Foreign nationals residing in India may enrol for Aadhaar
My mother is a British citizen, who was resident of India since the mid-1970s. Since February 2015 she has been staying in the UK. We earn rental income in India and she holds an NRO account here. Taxes are assessed in her name as all the assets were earned by her and my father.
My mother had a residential visa. Recently, her application to upgrade from Person of Indian Origin (PIO) to Overseas Citizen of India (OCI) was declined.
1. What is her residential status? On the tax return, it shows ‘resident’. Based on her residential status, is she eligible for an Aadhaar number? Can she be treated as an NRI?
2. Can my mother continue to hold bank fixed deposits in India or should they be transferred to an NRO/NRE account? How will she pay taxes from abroad, or can the bank do it? There is also a savings account in her name to which I am a nominee. I operate this account. Should I close this account?
3. Do we have to pay tax in the UK (or the US) for notional interest on NRE fixed deposits that have not yet matured? I know we have to pay tax on those that have matured.
4. Can rental income be collected every month from the UK, if it is deposited in an NRO account in India? Does this income require filing of income tax returns? Can I collect the rental cheques in my mother’s name or should I get them in my name?
5. Next year, we plan to transfer all fixed deposits to the UK. Which is the best way to do it? Should we do it through State Bank of India-UK, as our accounts here are in SBI?
An individual is considered resident in India, if:
—she has stayed in India for 182 days or more during the financial year, or
—she has stayed in India for 60 days or more during the financial year and stayed for 365 days or more in the 4 years immediately preceding the said financial year.
As your mother has been out of India since February 2015, she does not meet any of the two conditions listed above. Therefore, she will be a non-resident Indian (NRI) for income tax purposes.
As per the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, every ‘resident’ is entitled to get an Aadhaar number by submitting demographic and biometric details. A resident for this purpose is an individual who has resided in India for a total of 182 days or more in the 12 months immediately preceding the date of application for enrolment in Aadhaar.
For now, Aadhaar is not mandatory for your mother, but if she visits India and plans to remain here, she can enrol for it. She can do so by visiting an enrolment centre and submitting requisite proofs and documents. Regardless of Aadhaar, as long as she qualifies as an NRI, she can continue to file income tax returns as an NRI. Note that NRIs are exempt from obtaining Aadhaar for filing income tax returns. The Foreign Exchange Management Act (Fema) requires that as soon as you become a non-resident, you must inform your bank and request to convert all your resident bank accounts to non-resident accounts. Tax payments can be made from a non-resident ordinary (NRO) account. Since you are also a non-resident, you must convert the said savings accounts to NRO accounts.
When you are a citizen of another country or resident there, for income-tax purposes you may have to include your foreign income—in this case, income earned in India—in tax returns of that country. Usually, interest is taxed on due basis and you must include the interest earned (but not paid) by you in your tax returns in compliance with local laws.
Your tenants can deposit the rent in your NRO account. You are allowed to repatriate up to $1 million in a financial year from your NRO account.
Any income earned from a property in India must be offered to tax in India. Tax is also deducted at source (TDS) on rent paid to NRIs. You must report this income while filing your tax return in India. Cheques must be in the name of the property’s owner and will be taxable in the hands of the owner of the property.
Funds from a non-resident account can be remitted to any account outside India by complying with RBI regulations, which require a declaration from you and a certificate from a chartered accountant.
My son and I live in Singapore and we have an NRE account in India. I will be returning permanently to India this summer. I have a fixed deposit and I believe the interest will be taxable if I become a resident in India. Should I transfer this to my son’s account? What is a smart thing to do, in terms of tax?
As soon as you return permanently, you have to tell your bank to re-designate your NRE account to resident savings account. You can transfer the money to your son’s account as a gift. This has no tax implication for you or for him.
Archit Gupta is founder and chief executive officer of ClearTax. Queries and views at email@example.com