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NRIs have to pay tax on income from investments in India

Income from long-term capital gains arising in India are taxable irrespective of residential status

Q. I have income in India through long-term capital gains and investments. Will I have to file an income-tax return since I am a non-resident Indian (NRI)?

Expert Comment: According to the provisions of the domestic tax laws in India, income from long-term capital gains and income from investments accruing or arising in India are taxable irrespective of residential status. Since you are an NRI, tax is liable to be withheld at source on your investment income and the capital gains income earned in India. The domestic tax laws have exempted NRIs having only investment income and/or income from long-term capital gains if tax has been deducted at source. Hence, you are not liable to file your income tax returns in India if the taxes are deducted and paid.

Q. I have been an NRI for the past 10 years and I have not paid income tax in India as I have not had any income from there. Last year, I purchased a property worth Rs. 70 lakh. The full amount was paid through my non-resident external (NRE) bank account. I have given this property on rent . I do not have any other source of income. Do I have to pay any income tax? I will be receiving a second property as a gift deed from my father this month worth Rs. 50 lakh.

Expert Comment: The rent income that you receive is liable for income-tax in India as “income from house property”. You are entitled to a deduction of taxes levied by the local authority paid by you during the year and a further deduction of 30%. You are liable to file your income-tax return if your taxable income exceeds the threshold limit for the financial year.

Since you are an NRI, tax is liable to be withheld at source by the tenant at the rate of 30.9%. The withheld amount may exceed your tax liability. In such a case, even though you may not be liable to file your tax return, you may do so to claim the refund. You may also note that if the fair rent which the property is expected to fetch exceeds the actual rent received, it is the amount of fair rent that is liable for taxation under “income from house property”.

Now coming to your second property. Since this is received from your father as a gift, it is exempt from income tax, as gifts from relatives are not liable to tax. However, the property should be either a residential or a commercial property. Agricultural land, plantation property or a farm house in India cannot be acquired by an NRI by way of gift. They can, however, be inherited.

You may also keep the provisions of wealth tax in mind. Wealth tax is an annual levy. One residential house is exempt from wealth tax. Further, if a house property is let out for more than 300 days, it is exempt from wealth tax. There is a threshold exemption limit of Rs.30 lakh beyond which there is a wealth tax of 1%.

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