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Posts Tagged ‘double taxation avoidance agreement’

NRI final

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Most NRIs typically have assets both in their country of residence and in India. These are typically a mix of both financial and real assets. Managing the assets in India can pose a number of challenges due to the fact that NRIs live thousands of kilometres away and visit the country after long gaps. These should be kept in mind whilst managing your personal finances. Here are a few tips they can use.

Avail of DTAA: If you live in a geography with which India has a double taxation avoidance agreement (DTAA), then you will typically be taxed at the lower of the two rates (the rates applicable according to the Income Tax Act in India and the DTAA rate) on, say, interest income on your bank deposits in India. But to avail of DTAA you will have to submit a tax residency certificate (TRC) verified by the government of the country in which you reside and Form 10F. You will also have to submit a self-declaration cum indemnity form, self-attested copy of PAN card, and a copy of your passport and visa. These documents have to be submitted every year. Unless you submit these documents in advance, the bank will deduct tax on interest income at the highest tax rate in India.

To avail of DTAA you will have to submit a tax residency certificate (TRC) verified by the government of the country in which you reside and Form 10F.

Don’t omit to file tax return: NRIs need to file tax return in India if their income here exceeds the basic exemption limit. You also need to file tax return if the tax deducted at source (TDS) exceeds the tax payable and you wish to claim a refund, or you have a loss that you want to carry forward.

Salary received in India or salary for services provided in India, rental income from property, capital gains on sale of assets in India and interest from deposits will all be taxable in India. Any income that you earn outside India is not taxable in India if you are an NRI.

NRIs need to file tax return in India if their income here exceeds the basic exemption limit. You also need to file tax return if the tax deducted at source (TDS) exceeds the tax payable and you wish to claim a refund, or you have a loss that you want to carry forward.

Be practical about asset selection: Like their resident brethren, NRIs too have an inordinate fondness for investing in real estate. Before you do so, however, give thought to how the property will be looked after and maintained. Avoid investing in a plot as it is most vulnerable to encroachment. Even the maintenance of an apartment can sometimes prove burdensome. While facility management is fairly common overseas —you can entrust the maintenance of your apartment to a professional agency, that is not very common in India.. You may have to depend on an individual to act as caretaker. This person must be reliable. If you lock up the apartment for years together, its condition will invariably deteriorate. In this context, investing in financial assets provides a more hassle-free alternative, even if it may not provide the same emotional satisfaction as investing in real estate.

Investing in financial assets provides a more hassle-free alternative, even if it may not provide the same emotional satisfaction

final power of att

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Use power of attorney, but judiciously: While NRIs can handle many transactions online, some require their presence. In such cases, it may become essential to appoint an agent to act on their behalf. By giving a power of attorney (PoA), you can empower someone to do so. A general PoA allows a person to undertake all transactions on your behalf. A special/specific PoA, on the other hand, empowers the person to act only in a specified matter. While granting a PoA is useful, it can also be dangerous as there is a risk of these powers being misused. Remember that you will be responsible for any liability arising from your agent’s actions. Avoid giving a general PoA as this increases the scope for misuse. The PoA should be given only to someone who can be trusted absolutely.

In the field of real estate, PoA can be used to lease property, collect rent, sell the property, etc. In the financial markets, PoA can be given to someone to buy and sell stocks, bonds and other securities. In banking, PoA can be given to someone to deposit or withdraw money from the account. Your agent can even sign your tax returns, insurance forms, etc on your behalf.

While granting a PoA is useful, it can also be dangerous as there is a risk of these powers being misused. Remember that you will be responsible for any liability arising from your agent’s actions. Avoid giving a general PoA as this increases the scope for misuse. The PoA should be given only to someone who can be trusted absolutely.

estate planning

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Don’t ignore estate planning: NRIs are as guilty as resident Indians of not writing a will. In their case, the consequences of passing away without a will be even more onerous for their loved ones as the latter will have to deal with the jurisdictions of two countries. It may also mean that your assets may not be distributed in a manner that is to your liking. If you pass away without a will, the laws of succession of the country in which you reside could apply. In countries where Sharia laws apply, for instance, your male successors could have an advantage over female. The absence of a will also means a lot of paperwork, bureaucratic hassles and legal expenses for loved ones before they are able to gain control of your assets.

Remember that while there is no estate or inheritance tax in India, it does exist in many other countries and it could take away a sizable chunk of your wealth.

It may be a good idea to create a separate will for your assets in your country of residence and for your assets in India. After creating the will, inform the executor about where to find it. Also, create a list of your assets and share the information with your family.

It may be a good idea to create a separate will for your assets in your country of residence and for your assets in India. After creating the will, inform the executor about where to find it. Also, create a list of your assets and share the information with your family.

Use software to get single view of assets: The benefits of using aggregation software is that you will be able to know the value of all your assets at a single glance. You will also be able to see the date of purchase and sale of assets and the capital gain or loss made, quite easily. This is also critical for your family in case something happens to you.

Distance and dealing with the laws of two jurisdictions do make the NRI’s task of managing assets difficult. He can only do a competent job if he is aware of the challenges, informed about his options, and disciplined in execution. NRIs should be open to seeking professional expertise wherever needed.

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