NRI returning to India and continuing to have overseas income – International Taxation Case Study
Peeyush, a Non-Resident Indian returned to India on 12th June, 2018 for permanently residing in India after a stay of about 20 years in U.K., provides the sources of his various income and seeks your opinion to know about his liability to income tax thereon in India in assessment year 2019-20 : –
i. Income of rent of the flat in London which was deposited in a bank there. The flat was given on rent by him after his return to India since July, 2018.
ii. Dividends on the shares of three German Companies which are being collected in a bank account in London. He proposes to keep the dividend on shares in London with the permission of the Reserve Bank of India.
iii. He has got two sons, one of whom is of 12 years. Both his sons are staying in London and not returning to India with him. Each of his sons is having income of ₹ 75,000 in U.K. (not received in India) and of ₹ 20,000 in India.
iv. During the preceding accounting year when he was a non-resident, he had sold 1000 shares which were acquired by him in British Pound Sterling and the sale proceeds were repatriated. The profit in terms of British Pound Sterling on sale of these 1000 shares was 175% of the cost at ₹ 37,500 while in terms of Indian Rupee it was ₹ 50,000.
NRI returning to India and continuing to have overseas income – International Taxation Case Study – Solution:-
As per Section 6(1), an individual is said to be resident in India in any previous year, if he satisfies any one of the following basic conditions : –
a)He has been in India during the previous year for a total period of 182 days or more; or
b) He has been in India during the 4 years immediately preceding the previous year for total period of 365 days or more and has been in India for at least 60 days in the previous year .
During the P.Y.2018-19, Peeyush’s stays in India is for more than 182 days, thus, he would treated as resident in India for the A.Y.2019-20.
A person is said to be RESIDENT AND ORDINARILY RESIDENT if he satisfies both the additional conditions specified under section 6(6).
ADDITIONAL CONDITIONS : –
CONDITION I : – Individual has been resident in India in 2 out of 10 previous years immediately
preceding the relevant previous year.
CONDITION II : – Individual has during the 7 previous years preceding the relevant previous year been in India for a period of 730 days or more.
However, in the present case, Peeyush never came to India in last 20 years and accordingly, he was a non-resident in nine out of ten previous years preceding P.Y.2018-19 , and his stay in India during the seven previous years is less than 730 days. Thus, he is Resident but Not Ordinarily Resident .
As per section 5(1), an assessee who is resident but not ordinarily resident would be liable pay tax only on income received / deemed to be received in India , accruing or arising / deem to accrue or arise in India . He is not liable to pay tax on income which accrues or arises outside India, unless it is derived from a business controlled in, or a profession set up in, India.
i.In this case, Flat was situated outside India and further, rental income is also not received in India . Thus, such rental income is accrued / received outside India. Accordingly, rental income shall not be included in the income of Peeyush .
ii.In this case, dividend is also collected (received) in a bank account in London. As, such dividend income is accrued and received outside India and it shall not be included in the income of Peeyush
iii.As per section 64(1A), income accruing or arising to a minor child shall be clubbed in income of parent and further, an exemption of Rs 1,500 per child shall also be allowed under section 10(32).
Accordingly, income of Rs 20,000 of his minor son shall be included in the income of Peeyush. However, a deduction of Rs 1,500 shall also be allowed to him.
Further, income of Rs 75,000 accruing to the minor child outside India and which is also received outside India shall not be included in the income of Peeyush. As his other son is a major son his income shall not be included in the income of Peeyush.
iv.Capital gains from sale of shares would be taxable in the year in which such shares are sold . At the time of sale of shares, Peeyush was non-resident, and accordingly, such gains shall not be taxable in India in that year . No taxability would arise in current FY 2018-19 due to repatriation of sale proceeds when shares were sold in preceding years.
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