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Non Resident Indian : NRI Taxation and Laws

The government has so far issued Aadhaar cards to over 92 crore citizens

External Affairs Minister Sushma Swaraj delivering a speech at Pravasi Bharatiya Divas as Britain's minister for employment Priti Patel looks on in New Delhi

The government is considering giving Aadhaar cards to Non-Resident Indians (NRIs) and a decision on it will be taken soon, External Affairs Minister Sushma Swaraj said today while inviting the diaspora community to actively participate in India's growth story.

In her address to the first limited edition of Pravasi Bhartiya Divas (PBD), Swaraj said it has been decided that women workers will be allowed to go to Gulf countries for employment only through government agencies to ensure they are not duped by recruiting agents or firms.

The PBD, webcast by almost all Indian Missions and Posts, was organised for the first time by External Affairs Ministry (MEA) after the government's decision to merge Ministry of Overseas Indian Affairs (MOIA) with it.

Earlier MOIA used to host the event. January 9 was chosen as the day for PBD as it was on this day in 1915 that Mahatma Gandhi, the "greatest Pravasi", returned home from South Africa to lead India's freedom struggle.

Asking the diaspora to participate in government's various flagship programmes including Skill India, Digital India and Clean Ganga initiatives, she said Prime Minister Narendra Modi wants the Aadhaar card scheme to be extended to NRIs.

"So far Aadhar card has been given to those Indians who live in India. It is not for non-resident Indians. But you will be happy to know that the Prime Minister wants the card to be given to the NRIs the way it is issued to people living in India.

"He even wants it for OCI (Overseas Citizens of India card) holders. The matter is under our consideration. No decision has been taken as discussions on it are underway. I hope soon you will hear about it," Swaraj said during an interaction following her address.
The government has so far issued Aadhaar cards to over 92 crore citizens. Under the programme, every citizen is to be provided with a 12-digit unique identification number for which biometric information is collected.

On restricting women from going to Gulf countries through the recruiting agencies, she said the decision has been taken to stop them from getting duped.

"We will send women only through government agencies," Swaraj said during an interactive session with Indian missions abroad.

Calling upon the diaspora to be part of the India growth story, she said "It is time for you to come back to India."

Effusive in praise of the Prime Minister, Swaraj said India's engagement with the overseas Indians has increased manifold because of his constant endevour to reach out to the community. Swaraj also mentioned Modi's Madison Square address in the US and at the Wembly in London.

"Your achievements in the countries of your adoption are a matter of pride... It is our responsibility to protect you and take care of you. Indeed, we are you and you are us," she said.
Finance Minister Arun Jaitley in his Budget 2016 speech said that Non-resident Indians (NRIs) without PAN will not be subjected to higher rate of TDS. "Non-residents without PAN are currently subjected to a higher rate of TDS. Budget 2016 proposes to amend section 206AA of the Income-tax Act so as to provide that TDS shall not be deducted at a higher rate in case of non-residents not having PAN, subject to prescribed condition," said FM Arun Jaitley.

"It is proposed to amend the relevant provision to provide that on furnishing of alternative documents, the higher rate will not apply," the Budget says.

FM Jaitley in his Budget speech outlined the nine pillars on the basis of which he hopes to enhance India's economic growth. From focus on agriculture to tax and financial sector reforms, here are the nine pillars that Jaitley spoke of to transform India:

1) Agriculture and farmer welfare with an aim to double farmers' income in the next five years

2) Rural sector

3) Social sector including healthcare

4) Educational skills and job creation to make India a knowledge based and productive economy

5) Infrastructure investment to enhance quality of life

6) Financial sector reforms

7) Governance reforms and ease of doing business

8) Prudent management of government finances

9) Tax reforms to reduce compliance burden

Jaitley said that Indian economy is resilient amidst the current global economic turmoil. "Global economy is in a serious crisis. Financial markets have been battered but Indian economy has held its ground firmly."

"IMF has hailed India as a bright spot. Let us look at our achievements compared to the last three years of the last government. We inherited an economy with low growth and high inflation," Jaitley said.

"We have bridged the trust deficit created by the previous government," Jaitley added.

In recent years, the US Congress and the US Department of Treasury have come to believe that many US taxpayers (including US citizens and green card holders in India) have not been complying with the tax law that requires reporting of worldwide income, including income held in non-US financial institutions. In an effort to fight this perceived non-compliance, President Obama and the US Congress enacted the Foreign Account Tax Compliance Act (FATCA) in 2010.

FATCA will become effective this year and will have a significant impact on NRIs' tax compliance. FATCA requires all foreign financial institutions (FFIs) to enter into an agreement with the US government and disclose foreign account information of US accountholders. This includes all banks and financial institutions in India. In order to effectively force FFIs into compliance, institutions who fail to supply this information to the US government will be subject to a punitive 30% withholding tax on all payments cleared through the United States banking system (most FFIs clear payments through the US banking system).

While FATCA has generated consternation abroad, nearly 30 countries have already entered into information sharing agreements with the US government including Canada, Singapore and many European nations. India has been in discussions to enter into an intergovernmental agreement with the US, where it is expected that Indian financial institutions will be required to disclose account information of US accountholders (including US NRIs' NRO, NRE and NRI accounts). The US Department of Treasury indicates that India has reached an intergovernmental agreement with the US in substance beginning from April 11, 2014. As a result, it is anticipated that a USA-India FATCA agreement will be signed soon.

Some Indian banks have reportedly started to request US accountholders to submit their US tax identification information and sign declarations that their accounts complied with US tax laws.

FFIs will provide the US Department of Treasury with identifying information on all US accountholders, including the name, address, tax identification number, account number and the account balance. Last year, the US government launched an online registration program for FFIs around the world to facilitate information disclosure under FATCA. This information will used by the US government to investigate any US taxpayers who have not previously disclosed their offshore accounts.

In addition to income disclosure, the US Financial Crimes Enforcement Network (FinCEN) requires US persons (including US citizens and green card holders in India) to annually report their foreign financial accounts. US persons must file Form 114 (also known as Report of Foreign Bank and Financial Accounts (FBAR)), which reports all foreign financial accounts to numerous agencies within the US government. The failure to file Form 114 could lead to severe civil penalties and criminal prosecution.

It is anticipated through FATCA implementation that FFIs' information reporting on US account holders to the US government may be "matched" to FBAR reporting to identify those who fail to report or underreport foreign assets and/or income. FATCA is expected to lead to the discovery of tens of thousands of US persons with foreign accounts. As a result of this heightened scrutiny, US NRIs' should carefully review their US tax compliance history.

Unfortunately, the US government's interest in US accountholders with Indian accounts is not unprecedented. Over the past five years, nearly a dozen Indian-Americans have been successfully prosecuted in the US criminal courts for failure to report Indian accounts and income (for example, Ashvin Desai of California, Josephine Bhasin of New York, Sanjay Sethi of New Jersey).

NRIs with unreported accounts may report previously undisclosed income and accounts through the US government's Offshore Voluntary Disclosure Program (OVDP). In the next article, we will examine the Offshore Voluntary Disclosure Program and other possible solutions to help NRIs remain compliant in light of the growing complexity of US tax laws.
Indian banks and mutual funds have in the past fortnight started warning NRIs who hold an American passport or are working in the US that their accounts could be frozen unless they get a tax-compliant certificate from US authorities, thanks to a treaty signed by New Delhi and Washington. Under the US Foreign Account Tax Compliance Act (FATCA), the two countries would share information about citizens who own properties, bank accounts and other investments in each other's territory. As per the new regulations, US citizens or those working in the US on H1B visa would need a FATCA-compliance certificate to be submitted to their banks. The same certificate needs to be provided to also mutual funds and before making direct investment in the capital market.

Banks including HDFC Bank, ICICI Bank and State Bank of India, as well as mutual funds like Reliance Mutual fund, Franklin Templeton and DSP Blackrock have asked their customers to submit the FATCA certificates. Many of these NRIs have rushed to tax experts. "We have seen our clients, who are US citizens, being asked by Indian banks, mutual funds and even stock brokers to provide FATCA status declarations.

This means that going ahead US citizens who don't give these declarations would not be able to invest or keep money in India," said Lloyd Pinto, director at Grant Thornton India. "Further, this information would be shared with the US authorities as a part of the FATCA filings which have been introduced in India earlier this year." For many, taking a US citizenship was one way of saving on tax, while for others it was a point of vanity.

It also meant convenience as many countries don't require US passport holders to get visas. Now, these NRIs who have bought real estate or made other investment in India could be taxed as per the US taxation laws. "Lately, Indian banks have started sending written communication to customers who they find out are based out of the US or have a US passport but based in India. This even applies to the H1B visa holders who are working in the US," said Jeenendra Bhandari, partner at tax and audit firm MGB & Co. "Going ahead many Indian banks would be well within their rights to even freeze accounts of clients based in India who do not submit FATCA-compliant certificates," he said.


Law-abiding citizens must get relief

The Fatca, meant to crack down on tax cheats, must not become a nightmare for NRIs who hold American citizenship or work in the US on H1B visas. Americans are also frowning, saying relief must be given to lawabiding citizens. It will also lessen the burden on financial institutions, without shielding taxevaders. The Same Country Safe Harbor plan will exempt American citizens who are legal residents in the country in which the accounts are held from Fatca. A Bill has been introduced in the US Senate to repeal the provisions of the law. Presumably, India has to wait till its repeal.
The Revenue Department today said reporting and certification requirements in case of payments made to non-residents will be relaxed from April 1, 2016.

The Finance Ministry said amendment in the Income Tax Rules have been made to "strike a balance between reducing the burden of compliance and collection of information" in case of payments made by domestic entities to non-residents.

As per the amended rules, a Chartered Accountant certificate will be required to be furnished "only in respect of such payments made to non-residents which are chargeable to tax and the amount of payment during the year exceeds Rs 5 lakh".

Also, the requirement of furnishing two types of Forms (15CA and 15CB) by an individual for remittance which do not require RBI approval has been done away with.

Further, the list of payments of specified nature which do not require submission of the those two Forms has been expanded from 28 to 33 including payments for imports.

The Income Tax Act empowers the Central Board of Direct Taxes (CBDT) to capture information in respect of payments made to non-residents, whether chargeable to tax or not.
Being an NRI at this point in time must a great spot to be in. And specially for NRIs who wish to make investments in India as well as for those who want to sell investments made some time ago.

According to property consultants, Indian metro cities are seeing a good 20 to 30% year-on-year increase in property sales from NRIs in the past 4 to 6 months. This is on the back of a constant rise in property prices in the metro cities.

According to data from Residex, the residential index of National Housing Bank, prices in Mumbai and Delhi have shot up by 17 and 20% between March 2012 and March 2013. While many NRIs are still mulling and some even selling their properties, it’s important they know how they will be taxed on such a transaction.

If a resident Indian or a Non-Resident Indian (NRI) sells a property in India after holding it for a period of more than three years, then long term capital gains tax of 22.66% will be applicable.

While the taxation is same for both the parties, there is a difference in the way Tax-Deducted at Source (TDS) is calculated.

Anil Harish, of DM Harish & Co. says, “An NRI selling property in India has the right to apply to the assessing officer for certificate of non-deduction or lower tax deduction. That is for deducting his TDS only on the capital gains.”

He can make this application because if the 20.66% is applied on the sale price, then the NRI may end up getting less than what he had invested.

In other words, the TDS including surcharge of 22.66% will be calculated only on the capital gains and not on the sale price which will not erode his profits, if any. If this gets approved by the Income Tax office, then the buyer of the NRI’s property can make payment to him in full (ie: sale price), whereas a certificate of (TDS on capital gains) will be issued separately to the NRI.

This procedure takes about 2 to 4 weeks, and will require the NRI to submit some key documents like his sale-agreement, PAN, income tax returns, bank statements and so on. Hence, hiring a chartered accountant or a property lawyer in India would work in his benefit to ensure a smoother transaction.

First, deduct the expenses incurred by NRI from the sale price, which will give you the net selling price of the property. Expenses incurred can include legal fees, transfer fees, traveling fees etc. Then, the difference between this and the indexed cost of purchase will be your capital gains.

However, as an NRI you can save this TDS as well.

One way of getting this waiver is if the NRI re-invests these capital gains made from the sale of property in another property (within two years) or in tax-free bonds (within six months). In such cases, the NRI will be exempt from tax in India, and no TDS will be deducted either. For this, they will have to apply for a tax-exemption certificate under Section 195 of income tax act.

Whereas, if the NRI decides to sell that property within three years, then he will have to pay short-term capital gains tax according to the tax-bracket he falls under along with a fixed rate of TDS respectively.

As an NRI, he can ask his CA to file form 15 CA & CB electronically which will state that the NRI has no tax-liability and can remit this money back to his country now. If he doesn’t wish to repatriate the money, he can keep it in his Indian bank’s NRO account. However, according to RBI guidelines repatriation of such funds per financial year should not exceed $1 million.
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