How NRIs can avoid common tax blunders
The most common error NRIs commit while filing tax returns is to use the status of residents in India.
Non-resident Indians (NRIs) in the UAE enjoy the twin advantages of not having to pay tax in their country of domicile and most sources of income are exempted from tax in their home country as well.
Tax experts say that India is as much a tax haven for NRIs as other jurisdictions such as Mauritius.
“All your passive income is exempt from tax. Your interest on an NRE account, rupee deposits, foreign currency deposits, dividends, long-term capital gains on stocks and mutual funds after one year are all exempt from tax,” said Rajesh H. Dhruva, an NRI tax consultant based in India.
However, despite this most NRIs are confused and commit common tax-related blunders while filing returns in India owing to carelessness and ignorance.
“India’s tax rates are among the lowest in the world. The Foreign Exchange Management Act is extremely liberal, but not properly conveyed. Very few NRIs are aware of it. Foreign investors capitalise on all these tax exemptions,” said Dhruva, citing the examples of Franklin Templeton, Morgan Stanley, Bank of America and City Bank, all of who have strong operations in India.
The most common error NRIs commit while filing tax returns is to use the status of residents in India.
“If you are filing your returns in India, consider your status very carefully. Parents of NRIs file returns very casually and they do not file the status as non-resident. This happens very regularly. A lot of exemption provisions then do not apply to you. As an Indian resident, all tax provisions will apply to you,” said T.P. Ostwal, a partner in TP Ostwal & Associates in Mumbai.
“Since 2011, if an NRI is filing his returns as a resident of India, he is required to show his global assets. He is supposed to pay tax on his global income,” added Dhruva.
Another blunder committed by NRIs is to continue their Indian bank accounts as resident accounts instead of converting them to non-resident ordinary accounts.
NRIs have also been advised to maintain their passports diligently since this is a clear evidence as their status as a non-resident citizen. “NRIs do not keep travel details very carefully. For instance, how many days they were abroad. These details must be maintained. This will resolve most tax problems,” Ostwal said.
It is also important to keep track of all your paper trail in India. If you purchase a property in India, make sure to have evidence of how you earned the income with which you paid for the property. NRIs generally lag behind in maintaining documents on how they earned their money abroad.
“In India, tax authorities can go back to your forex deals since the past 16 years. It is therefore important to keep track of your paperwork at least for the past seven to eight years,” Dhruva said.
