tax return for these in India as a non-resident Indian (NRI). I also file income tax return for my pay here in the UK. Do you think it is a right practice under the Double Taxation Avoidance Agreement (DTAA) between India and the UK? Also, I have recently sold a property in India. How can I get the proceeds of the sale here? Can you please direct me to a website from where I can get the DTAA details?

—Mukesh Gairola

Under the income-tax laws, an individual qualifying as a non-resident in India is taxable only on the income earned in India and/or the income received in India. Accordingly, pension income from the Government of India and rental income from the flat situated in India are taxable in India.

Under the DTAA between India and the UK:

1. Pension paid by Government of India in respect of services rendered to the Government of India is taxable only in India. You may claim the same as exempt from tax in the UK as per provisions of the DTAA.

2. Rental income from the flat situated in India is taxable in India. However, it may also be taxed in the UK. You may claim foreign tax credit for taxes paid in India against UK tax payable, as per provisions of the DTAA. You may refer to the DTAA at the following link: http://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx

Sale of property situated in India will be taxable in the year of sale of property. Any immovable property held for a period of more than 24 months, effective 1 April 2017 (earlier 36 months), is classified as long-term capital asset. In case of such assets, taxable capital gain will be sale proceeds less indexed cost of acquisition (i.e., adjusted as per cost of inflation index, or CII) less cost of improvement less cost of transfer. Long-term capital gain (LTCG) is taxable at 20% plus surcharge, if applicable, and education cess. The applicability of surcharge is determined on the basis of total taxable income.

The LTCG may be claimed as exempt from tax to the extent it is re-invested in Government of India prescribed bonds or a residential house in India (to be either purchased within 2 years or constructed within 3 years of transfer of the land). There are certain restrictions, however, on the sale of new house bought and the quantum of investment to be made in bonds. If the LTCG remains uninvested until the due date of filing of India tax return (i.e., 31 July), you may put the amount of LTCG in a Capital Gains Account Scheme with a bank (not later than the due date of filing your India tax return) and subsequently withdraw this for reinvestment. If the entire amount is not reinvested or deposited under the Scheme, the remaining part will be taxable.

Short-term capital gain (STCG) is calculated as the difference between sale proceeds and cost of acquisition (no indexation benefit is available) at respective slab rates.

Tax on capital gains may be either paid as advance tax in four instalments (15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March) or before filing of a tax return by way of self-assessment tax along with interest by 31 July.

With respect to remittance of sale proceeds, foreign nationals are allowed to remit up to $1 million (subject to payment of applicable India tax) in the following circumstances:

(a) Where the person has retired from employment in India;

(b) Where the person has inherited a property in India from a person resident in India.

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

Queries and views at mintmoney@livemint.com

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