NRIs are taxed only on income earned in India

So, if an NRI gets paid a bonus paid in India it will be consider as income received in India, which is taxable under the domestic tax rules.

I want to buy a house in India using funds in my non-resident ordinary (NRO) account. What would be the tax implications of this transaction?

—Harish Nambiar

There is no tax liability on purchase of a house property in India by a non-resident Indian (NRI). There will be registration charges and stamp duty to be paid, which will depend on the location of the property in India.

However, there will be tax implications on any income received from the property and on its sale.

In case the property is let out, the rental income, after a flat deduction of 30%, will be taxable in India.

Municipal taxes paid will also be considered for deduction from the rental income.

Sale of property will be taxable in the year of sale. If the property is held for a period of more than 36 months, it will be classified as a long-term capital asset.

Otherwise, it will be considered a short-term capital asset. Capital gains on sale of a long-term capital asset is subject to a tax rate of 23.072% (including surcharge and education cess). However, capital gains on sale of a short-term capital asset is subject to tax as per the applicable slab rates.

I was transferred to a company in the UK about four years ago, and I get my salary in British pounds. I received a bonus amount this year in India. How will this be taxed?

—Gopinath Shinde

As you have been working in the UK and have been physically out of India, it is likely that as per Indian income tax laws you would qualify as an NRI. A non-resident is taxable in India only on income earned in India and income received in India. Hence, the bonus paid to you in India being income received in India is taxable under the domestic tax rules.

However, if you qualify as a tax resident of the UK, under the UK-India double tax avoidance agreement (DTAA), income attributable to employment exercised in the UK will be taxable only in the UK.

Therefore, if the bonus received in India is attributable to the period of employment exercised in the UK, you can claim a refund of taxes withheld in India by the Indian employer by opting to be taxed as per DTAA when filing your Indian tax return. You will need to obtain a tax residency certificate from the inland revenue department in the UK to evidence your UK tax residency.

However, the position would be different if you qualify as a tax resident of India.

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