NRIs having only investment income may not file tax returns

A special provision is available to NRIs with investment income and long-term capital gains as the only sources of income

I am moving to Australia in March. I have bank deposits and mutual funds but will not be using this income. How much of this will be tax exempt? How should I pay the income tax? Can I do it on my own?

—Roohi Kaul

Based on the facts of your case, under the income-tax laws, you will qualify as a non-resident of India. So, you will be taxable only on India-sourced income—income earned in India and income received in India. Income earned outside India and received outside India will not be taxable in India.

For your bank deposits, you will need to get the existing accounts designated as Non-resident Ordinary (NRO) accounts. Interest from NRO accounts will continue to be taxable in India.

You may get deduction under section 80TTA for interest income from savings bank accounts up to Rs10,000. But if you open a Non-resident Rupee (NRE) account, the interest on account balance or term deposits will be exempt from tax as you will qualify as a “person resident outside India” under the exchange control laws.

Dividend income from mutual funds will continue to be exempt from tax in India. Taxability on transfer of units of mutual funds depends on the type of fund and period of holding. Units of equity-oriented mutual funds held for more than 12 months are considered as long-term capital asset. Long-term capital gains on sale of equity-oriented mutual funds are exempt from tax in India. Short-term capital gains on the same are taxable at flat 15% (excluding surcharge and cess).

Units of non-equity (debt) oriented mutual funds held for more than 36 months are considered long-term capital asset. Long-term capital gains on sale of debt mutual funds after giving benefit for indexation are taxable at flat 20% (excluding surcharge and cess). Short-term capital gains on the same are taxable as per the individual slab rates.

However, a special provision is available to NRIs with investment income and long-term capital gains as the only sources of income. They are exempt from filing a tax return in India if tax is deducted at source on such income.

Also, as you may be a resident of another country, the income from the above-mentioned sale of mutual funds may be taxable there. In such a case, provisions of the relevant Double Taxation Avoidance Agreement between India and Australia may be explored.

Applicable taxes can be paid online at https://www.tin-nsdl.com/ from your Indian bank account and India income tax return can be filed online at https://incometaxindiaefiling.gov.in/. You have to file a tax return and pay taxes in India only if your total taxable income exceeds Rs2.5 lakh.

I moved to England 20 years ago and am still an NRI. Two years ago I inherited a commercial property that yields an annual income of Rs2 lakh per annum. My family deposits this amount in my NRE account, in which my elder brother has the mandate. I fear I may be violating some income tax rule as I don’t file any returns in India. Please advise if I should continue with the present arrangement or ask my brother to credit the income in his own account only.

—Jacob Mathew

Any income from assets situated in India would be considered as ‘accrued in India’ and hence taxable in India.

Accordingly, rental income received by you from such commercial property would be taxed under the head ‘income from house property’ in your hands effective the date of inheritance.

A deduction for municipal tax paid during the financial year and standard deduction of 30% is available against rent received. Interest payable for a loan (in your name) availed for repairs /renewal of the property is also available as a deduction against the rental income.

However, you are required to file an income-tax return and pay taxes in India if your total taxable income exceeds Rs2.5 lakh.

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

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