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Posts Tagged ‘NRIs’

A large number of NRIs do not file taxes, as they live overseas and therefore believe that there is no need. However, there are two major situations when NRIs should file returns in India. Firstly, if the income earned in India exceeds the maximum permissible limit as basic exemption. At this point, the maximum exemption limit is Rs. 250,000. Incomes like salary arising from services provided in India, income from house property, capital gains arising from sale of property in India, income from deposits held in India will be taxable in India. Secondly, they should be filed to claim return if deducted tax is more than what was payable, so that you can claim a refund.

There are two major situations when NRIs should file returns in India. Firstly, if the income earned in India exceeds the maximum permissible limit as basic exemption. At this point, the maximum exemption limit is Rs. 250,000. Incomes like salary arising from services provided in India, income from house property, capital gains arising from sale of property in India, income from deposits held in India will be taxable in India. Secondly, they should be filed to claim return if deducted tax is more than what was payable, so that you can claim a refund.

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A lot of NRIs are unaware of the fact that in order to track expenses and investments above a certain threshold for all individuals – residents or NRIs, Annual Information Reports (AIRs) have to be filed by various entities in India like banks, Mutual funds,  bond issuers, registrars for real estate purchases above a certain value, amongst other transactions. Therefore, you could get a notice due to these reasons if your name appears in an AIR and you are not filing tax returns. Whilst this may not mean that taxes are due, you will need to respond to the notice, which can be rather challenging if you are out of the country. Thus, it is advisable to have your taxes in India in order.

If you are a tax resident in geographies where you may be able to take tax advantage of the double taxation avoidance treaty between India and that country, you must take advantage of that. If you sell direct equity/stocks, short term capital gain applicable is 15%. The long term capital gain on sale of direct equity is Nil ie for equities held over 1 year. NRIs have to trade through a broker if they wish to invest in direct equities. They can trade only on delivery basis and intraday trades are not allowed. They have to open a Portfolio Investment Scheme (PIS) account where their trades get reported within 24 hours.

If you are a tax resident in geographies where you may be able to take tax advantage of the double taxation avoidance treaty between India and that country, you must take advantage of that.

Debt and Equity Mutual Fundshave different tax rules. For equity Mutual funds the tax rate applicable is 15% for holding period of less than 12 months and for holding period of greater than 12 months it is Nil. Non equity mutual funds ie debt funds, gold funds, are taxed like real estate ie the tax rate for a holding period of less than 36 months is as per the marginal rate. If you hold them for a period greater than 36 months a long term capital gain tax rate of 20% with indexation is applicable .

If you are looking at investment options to save for your retirement goal then New Pension Scheme is an option you can look at. NRIs are allowed to invest in NPS.

NPS is useful for NRIs living in Middle Eastern countries, since they do not have mandatory social security benefits in their countries of residence unlike many other geographies. NRIs own contribution is eligible for tax deduction u/s 80CCD (1) of income tax act up to 10% of gross income with overall ceiling of Rs. 1.50 lakhs u/s 80CCE of income tax act.From FY 201516investors are allowed tax deduction of additional Rs. 50,000 under 80CCD1(B).

NRIs wishingto invest in FDs can look at Foreign Currency Non Resident ( FCNR) deposits. It is in the form of a fixed Term deposit account denominated in foregin currencies. In this case NRIs can park overseas income as foreign currency in India without having toconvert it to Indian Rupees. The rates on these deposits depend on tenure of investment and the currency in which you park your funds. Principal and interest are fully repatriable. For NRIs interest is not taxable in India. However, they could be taxed in the country of residence of the NRI, for example in the US. Similar is the case with NRE accounts.

A resident foreign currency account (RFC) account can be used by NRIs who are returning back to settle in India, to park overseas income as foreign currency in India without having to convert them into rupees. Funds are fully repatriable and can be transferred from RFC to NRE and vice versa. Interest earned on RFC account will be exempt from income tax as long as you are Resident but not ordinary resident (RNOR).

Image credit: www.taxinsightworld.com

 

 

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NRIs looking for higher rental yield should consider investing in a commercial property in India. Here is a look at the pros and cons of such an investment and advice on what to do and what to avoid while making this investment.

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Image Source:www.bangalorebest.com

NRIs keen to invest in a property in India should evaluate the prospects of the commercial (office) segment. This segment offers several advantages vis-a-vis the residential segment. The rental yield is currently higher at 7-9% p.a. compared to the 2-3% p.a. yield that the residential segment offers. Rental yields drop when one comes to smaller commercial spaces though, but are still likely to be higher than those offered in the residential segment. Whereas residential real estate in India is caught in a downturn which may last for quite some time owing to the high inventory levels in most leading cities, there is greater equilibrium between demand and supply in the commercial segment, and rentals are inching up in most leading metros. As the economic recovery gathers momentum, as is widely expected to happen in 2016 and 2017, the demand for commercial space should increase further.

This segment offers several advantages vis-a-vis the residential segment. The rental yield is currently higher at 7-9% p.a. compared to the 2-3% p.a. yield that the residential segment offers.

Another advantage of investing in a commercial property is that NRIs can use it to run their own venture if and when they return to India. However, be warned that the capital appreciation in office property tends to be lower than in residential property over the long term. And if you are looking for a loan to buy the property, that too may be harder to get than a loan for purchasing a residential property. While the Indian economy is on the cusp of a cyclical recovery, be warned that a downturn in the economy has a negative impact on the demand for office space. The office space you have bought could remain vacant or you may find it difficult to revise rentals upward.

Capital appreciation in office property tends to be lower than in residential property over the long term. And if you are looking for a loan to buy the property, that too may be harder to get than a loan for purchasing a residential property.

Outlook for office segment

According to CBRE South Asia’s third-quarter 2015 report on the office segment, sentiment within this segment is positive, with the ongoing economic recovery supporting the demand for office space. Leasing demand is expected to be steady in the coming months. Demand will be driven chiefly by IT-ITeS and banking and financial services. To a lesser extent, it will also come from manufacturing and engineering, e-commerce, research and consulting and pharma companies.

According to CBRE South Asia’s third-quarter 2015 report on the office segment, sentiment within this segment is positive, with the ongoing economic recovery supporting the demand for office space.

While demand in the central business districts of all the major cities will remain strong, there will also be demand in the peripheral markets from occupiers looking for cost-effective spaces.

The report from CBRE adds that demand for quality office buildings will be high and such spaces are likely to get leased out even before they are completed.

What to do? And what to avoid?

When buying commercial property, choose a location where the pace of economic growth and job creation is likely to be high in the future. While capital values tend to be lower in the peripheral areas of a city, the availability of empty land in the vicinity means that there is no limit on the supply that can come in. This has the potential to cap the growth in rentals in these areas.

When buying commercial property, choose a location where the pace of economic growth and job creation is likely to be high in the future.

Check the infrastructure in the locality that you choose to invest in. The area should be well connected by highways and possibly a Metro or rail link. The inner roads in the locality should be in good shape. The building that you choose to invest in should be situated on a wide road so that it is easily accessible.

Next, the NRI should check the credentials of the builder in whose project he intends to invest. One way to do so is to have a trusted source visit a couple of his older projects and speak to owners in those buildings. They will be able to tell whether the builder had delivered the project on time and had adhered to the quality standards that he had promised. Check out the quality of maintenance in his older projects. Either the developer himself or a maintenance agency could be handling this task. The quality of maintenance is crucial since it determines the ability of a building to attract new tenants.

Next, the NRI should check the credentials of the builder in whose project he intends to invest.

NRIs should get a lawyer to do the legal due diligence. This includes determining that the developer has acquired and is the rightful owner of the land on which he is developing the property, and has obtained all the statutory clearances for developing the property.

NRIs should get a lawyer to do the legal due diligence.

The stage of development at which the NRI invests in a commercial property also determines its level of risk. If he invests in a property that is under construction, he is likely to get more capital appreciation in it. But he will also have to face what is known as development risk—the risk that the project may be delayed or may not be completed at all. On the other hand, if he invests in a property that is completed but not rented, or completed and rented out, he is likely to get lower capital appreciation in such a project. But his risks will also be much less.

If he invests in a property that is under construction, he is likely to get more capital appreciation in it. But he will also have to face what is known as development risk—the risk that the project may be delayed or may not be completed at all. On the other hand, if he invests in a property that is completed but not rented, or completed and rented out, he is likely to get lower capital appreciation in such a project. But his risks will also be much less.

Owing to the slowdown in the real estate market and their inability to raise cash either from buyers or banks, developers nowadays offer assured return schemes on their commercial projects. It would be best for NRIs to avoid such schemes . In fact, the very offer of such a scheme indicates that the developer is probably in a tight corner financially. To avoid the risks that such schemes carry, NRIs should instead invest in a developer who has a strong track record and has the financial wherewithal to complete his project.

NRIs should also avoid investing in the soft launch of a commercial project. Developers offer a discount of 7-10% to investors who invest in their project at this early stage. This is the stage when the developer may not have completed the acquisition of land or acquired the permissions for developing the project. Due to the high risk involved, NRIs should avoid investing at this stage as well.

NRIs should also avoid investing in the soft launch of a commercial project. Developers offer a discount of 7-10% to investors who invest in their project at this early stage. This is the stage when the developer may not have completed the acquisition of land or acquired the permissions for developing the project. Due to the high risk involved, NRIs should avoid investing at this stage as well.

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NRIs need to give serious thought to estate planning to ensure that the wealth they have accumulated through a lifetime’s hard work gets transferred smoothly to their heirs. The challenges in estate planning are greater for NRIs since they are likely to have assets in two geographies: India and the country of their residence. They, therefore, need to navigate the succession laws of two countries.

The challenges in estate planning are greater for NRIs since they are likely to have assets in two geographies: India and the country of their residence.

 

 

 

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Image Source: propertyupdate.com.au

 

Write a Will

The most important point to keep in mind is to write a Will. For NRIs it is advisable to write a separate Will for their assets in India and another one for their assets in their country of residence. In the absence of a Will, the assets get distributed among heirs according to the succession laws of the country. In India the law of succession depends upon the religion you belong to. A person must write a Will if he wants his wishes to take precedence over the inheritance laws.

For NRIs it is advisable to write a separate Will for their assets in India and another one for their assets in their country of residence.

Know the difference in inheritance laws

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Image Source:jamiat.org.za

NRIs must acquaint themselves with the succession laws of the country where they reside. In the UAE, for instance, two laws are applicable in the matter of succession: Personal Affairs Law No. 28 of 2005 and the UAE Civil Code. If a person of any religion dies intestate (without leaving a Will), his assets will be distributed according to Sharia laws. The Personal Affairs Law No. 28 of 2005 allows non-Muslim expatriates living in the UAE to opt to use the law of their own countries to distribute their assets in the UAE. However, the UAE Civil Code says that the law of the home country of expatriates will apply only to determine how movable assets are distributed. Regarding immovable property, Article 17 (5) of the code states that “the law of the UAE shall apply to Wills made by aliens in disposing of their real property located in the state”.

In the UAE, for instance, two laws are applicable in the matter of succession: Personal Affairs Law No. 28 of 2005 and the UAE Civil Code.

US-based NRIs should be aware that if they receive inheritance from a non-US based person whose value exceeds a certain amount in a given calendar year, they have to file information in this regard with the Internal Revenue Service (IRS). Inheriting property in India could also give rise to inheritance tax liability in the US. US-based NRIs should consult a tax advisor if they receive assets in India that are worth a lot of money.

US-based NRIs should be aware that if they receive inheritance from a non-US based person whose value exceeds a certain amount in a given calendar year, they have to file information in this regard with the Internal Revenue Service (IRS). Inheriting property in India could also give rise to inheritance tax liability in the US.

If US-based NRIs receive assets in India which subsequently start generating income, they will need to pay tax in the US on that income. There are also very strict rules for US taxpayers regarding declaring the existence of foreign accounts. They need to file an FBAR (foreign bank and foreign account) report every year. If they have inherited a bank account or an investment account, they need to report it, even if they plan to close the account shortly. Failing to do so can invite severe penalties.

Inheritance of real estate in India

While there are restrictions on the types of property that NRIs can buy in India (they are not permitted to buy agricultural land, plantation or farm property), there is no restriction on the type of property they can inherit. Both resident Indians and NRIs can bequeath a property in India to an NRI. The only condition is that the property should have been purchased in adherence to FEMA (Foreign Exchange Management Act) guidelines.

While there are restrictions on the types of property that NRIs can buy in India (they are not permitted to buy agricultural land, plantation or farm property), there is no restriction on the type of property they can inherit.

NRIs do not need to pay any inheritance tax in India on the real estate they have inherited. They will first have to get the title of the inherited property transferred in their name. If a Will exists, their right to the property cannot be disputed. But if no Will exists the NRI will have to get a succession certificate from a court. The ownership documents of the property must also be available. Next, the NRI will have to get the mutation of revenue records done, so that his name gets entered in the books of the development authority as the owner of the property. The NRI will also have to get his name recorded in the municipal records. The services of a local lawyer or a professional agency may have to be used to get the title transferred. Power of attorney may have to be given for this purpose.3

NRIs do not need to pay any inheritance tax in India on the real estate they have inherited.

Once the title has been transferred, the NRI can choose to rent or sell the property. If he decides to rent it, 30% TDS will be deducted on rental income. He will also be entitled to 30% deduction on the rental income (for maintenance of the property). If the NRI is also liable for taxation on this income in their country of residence, he should try to avail of the benefit of double taxation avoidance agreement (DTAA).

If he decides to rent it, 30% TDS will be deducted on rental income. He will also be entitled to 30% deduction on the rental income (for maintenance of the property)

If the NRI decides to sell the property, he will be liable to tax. If three years have passed since the date of purchase, he will be liable to long-term capital gains tax at the rate of 20% with indexation. In case of inherited property, the date and cost of purchase for the purpose of computing the holding period and the cost of purchase is taken to be the date and cost to the original owner.

In case of inherited property, the date and cost of purchase for the purpose of computing the holding period and the cost of purchase is taken to be the date and cost to the original owner.

If the NRI sells before three years, short-term capital gains tax will be incurred. Here the gains will be taxed depending on the tax slab to which the NRI belongs.

NRIs can get exempted from payment of capital gains tax by reinvesting the capital gains either in another property or in tax-exempt bonds.

For repatriation of the money obtained from sale of house, it has to be first deposited in an NRO account. Up to US$ 1 million can be repatriated in a financial year from this account.

For repatriation of the money obtained from sale of house, it has to be first deposited in an NRO account. Up to US$ 1 million can be repatriated in a financial year from this account.

NRIs should pay attention to the income tax implications of the sale of inherited property in their country of residence. Some countries tax their residents irrespective of where the capital gains have originated from, while others provide total or partial exemption on capital gains earned outside their geography.

Inheritance of financial assets

When NRIs inherit financial assets, they may have to sell some of them immediately as they are not allowed to invest in certain assets, such as National Savings Certificates (NSC), Senior Citizens Saving Scheme (SCSS), Post Office time deposits, and PPF (which they can’t open or extend but can hold the current one till maturity). Next, they must decide whether they want to hold these assets or sell them. If an NRI leaves his financial assets in India, he will have to manage them and also file annual income tax returns in India, and may also have to declare that income in his country of residence. If he decides to repatriate the money, again he can do so up to $ 1 million in a financial year. He must also provide documentary proof that he is the lawful inheritor of those assets.

Estate planning could also include the use of trusts in certain cases, and the use of financial guardians for dependants. It is critical to think through each of these items carefully as a part of your estate and succession plan.

When NRIs inherit financial assets, they may have to sell some of them immediately as they are not allowed to invest in certain assets, such as National Savings Certificates (NSC), Senior Citizens Saving Scheme (SCSS), Post Office time deposits, and PPF (which they can’t open or extend but can hold the current one till maturity).

 

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NRIs may want to buy a residential property in India for self-use—for the time when they decide to return to the country eventually. Whilst buying residential property in India, especially in the metros, has become an expensive proposition, it makes sense for NRIs to make this purchase in advance only if they are absolutely sure about the fact that they will return, and are clear about the geography and amenities that they will require on their return.

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Image Source:   dir.indiamart.com

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Image Source:   dir.indiamart.com

With the residential real estate segment witnessing a slowdown, there are multiple bargains and discounts to buy homes.

Long-term investors, having an investment horizon of 10 years plus, may go ahead and invest in residential real estate despite the current slowdown. Since the Indian economy is growing more rapidly than the developed countries of the West, NRIs are likely to earn a higher return on their real estate investment in India than abroad.

Long-term investors, having an investment horizon of 10 years plus, may go ahead and invest in residential real estate despite the current slowdown.

Outlook of the residential sector

The real estate sector in India continues to witness a slowdown, whose intensity, however, varies from one geography to another. Markets in the North, such as the NCR, have been affected more. When the bull market was on, these markets had witnessed higher price appreciation. These are also markets that were more investor-driven. On the other hand, markets in the South, such as Bangalore, where the price appreciation was more moderate, and which are more end-user driven, have been affected less.

Owing to the slowdown, developers are now focusing more on project completion and delivery rather than on launching new projects. A recent report from Cushman and Wakefield , an international real estate consultancy, states that between January and September 2015, 77,900 residential units were launched in the top eight metros of the country, a decline of 36% over the corresponding period last year.

A recent report from Cushman and Wakefield , an international real estate consultancy, states that between January and September 2015, 77,900 residential units were launched in the top eight metros of the country, a decline of 36% over the corresponding period last year.

Delhi NCR and Bengaluru together accounted for 35% of the total launches across the top eight cities. Delhi NCR witnessed a drop of 18% in new launches compared to the previous year, but still contributed 19% of total launches during the year. In 2015, Pune overtook Mumbai, Kolkata and Chennai in total units launched, although it barely witnessed an increase over the last year, suggesting a steep fall in new launches in other cities. Ahmedabad and Hyderabad were the only cities that recorded significant increases in the number of units launched.

Capital values showed a mixed trend across cities based on local market forces. In September 2015, capital values in Bengaluru saw y-o-y appreciation in four sub-markets in the range of 3-7%. Prices remained stable in the mid-segment in most sub- markets since September last year. Delhi-NCR, on the other hand, witnessed softening of capital values in two of its sub- markets by 5%, namely in South-East and South-Central Delhi. Gurgaon and Noida witnessed stable capital values in the mid segment. In Mumbai, quoted capital values have largely remained range bound in the last one year. However, the closing value of transactions, after negotiation and taking into account the schemes offered by developers, is definitely at a discount, thereby indicating that prices are under pressure.

The report however also highlights that in the long run demand for housing will far outstrip supply in most major metros. Due to this supply shortage, capital appreciation is likely to be good over the long haul.

The report however also highlights that in the long run demand for housing will far outstrip supply in most major metros. Due to this supply shortage, capital appreciation is likely to be good over the long haul.

Do’s and don’ts

dos and donts

 

Image Source: www.silcotek.com

Many developers hold exhibitions in foreign destinations aimed at wooing NRI buyers. The latter should not get taken in by the jazzy presentations and brochures of developers. Instead, they should get a friend or relative in India to visit the project site and offer feedback.

NRIs should not get taken in by the jazzy presentations and brochures of developers. Instead, they should get a friend or relative in India to visit the project site and offer feedback.

If the NRI buyer plans to return to India eventually, he should buy the property in the city where he intends to settle down. It is also preferable to buy in the city where the NRI has a relative or friend who can look after the property and manage it.

It is also preferable to buy in the city where the NRI has a relative or friend who can look after the property and manage it.

Like local buyers, NRIs should do the legal due diligence. They should hire a lawyer to find out whether the developer is the rightful owner of the land on which he is developing the project. Land acquisition for the project should be complete before he invests in it. The developer should also have obtained all the clearances for developing the project.

NRIs should do the legal due diligence.

The NRI buyer should get his representative to visit the builder’s past projects and check whether he had delivered them on time, and whether he had delivered the promised facilities and specifications.

If the NRI buyer is buying the property primarily as an investment (for rental yield and capital appreciation), he should choose a city where a lot of economic development and job growth is expected in the future. The project should be located at a convenient distance from an office or manufacturing hub and should be well connected to it. This will make it easier for the NRI owner to find tenants.

If the NRI buyer is buying the property primarily as an investment (for rental yield and capital appreciation), he should choose a city where a lot of economic development and job growth is expected in the future.

Owing to the slowdown, most developers, especially in the North, are facing a cash crunch. Consequently, project delays have become common. To circumvent what is known as “development risk”, NRIs should consider investing in completed projects.

To circumvent what is known as “development risk”, NRIs should consider investing in completed projects.

Developers are offering discounts to push sales amid the slowdown. NRIs should not agree to pay the initial price quoted by the builder but should get their representative to negotiate and get the best possible price.

NRIs should also avoid paying a high percentage of the total cost of the apartment upfront, even if the developer offers a discount on such payment schemes.

NRIs should also avoid paying a high percentage of the total cost of the apartment upfront, even if the developer offers a discount on such payment schemes.

Finally, an NRI investing in residential real estate in India should not expect quick and easy returns. He should have an investment horizon of at least 10 years if he wants to enjoy a reasonable return on his investment.

 

 

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NRIs may want to buy a residential property in India for self-use—for the time when they decide to return to the country eventually. Whilst buying residential property in India, especially in the metros, has become an expensive proposition, it makes sense for NRIs to make this purchase in advance only if they are absolutely sure about the fact that they will return, and are clear about the geography and amenities that they will require on their return.

nri.png

Image Source:   dir.indiamart.com

property.png

Image Source:   dir.indiamart.com

With the residential real estate segment witnessing a slowdown, there are multiple bargains and discounts to buy homes.

Long-term investors, having an investment horizon of 10 years plus, may go ahead and invest in residential real estate despite the current slowdown. Since the Indian economy is growing more rapidly than the developed countries of the West, NRIs are likely to earn a higher return on their real estate investment in India than abroad.

Long-term investors, having an investment horizon of 10 years plus, may go ahead and invest in residential real estate despite the current slowdown.

Outlook of the residential sector

The real estate sector in India continues to witness a slowdown, whose intensity, however, varies from one geography to another. Markets in the North, such as the NCR, have been affected more. When the bull market was on, these markets had witnessed higher price appreciation. These are also markets that were more investor-driven. On the other hand, markets in the South, such as Bangalore, where the price appreciation was more moderate, and which are more end-user driven, have been affected less.

Owing to the slowdown, developers are now focusing more on project completion and delivery rather than on launching new projects. A recent report from Cushman and Wakefield , an international real estate consultancy, states that between January and September 2015, 77,900 residential units were launched in the top eight metros of the country, a decline of 36% over the corresponding period last year.

A recent report from Cushman and Wakefield , an international real estate consultancy, states that between January and September 2015, 77,900 residential units were launched in the top eight metros of the country, a decline of 36% over the corresponding period last year.

Delhi NCR and Bengaluru together accounted for 35% of the total launches across the top eight cities. Delhi NCR witnessed a drop of 18% in new launches compared to the previous year, but still contributed 19% of total launches during the year. In 2015, Pune overtook Mumbai, Kolkata and Chennai in total units launched, although it barely witnessed an increase over the last year, suggesting a steep fall in new launches in other cities. Ahmedabad and Hyderabad were the only cities that recorded significant increases in the number of units launched.

Capital values showed a mixed trend across cities based on local market forces. In September 2015, capital values in Bengaluru saw y-o-y appreciation in four sub-markets in the range of 3-7%. Prices remained stable in the mid-segment in most sub- markets since September last year. Delhi-NCR, on the other hand, witnessed softening of capital values in two of its sub- markets by 5%, namely in South-East and South-Central Delhi. Gurgaon and Noida witnessed stable capital values in the mid segment. In Mumbai, quoted capital values have largely remained range bound in the last one year. However, the closing value of transactions, after negotiation and taking into account the schemes offered by developers, is definitely at a discount, thereby indicating that prices are under pressure.

The report however also highlights that in the long run demand for housing will far outstrip supply in most major metros. Due to this supply shortage, capital appreciation is likely to be good over the long haul.

he report however also highlights that in the long run demand for housing will far outstrip supply in most major metros. Due to this supply shortage, capital appreciation is likely to be good over the long haul.

Do’s and don’ts

dos and donts.png

Image Source: www.silcotek.com

Many developers hold exhibitions in foreign destinations aimed at wooing NRI buyers. The latter should not get taken in by the jazzy presentations and brochures of developers. Instead, they should get a friend or relative in India to visit the project site and offer feedback.

NRI’s should not get taken in by the jazzy presentations and brochures of developers. Instead, they should get a friend or relative in India to visit the project site and offer feedback.

If the NRI buyer plans to return to India eventually, he should buy the property in the city where he intends to settle down. It is also preferable to buy in the city where the NRI has a relative or friend who can look after the property and manage it.

Like local buyers, NRIs should do the legal due diligence. They should hire a lawyer to find out whether the developer is the rightful owner of the land on which he is developing the project. Land acquisition for the project should be complete before he invests in it. The developer should also have obtained all the clearances for developing the project.

NRIs should do the legal due diligence.

The NRI buyer should get his representative to visit the builder’s past projects and check whether he had delivered them on time, and whether he had delivered the promised facilities and specifications.

If the NRI buyer is buying the property primarily as an investment (for rental yield and capital appreciation), he should choose a city where a lot of economic development and job growth is expected in the future. The project should be located at a convenient distance from an office or manufacturing hub and should be well connected to it. This will make it easier for the NRI owner to find tenants.

If the NRI buyer is buying the property primarily as an investment (for rental yield and capital appreciation), he should choose a city where a lot of economic development and job growth is expected in the future.

Owing to the slowdown, most developers, especially in the North, are facing a cash crunch. Consequently, project delays have become common. To circumvent what is known as “development risk”, NRIs should consider investing in completed projects.

To circumvent what is known as “development risk”, NRIs should consider investing in completed projects.

Developers are offering discounts to push sales amid the slowdown. NRIs should not agree to pay the initial price quoted by the builder but should get their representative to negotiate and get the best possible price.

NRIs should also avoid paying a high percentage of the total cost of the apartment upfront, even if the developer offers a discount on such payment schemes.

NRIs should avoid paying a high percentage of the total cost of the apartment upfront, even if the developer offers a discount on such payment schemes.

Finally, an NRI investing in residential real estate in India should not expect quick and easy returns. He should have an investment horizon of at least 10 years if he wants to enjoy a reasonable return on his investment.

 

 

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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.

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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?

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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.

 

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Most NRIs tend to have immovable assets in India which they had acquired when they were residents. They may also have inherited such assets or received them as gifts. If an NRI doesn’t plan to return to India and visits the country infrequently, he may find the management of these assets difficult. In that case, he may be eager to dispose them and repatriate the proceeds. Returns from investments made in financial instruments may also need to be repatriated. We will focus on sharing some rules governing repatriation of money by NRIs.

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Selling real estate

An NRI can sell his residential or commercial property in India to anyone—a resident Indian, an NRI or a PIO (person of Indian origin). However, agricultural land, plantation property and farm houses can only be sold or gifted to an Indian citizen resident in India.

Agricultural land, plantation property and farm houses can only be sold or gifted to an Indian citizen resident in India.

The bank that the NRI deals with will allow repatriation of funds obtained from sale of immovable property provided a few conditions are met. Any money that was brought in from outside for the purchase of the property can be repatriated. So an equivalent of the amount that came in through normal banking channels, or was paid out of a foreign currency non-resident (FCNR) account or out of a non-resident external (NRE) account, can be repatriated. Sales proceeds of only two residential properties can be repatriated.

Any money that was brought in from outside for the purchase of the property can be repatriated. So an equivalent of the amount that came in through normal banking channels, or was paid out of a foreign currency non-resident (FCNR) account or out of a non-resident external (NRE) account, can be repatriated. Sales proceeds of only two residential properties can be repatriated.

If the NRI had taken a home loan to buy the property, his bank will allow him to freely repatriate an amount equivalent to what he brought in from abroad to repay the loan.

If the property was acquired out of the NRI’s rupee resources or the loan was repaid by close relatives of the NRI in India, the sales proceeds are credited into the NRI’s non-resident ordinary (NRO) account. Each financial year an NRI is allowed to repatriate an amount of up to $ 1 million from the balance in his NRO account.

Each financial year an NRI is allowed to repatriate an amount of up to $ 1 million from the balance in his NRO account.

To be able to repatriate proceeds, the NRI must produce documentary evidence supporting his acquisition or inheritance of the property. He must also produce a certificate from a chartered accountant in a specified format (discussed below).

There is no lock-in period either on the time for which a property must be held by an NRI, or on repatriation of proceeds.

If the NRI sells a property that was gifted to him, the proceeds can be repatriated via the NRO account channel. Rental income of NRIs must also be credited and repatriated via the NRO account.

Investments in financial instruments

Interest earned and balances held in NRE and FCNR accounts are not taxed and can be freely repatriated abroad.

Interest earned and balances held in NRE and FCNR accounts are not taxed and can be freely repatriated abroad.

The RBI allows NRIs to transfer money from NRO to NRE account, subject to the overall ceiling of $1 million per financial year, and after applicable taxes have been paid.

Proceeds of investments made by an NRI in Indian financial instruments can be repatriated provided the investment was made from funds brought in from abroad, i.e., the money was remitted from abroad via banking channels, or the purchases were made out of money in NRE or FCNR accounts. Capital gains tax, if applicable, will have to be paid before repatriation.

Proceeds of investments made by an NRI in Indian financial instruments can be repatriated provided the investment was made from funds brought in from abroad, i.e., the money was remitted from abroad via banking channels, or the purchases were made out of money in NRE or FCNR accounts. Capital gains tax, if applicable, will have to be paid before repatriation.

Fill form 15 CA and 15CB

Whenever money is being remitted by an NRI, Form 15CA has to be submitted online at the income tax department’s web site. Usually, a certificate from a chartered accountant provided in Form 15CB is also required before uploading Form 15CA online. In Form 15CB, a chartered accountant certifies details of the payment, TDS rate and TDS deduction applicable as per Section 195 of the IT Act, whether DTAA (double tax avoidance agreement) is applicable, and other details of the remittance. Banks will not remit the money until this certificate is provided.

Form 15CB is not required when a single remittance does not exceed Rs. 50,000 and total remittance in a financial year does not exceed Rs. 2,50,000. In this case only Form 15CA has to be submitted. Form 15CB is also not required if lower TDS has to be deducted and a certificate is received under Section 197 from the assessing officer (AO). In all other cases, if remittance is taking place outside India, the person making the remittance will have to take a chartered accountant’s certificate in Form 15CB and submit it along with Form 15CA online.

Form 15CB is not required when a single remittance does not exceed Rs. 50,000 and total remittance in a financial year does not exceed Rs. 2,50,000. In this case only Form 15CA has to be submitted. Form 15CB is also not required if lower TDS has to be deducted and a certificate is received under Section 197 from the assessing officer (AO).

From 1 June 2015, any remittance of funds to an NRI (an NRI transferring funds from NRO to NRE account, and remittance of even non-taxable funds like long-term capital gain on equity shares) will require the remitter to provide a certificate from a chartered accountant in Form 15CB and filing of Form 15CA at the IT Department’s web site. Earlier, CBDT regulations required these forms only for taxable transfers, while bank personnel asked for these forms even for non-taxable transfers. This created confusion. This confusion was cleared by Finance Bill 2015 which said that these forms have to be filled for all remittances (taxable or non-taxable).

From 1 June 2015, any remittance of funds to an NRI (an NRI transferring funds from NRO to NRE account, and remittance of even non-taxable funds like long-term capital gain on equity shares) will require the remitter to provide a certificate from a chartered accountant in Form 15CB and filing of Form 15CA at the IT Department’s web site.

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