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Business News/ Money / Calculators/  Residential status determines taxation for NRIs
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Residential status determines taxation for NRIs

of the Indian company, the capital gains arising will be liable to tax

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I am a non-resident Indian (NRI) and have a bank account in the country where I reside. Is the interest earned on deposits in this account taxable in India?

—Anand Rao

The taxability of interest income earned by you outside India depends on your residential status as per the domestic tax laws of India. Residential status is primarily determined by the number of days that you stay in India during any financial year starting 1 April and ending on 31 March next year. If your stay in India exceeds 182 days in a financial year, your worldwide income is liable to tax. In such a case, the income earned outside India, i.e., the interest earned on deposits in the bank account in the other country where you reside, would be liable to tax in India subject to the benefits of Double Taxation Avoidance Agreement, if any, with that country.

I am an NRI working in a Singapore-based subsidiary of an Indian company. I have been given shares under employee stock ownership plan (esop) of the Indian company. I am not on the Indian company’s payroll. I have exercised my options by paying from my non-resident external (NRE) account in India. What will be the tax treatment when I sell these shares?

—Natrajan

Irrespective of your residential status, any income accruing or arising in India is liable to tax in India. Hence, when you sell the shares of the Indian company, the capital gains arising will be liable to tax in India. The capital gains is the difference between sales consideration and acquisition price. The acquisition price in your case would be the cost that you have actually incurred plus the amount of perquisite value, which is the difference between the price you pay and the market value of shares upon which you pay a tax at the time of exercising the esop option.

If shares are sold within 12 months from the date of acquisition, the gains are taxable as short-term capital gains; else they are taxable as long-term gains. If the shares are listed and are sold through a stock broker on a recognized stock exchange on which securities transaction tax has been paid, the rate of tax for short-term gains is a flat 15% plus applicable surcharge and cess. Such long-term capital gains are exempt from tax. If the shares are unlisted, tax on short-term capital gains is as per the normal slab rates plus applicable surcharge and cess; long-term capital gains are taxed a flat 20%.

Please note that you would also be entitled to the threshold exemption (2 lakh at present).

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Published: 26 Dec 2013, 06:41 PM IST
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