Feeds:
Posts
Comments

Archive for the ‘Tax Planning’ Category

Retirement 1Retirement is usually something that is not considered by most of us till we are nearing it, so naturally we do not plan for it, until it is probably too late. This general ignorance or lack of attention to retirement planning can have far reaching consequences.

Retirement planning in the simplest sense means preparing for life after the tenure of paid work ends.  This does not only include the financial aspect, but other aspects such as what to do during retirement, the lifestyle choices that one can take and what dreams one might want to pursue during the remainder of the years.

While the concept of Retirement Planning applies to pilots just as it does to other individuals, there are certain unique points that are exclusive to retirement planning for commercial pilots. These unique points are crucial while developing a retirement plan for a pilot.

Firstly, under the current DGCA rules, the retirement age in India has been pushed up to 65. This is an entire 5 years longer than the mandated retirement age in most other industries. This translates to more income earning years, probably at the highest salary slab of the industry, since usually pilots around this age are most likely to have their designations as Captain. This extra income earning period is crucial in formulating and ironing out the retirement plan before the pilot ultimately retires. The significant income flowing could be the difference between living a compromised and a fulfilling retirement.

One of the most important things a commercial pilot has to consider is Lifestyle Inflation. Because commercial pilots have one of the best salary packages amongst all industries, they tend to have more lavish lifestyles. And they are comfortably able to match up the ever increasing expenses that come alongside their lifestyle choices. But on retirement, the salary stops. Yet expenses continue to stay, with inflation only adding to it. But more significantly no one would want to compromise on their lifestyle they have become accustomed to. As such it becomes imperative to plan much ahead so that lifestyle compromises don’t become the norm during your golden years.

Just to drive home the impact of inflation, let’s take an example. Consider a pilot Mr. A, currently 30 years of age and has a monthly expenditure of Rs 12 lakhs every year (not a very high amount, from what we hear from our pilot clientele). Assuming he will retire at age 65 and taking an average of 8% lifestyle inflation till retirement,  the same Rs. 12 lakhs expenditure will inflate to approx Rs. 1.75 crores. In other words, to maintain the lifestyle that costs Rs 12 lakhs as of today, Mr. A would require Rs 1.75 Crores annually to maintain the same expenditure choices, forget upgrading!

Furthermore, pilots are used to having extremely busy schedules. So when retirement hits, they are unprepared to handle the ample time in hand. Hence they always look for options to keep themselves engaged. This could mean, taking long leisure trips or finding, researching on and investing lump sums in “exciting investment avenues”, committing money to be part of a start up or just following their long drawn passions or enrol at the local flying clubs just so that they can regularly indulge their lifetime love of flying. All this comes at hefty financial expenditures.

All of the above means that Pilots would need to plan and develop customized retirement plans for themselves to ensure a smooth flight during retirement.

Read Full Post »

Debu Blog Image

As a passenger, getting from point A to B simply includes sitting on your assigned seat and enjoying the flight till the destination. You are completely unaware of the preparation and planning that goes behind every flight.  A smooth flight is an end result of the meticulous preparatory work including facing any emergency.

All sorts of emergencies can happen during a flight. Engine malfunctions, instrument failures and unanticipated weather issues are just some of the emergencies pilots can face at any time.  In such times the long hours of training, learning from past experiences and pre flight preparations comes to the front and saves the day. Sometimes passengers are blissfully unaware of the issue and continue to enjoy the flight. All this all possible because one aspect, planning! More specifically, planning for an emergency.

Yet, more often than not, pilots in the Indian aviation sector seem to be unprepared for one kind of emergency that is their own personal financial emergencies.

Personal financial emergencies can be broadly classified into two types based on nature of emergency i.e. (A) loss of job or life and (B) unexpected big ticket financial commitments.

While both can prove to be a heavy toll on one’s finances, if we look back to the last 5 years of the Indian Aviation Industry, job losses have been a major theme throughout.

Now as a pilot you earn a handsome salary starting from a young age. Hence your lifestyle tends to be on the more plentiful side.  And this only increases in significant jumps as you climb higher in your career. As such expenses are always on higher side. Luxury cars, high discretionary expenses, significant EMI’s and top notch education for children. All well within your reach. That is as long as you continue to earn that kind of money.

But what happens if you can’t? What if salaries are not paid for months or worse, you are given the golden handshake. What then? Take a step back and think about this for a minute. Ask yourself, will I be able to continue to live the life I have led so far under such circumstances; at least temporarily till I can get things back on track?

A majority of pilots will fail to have an answer to this. And that’s far from ideal!

So what should you do now? How do you start preparing for such unforeseen events? A thousand questions and ideas might run through your mind. Maybe you can get it right, maybe not. But with the help of a trusted financial advisor, who knows the intricacies of the aviation sector, you could stand a much better chance of confidently facing such troublesome periods, safe in the knowledge that you were geared up for it in advance. Exactly like handling an emergency while flying a plane.

As professionals specialized in planning for the worse, it definitely be worth your time for us to meet and discuss how to enrich your life.

Till then, happy flying!

Read Full Post »

blog picPilots are probably one of the most stretched professionals when it comes to time management. The constant flux in schedules is always a hassle. Even when you are not flying you are on standby which means that you are still on your toes. The weekly off standard in the Indian Aviation industry is one day every week. And money matters are usually the last thing you want to tackle on such a day. Life is already stressful enough as it is!

By most industry standards, Indian pilots take away a very handsome salary. The more experienced you are, the more significant are your financial takeaways. But it is not all rosy all the time.

With the high earning potential at a pilot’s disposal, it becomes vital to channelize these earnings to fulfil a whole set of commitments and dreams that are unique to a pilot’s life, both during their career and post retirement.

But what are some of these unique problems that only pilots face? Pilots for once, have to always be medically fit. And for good reason! Priority to healthcare hence takes prime importance. Now a pilot reading this might say, oh we are covered by our company, so I don’t have to worry above covering any financial cost regarding my health. But if you really think about it, is that actually enough?

Another thing which pilots always need to be on top of is upgrading their skill sets. Not so much a unique item, but very important nonetheless. And it does not come cheap. Preparing for it well in advance can be far more beneficial than just scrapping up every penny at the last moment to fund for this expense.

One another issue is the state of aviation industry and opportunities. The last few years have clearly demonstrated that problems are plenty in the Indian aviation sectors. For e.g.  Airlines have closed down, (leading large time periods of unemployment), pay can be delayed significantly or indefinitely. All these lead to great financial complications for pilots and their families. Preparing for such circumstances is prudent and must at all times be actively considered.

Probably the biggest challenge a pilot will face is retirement! With no more significant inflows, you are faced with a very real possibility of compromising on your lifestyle just because of a lack of proper planning and this change is not easy! This struggle can be easily avoided with some proper and sustained guidance throughout the earning years so that you can live through your golden years in comfort all the while fulfilling your passions.

Pilots are well aware of the importance of planning. Every flight involves hours of preparation beforehand so that you can take the best possible decisions in terms of route, landing approach and understanding weather patterns of the areas you will fly through, just to mention a few!

As a fellow professional with a prime importance towards professional planning, it would be definitley worth your time for us to meet and discuss how to enrich your life!

Till then..Happy flying!

 

 

 

Read Full Post »

budget-image-3

 

  1. Budget focussed on job creation, transfer of benefits of demonetisation, good fiscal management & risks to the economy
  2. Structural changes in budget- merger of rail budget, movement of date to February 1, merger of plan & non plan expenditure, certainly different
  3. India largely a tax non compliant nation, as can be seen by the number of tax payers. Not very good news.
  4. Tax rates cut in tax slab of Rs 2.5 lakhs to 5 lakhs by 5%. Benefits of upto Rs 12500 as a result. Income of 50lakhs+ hit by 10% surcharge. Positive for many, negative for some.
  5. Corporate tax rates cut for Micro, Small and Medium Enterprises with turnover up to Rs 50 crores to 25%. Huge benefits to corporatize for smaller businesses. No changes in corporate tax rates.
  6. Innovative political funding options – electoral bonds announced. Big step towards poll funding reform.
  7. Capital gains on immovable property – long term reduced to 2 years holding instead of 3 years. Base year for indexation also changes to 2001.
  8. New web based system for defence pensioners
  9. Draft bill to curtail illegal deposit schemes could boost flows to other financial assets
  10. High speed fibre connectivity to be available in more gram panchayats – augurs well for the new digital India
  11. To simplify labour laws – would this increase India’s ranking in ease of doing business
  12. Desire to move from an informal to a formal economy, bodes well for listed companies longer term. GST 1st step.
  13. Higher oil & commodity prices, deglobulisation/protectionism & higher US interest rates risk to India
  14. Inflation management & lower current account deficit bodes well for the rupee & Indian bonds. Will stable oil prices allow it to continue?
  15. Lower interest rates driven by transmission of rate cuts are a short term positive of demonetisation. Time to refinance your home loan.
  16. Cash transactions limit now at Rs 3 Lakhs. Penal provisions for transactions above that value equivalent to the value of the transaction.
  17. 133 Kilometres per day of road construction and use of technology to better target social spending / MNREGA excellent news
  18. 100% electrification for villages by 2018 has huge multiplier benefits for the economy combined with enhanced road construction
  19. Affordable housing gets infrastructural status & additional benefits. Step towards boosting employment, possibly India’s biggest challenge?
  20. E-learning platform Swayam could change the way Indian youth learns going forward. Testing &certification will need to be combined
  21. Focus on creativity and innovation most welcome in skilling and reskilling – new solutions a must to tackle old challenges.
  22. Aadhar based medical records for senior citizen – great news.
  23. LIC to issue guaranteed 8% pa for 10 years product operationalising PM year end speech
  24. Digital Money gets significant attention – Aadhar pay, BHIM, changes in negotiable instrument act, payment regulatory board.
  25. Airport redevelopment was one of the most visible successes on infra. Railways follow in its footsteps- station upgrades on way
  26. Multimodal transport focus goes back to Keynesian theory in spurring job creation. Execution done right is critical
  27. Consolidation and merger benefits of CPSEs to leverage synergies is a great idea. Starting with a large oil company model?
  28. CPSEs divestment to continue, IRCTC, IRCON to be listed , will continue to use ETF, propose a new ETF on same lines
  29. Another CPSE in offering! Needs to be truly diversified so that commodity related & concentration risks are adequately addressed
  30. New laws to confiscate assets of economic offenders could help – details will be closely awaited
  31. Fiscal deficit at 3.2% of GDP with 3% next year a relief, with the Fiscal Responsibility and Budget Management committee flexibility to be addressed in the future.
  32. Low Tax to GDP ratios- very low profits for companies of different sizes. Individual data no different. Use of data mining could change it.
  33. Foreign Investment Promotion Board abolishment sends a strong message of liberalization. Look out for details. Automatic route needs to be truly automatic.
  34. Theme = Transform, energise and clean India

 

 

Read Full Post »

budget2016

 

Reams of paper have probably been dedicated to the Union Budget already, but here is a detailed analysis after going through the fine print in terms of Budget 2016 and its impact on your personal finances.

Your Income

  1. House Rent Allowance change: This has been hitherto a lesser used deduction as it comes with multiple conditions. Section 80GG allows individuals to claim a deduction in respect of house rent paid. The limit has gone up from Rs 24,000 previously to Rs 60,000 subject to following conditions:

a.If the person is either self-employed or salaried but does not receive deduction for       HRA from the employer

b.Does not own a residential property in the city in which he is staying on rent.

c.If the tax payer owns property at any place other than the one mentioned above, he        should not be claiming benefit of the property as self occupied. That property should be deemed to be let out.

To claim this deduction the tax payer has to furnish a declaration in Form 10 BA

The deduction allowed under section 80GG for payment of rent shall be least of the following:

  1. 5,000 per month
  2. Rent paid less 10% of the total income
  3. 25% of the total income of the tax payer for the year.

Your Expenses

  1. Tax collection at Source introduced – TCS of 1% on purchase of luxury cars of value greater than Rs. 10 lakhs and purchase of goods and services in cash exceeding Rs. 2 lakhs is now being levied. This does not change the price of the product but will create a trail of transactions in cash of high values, targeting cash usage.
  2. Increase in service tax – Service tax has been increased by 0.5% on all taxable services, with effect from 1 June 2016. As a result, expect the costs of all services to go up.
  3. Infrastructure cess- 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars and 4% on high engine capacity vehicles and SUVs, will mean that cars will become more expensive.
  4. Excise duty on branded ready made garments – garments with a retail price of Rs. 1000 and above has changed from Nil to 2% without input tax credit. Thus, expect garments to become a wee bit more expensive.
  5. Excise duty on tobacco hiked – expect cigarettes to be more expensive as a result.

Your Investments

  1. Long Term Capital Gains tax on equities and debt investments did not see any change – This is positive for investors, as there were fears around tax being introduced on equities or the holding period for equities being changed. Status quo is good news.
  2. New Pension Scheme (NPS) – There are 3 types of withdrawals currently allowed under the NPS.
  3. Normal Superannuation – Lump sum withdrawal on retirement, which was 60% earlier has been changed to 40% now. Earlier this withdrawal was taxable. Now the government has proposed withdrawal upto 40% to be tax free. The balance 60% can be used  for purchasing annuities, to make the annuity portion tax free as well. Thus, the NPS is far more attractive as an instrument to be used for your retirement goals now, especially as its ability to permit equity exposure enables you to get the wealth creation benefit of equities over the long term.
  4. Upon death- The entire 100% would be paid to the nominee/ legal heir and there won’t be any purchase of annuity. These entire 100% proceeds are tax free.
  5. Exit before normal superannuation( 60 years) – At least 80% of the acculturated pension wealth of the subscriber should be utilized for purchase of an annuity and remaining 20% can be withdrawn as lump sum. Considering that this is a long term retirement product, be sure to use the NPS to fund your retirement goals, as early withdrawals make it less flexible.
  6. Other pension products like EPF and superannuation – There has been an attempt to bring all pension products on the same page in terms of taxation. Therefore, EPF and superannuation will also permit 40% of the corpus withdrawn to be tax free. The interest earned on the balance 60% of the contributions made post April 1, 2016 will be subject to tax unless it is used to purchase an annuity.

There is also proposed a monetary limit for contribution of employers to a recognized Provident and superannuation fund of Rs. 1.50 Lakh per annum or 12% of employer contribution, whichever is less, beyond which the same will be taxable in the hand of the employee. You could see smaller contributions towards the EPF from employers going forward as a result, and voluntary Provident Fund contributions could also reduce as a result.

  1. REITS (Real Estate Investment Trusts) and InvITs ( Infrastructure Investment Trust) – Real Estate Investment trusts are listed entities that primarily invest in leased office and real assets allowing developers to raise funds by selling completed buildings to investors and listing them as a trust. Previously REITs did not take off due to taxation challenges. This budget has done away with Dividend Distribution Tax, thus enabling exposure to commercial real estate at lower values.

Expect Infrastructure Investment Trusts to also take off as a result of this change in dividend distribution tax provisions.

  1. Gold Bonds- Long term capital gains from the sale of gold bonds will continue to be taxable but now eligible for indexation benefits. This facilitates taking exposure to gold in a paper form.

The budget has also proposed to make interest and capital gains from the gold monetization scheme tax free. Thus yields from gold are possibly now more attractive than rental yields from residential real estate, considering that the returns are tax free.

  1. Measures for deepening of corporate Bond Market-

a. LICof india will setup a dedicated fund to provide credit enhancement to infrastructure projects. The fund will help in raising credit rating of bonds floated by infrastructure companies.

b.Development of an online auction platform for development of private placement market in corporate bonds.

c.A complete information repository for corporate bonds covering both primary and     secondary market segments will be developed jointly by SEBI and RBI.

d.A framework for an electronic platform for Repo market in corporate bonds will be    developed by RBI.

This will enable investors to invest in corporate bonds and give them another option to add fixed income exposure to their portfolio.

  1. Fiscal target to be maintained at 3.5% – With the government sticking to its target of 3.5% of GDP for FY 17, fiscal discipline has been adhered to for now. This could lead to drop in bond yields and could be particularly positive for duration funds or portfolios having longer duration bonds. Transmission of falling interest rates could finally be a reality.

Your Taxes

  1. There has been no major change in income tax slabs , for individuals earning upto Rs 1 crore.
  2. Surcharge- There has been an increase in Surcharge on income above Rs. 1 Crore from 12% to 15%.

For an individual below 60 years with an income above 1 Crore ( eg. 1.1 Crore), he will end up paying approximately Rs 91,000 more due to the 3% increase in Surcharge.

  1. Rebate- Under Section 87A, for individuals with income not exceeding Rs. 5 lakhs, the rebate has increased from Rs. 2,000 earlier to Rs. 5,000.
  1. Dividend Distribution Tax- The amendment in dividend distribution tax law is applicable to dividend declared under Section 115O. The section is applicable to domestic companies and it is proposed to amend the Income-tax Act so as to provide that any income by way of dividend in excess of Rs. 10 lakh declared by such domestic company shall be chargeable to tax at the rate of 10%.The above amendment will have no impact on the dividends received by the Mutual Fund unit holders as dividend paid by a mutual fund scheme to a unit holder is covered under Section 115R of the The Income tax Act, 1961. This will hit investors drawing higher dividends but since it is not applicable to dividends from mutual funds it’s a relief.
  2. Presumptive Tax – This scheme is available for small and medium enterprises with turnover not exceeding 1 crore rupees. These were free from getting audited and maintaining detailed books of account and could pay tax at 8% .This turnover limit has increased to Rs. 2 Crore.

Also under the presumptive taxation for professionals with gross receipts up to Rs. 50          Lakh, the presumption of profits has been introduced to 50% of gross receipts.

This should result in significant time saving and costs for professionals and small business owners. However, remember to read the fine print on this clause.

  1. Reduction in tax slabs for companies with business income upto Rs 5 crores – The path to reduction of corporate tax rates has begun with a 1% reduction in tax rates for smaller businesses. Expect more to follow going forward.
  2. Undisclosed income – A window from 01 June 2016 to 30 Sep 2016 has been introduced for people to pay 45% on their undisclosed domestic income. This undisclosed income will not be subject to any scrutiny if done within this window. This is an attempt to garner additional revenues and solve the challenges of black money.

Your Loans

  1. Additional deduction of Rs. 50,000- For first time home buyers an additional deduction of Rs.50,000 on top of already existing Rs. 2 lakh has been proposed for loans upto Rs. 35 lakh sanctioned during the next financial year subject to the value of property not exceeding Rs. 50 lakh.

All in all, it’s a budget that will probably not change your money life significantly – but it has a little here and a little there. “Fortunately, there is a sane equilibrium in the character of nations. As there is in that of men.”

Read Full Post »

budget 2016
1. HRA benefits to be enhanced from Rs. 24000 per annum to Rs. 60000 per annum under section 80GG.

2. Pensions get boost with NPS benefits tax free upto 40%.Retirement savings boost begins, MF arbitrage continues though. Move to boost retirement savings,

3. Long term capital gains tax on equities seems like it is untouched.Biggest worry for the markets till this morning moves away

4. Tax on dividends in excess of Rs. 10 lakhs introduced at 10%. Double tax again?

5. TDS rationalization introduced. Details awaited.

6. A recent survey shows job application fraud at 5 year high -digital repository of certificates should help.Big benefits for biz

7. New Health Protection scheme upto 1 lakh & additional topup of Rs. 30000 for senior citizens.Good initiative -implementation key

8. Section87A rebate increase from Rs. 2000 to Rs. 5000 practical solution. Cost of compliance possibly higher than tax revs there

9. EPFO & NPS choice gets more complex for employers & employees,with new subsidies on EPS contribution for 3 yrs for new employees

10. First time home buyers – loans upto Rs 35 lkhs – for value of house Rs 50 lkhs – additional tax deductions announced.

11. NRI without pan to get relief. Customs baggage rules for passengers to be simplified.

12. Surcharge for incomes above Rs. 1 cr enhanced to 15%. Very much on expected lines. Clearly not a onetime levy as earlier promised.

13. Voluntary disclosure of domestic undisclosed income with payment of 45%.Hope the fine print does not dissuade disclosures.

14. Central legislation to deal with illicit schemes duping investors

15. Relief for MSMEs with turnover Rs. 2 cr or less – presumptive income

16. Comprehensive code -for resolution mechanism to deal with bankrupty situations. Banks to benefit.

17. Presumptive tax at 50% for professionals earning upto 50 lakhs seems too high. Not sure this works.

18. Deepening of corporate bond market big boost for corporates & Debt mkts. Steps to build retail participation in long term bonds needed

19. NHAI,etc to raise 15000 crore in 2016 to give impetus to infra -more tax free bonds? Good for retirement portfolios if continued.

20. 100% electrification in villages with a target date in 2018 is a big step. Greater confidence on back of past performance.

21. Rs. 55,000 cr for roads n highways – huge investment in road and infra rs 97,000 cr in the coming yearr, togethr with rail @ Rs 218k cr

22. Continued focus on road building is good long term step. Focus on what has a worked well is good mgmt. Build on what has worked.

23. Doubling of farmers income in 5 years will depend on the real income increase i.e. post inflation inc. Hope inflation is controlled.

24. CSR funds & donations for higher education capital fund creation -is Rs 1000 crores good enough for an initiative of this scale?

25. Digital literacy creates equal access, but self help requires intrinsic motivation & job access. Can enough new jobs be created?

26. Fiscal discipline, tax reforms & financial sector reforms as part of 9 pillars of 2016.

27. Fiscal target to be maintained at 3.5% – good news for bond markets & positive for India rating. Fiscal prudence wins for now.

28. Fiscal target range as a strategy to be reviewed through a committee to factor ext. environment changes. Hope range is narrow.

29. Govt gross borrowings and net borrowing numbers seem lower than expectations – positive for bond markets.

Read Full Post »

Even if a non-resident Indian (NRI) lives abroad, he may still have income in India. If the income is above a certain exemption limit, he needs to file his income tax return in India just like a resident Indian.

NRI Taxes pic.jpg

Image Source: http://www.pinterest.com

Who is an NRI for tax purposes?

Before an NRI decides whether or not to file income tax return in India, he needs to first ascertain his residency status for tax purposes (which is different from the definition of residency status under FEMA). An individual is said to be resident in India if he has been in India in that financial year for 182 days or more, or if he has been in India for 60 days or more during the current financial year and for 365 days or more in the preceding four financial years. A person who does not fulfil these conditions would qualify as an NRI.

Next, it has to be determined whether such a person is “ordinarily resident” or “not ordinarily resident” (NOR). A person is not ordinarily resident in the previous year if he has been a non-resident in India in nine out of 10 previous years preceding that year; or has during the seven previous years preceding that year been in India for a period of, or periods amounting to 729 days or less. As an RNOR (resident but not ordinarily resident), a returning NRI needs to pay tax in India only on his Indian income. His income outside India will not be taxed in India. Interest earned on FCNR bank account will not be taxed until maturity, and the same will apply to resident foreign currency (RFC) accounts. After that the person reverts to filing tax as resident and ordinarily resident (ROR) and his global income also gets taxed in India. A person can file tax as RNOR for a maximum of three years.

As an RNOR (resident but not ordinarily resident), a returning NRI needs to pay tax in India only on his Indian income. His income outside India will not be taxed in India.

Which income is taxable?

An NRI should go by the rule that any income that arises or accrues in India, or is deemed to arise or accrue in India, will be taxed in this country. If an NRI receives his salary income in an account in India, he will have to pay tax on it in India. If he renders services in India, even in that case his salary income will be taxed here. Rental income earned from housing property in India and capital gains arising from the sale of an asset situated in India will also be taxed here, as will capital gains on investments and interest earned from bank accounts in India. NRIs can hold three types of accounts–NRO, NRE and FCNR. Of these the interest income from NRO account is taxable.

NRIs can hold three types of accounts–NRO, NRE and FCNR. Of these the interest income from NRO account is taxable.

When does filing return become compulsory?

filing tax returns.jpg

Image Source: www.inriservices.com

NRIs have to file tax return if their gross income in India (before making any deduction) exceeds the basic exemption limit of Rs. 2.5 lakh. They don’t get the benefit of a higher exemption limit based on age, as resident Indians get.

In case TDS has been deducted on an NRI’s income but his gross total income is less than Rs. 2.5 lakh (in which case he is not liable to pay any tax), he must file tax return to claim a refund from the tax department. E-filing is compulsory for claiming refund. Returns must also be filed to carry forward a loss.

NRIs have to file tax return if their gross income in India (before making any deduction) exceeds the basic exemption limit of Rs. 2.5 lakh. They don’t get the benefit of a higher exemption limit based on age, as resident Indians get. In case TDS has been deducted on an NRI’s income but his gross total income is less than Rs. 2.5 lakh (in which case he is not liable to pay any tax), he must file tax return to claim a refund from the tax department.

When is filing of return not required?

If in a given financial year an NRI’s income consists only of investment earnings and/or capital gain from the sale of an asset, he need not file tax return, provided TDS has been deducted on those earnings and gains.

NRIs should, however, remember that an annual information report (AIR) is filed for investments in real estate, mutual funds, bonds, amongst other items, which the IT Department uses to trigger a tax notice. Hence, it is advisable to file a tax return even if your income is below the exemption limit in case you have engaged in high value transactions. Short-term capital gains also do not get the benefit of the exemption limit on income, and hence you should file tax return if you have these gains.

Procedure for tax filing

In case an NRI’s taxable income exceeds Rs. 5 lakh in the previous year, he will have to e-file his income tax return. In case his income is less than the above limit, he also has the option to file the return of income in paper form.

In case an NRI’s taxable income exceeds Rs. 5 lakh in the previous year, he will have to e-file his income tax return. In case his income is less than the above limit, he also has the option to file the return of income in paper form.

The return of income can be filed online through the income tax web sites www.income taxindiaefiling.gov.in or www.incometaxindia.gov.in. He may also take the help of a  professional tax advisor. An NRI may file his return with his digital signature. If he does not have a digital signature, he needs to print ITR-V, which is an acknowledgement that return has been filed online, sign it and send it by ordinary or speed post to the Central Processing Cell, Bangalore. The last date for filing tax returns is usually 31 July.

Avail the benefit of DTAA

Double Taxation Avoidance Agreement (DTAA) is a bilateral agreement entered into between the governments of two countries in order to avoid taxation of the same income twice. Under the Income Tax Act, 1961, NRIs are subject to tax deduction at source (TDS). However, if the NRI is a tax resident of a country with which India has entered into a DTAA, then the provisions of the IT Act or the DTAA, whichever is more beneficial to the NRI, will apply. Even if an income is taxable under the IT Act, if the DTAA provides relief from taxation on that income or provides for a lower rate of taxation, the provisions of the DTAA will prevail. For instance, in case of interest income from bank, TDS as per IT Act is 30.9%, whereas the rate under DTAA with most countries is 15%. By opting for the DTAA rate, an NRI can reduce his tax burden.

To claim the benefit of DTAA, an NRI needs to furnish the TRC (tax residency certificate) of the country where he is a tax resident. The TRC should contain his name and address, status, nationality, tax identification number, residential status for tax purposes and the period for which the certificate is valid. You can’t avail of DTAA unless you provide the TRC and a declaration in Form 10F. To avoid TDS being cut at a higher rate (say, on your bank interest income) and for the DTAA rate to apply, you need to submit a TRC in advance to your bank.

Even if an income is taxable under the IT Act, if the DTAA provides relief from taxation on that income or provides for a lower rate of taxation, the provisions of the DTAA will prevail. For instance, in case of interest income from bank, TDS as per IT Act is 30.9%, whereas the rate under DTAA with most countries is 15%. By opting for the DTAA rate, an NRI can reduce his tax burden. To claim the benefit of DTAA, an NRI needs to furnish the TRC (tax residency certificate) of the country where he is a tax resident.

 

Read Full Post »

Older Posts »

%d bloggers like this: