NRIs continue to get tax benefits on their home loan in India
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I was in India till 27 January 2018 and have come to the US on a long-term assignment. My payroll in India was deducted as per Indian tax laws till 27 January. Do I have to declare my US income in India tax return? My US payroll will already have deducted tax. Can I claim a credit for it , if it is to be added to my Indian income? Will I be able to claim tax benefit for my home loan for the current financial year?
I am not yet an NRI (haven’t been abroad for 181 days). Should I declare the same to my bank?
Taxability in India depends on the following: Residential status in India; source of income; and place of receipt of income. Residential status depends on your total physical presence in India in current financial year and previous 10 financial years. Residential status is dynamic and needs fresh determination for each financial year. There are three types of residential status in India: Ordinarily Resident (OR); Not Ordinarily Resident (NOR); and Non-resident.
An individual qualifying as OR is taxable on worldwide income irrespective of where the income is earned and received. Such an individual is also required to report his overseas assets in the India income-tax return.
An individual qualifying as NOR or NRI is taxable on the following income:
(a) Income accrued or arising in India
(b) Income deemed to accrue or arise in India
(c) Income received in India.
You would qualify as OR in India for financial year 2017-18 since:
(a) Your physical presence in India is 182 days or more;
(b) Your physical presence in India is 730 days or more in seven financial years preceding the financial year 2017-18;
(c) You qualify as ‘Resident’ in India in any two out of 10 financial years preceding financial year 2017-18.
As OR in India, you will be taxable on your worldwide income in India irrespective of where the income is earned and where it is received for financial year 2017-18.
Declaring US income in India tax return: As you qualify as OR in India for 2017-18, your worldwide income will be taxable in India. Salary earned in India and in the US during 1 April 2017 to 31 March 2018 will be taxable in India. You will have to include your US salary income from 28 January 2018 to 31 March 2018 while computing your taxable salary income in India for financial year 2017-18.
Financial year 2018-19 onwards, assuming your physical presence in India will be less than 182 days, you will most likely qualify as an NRI in India and be taxable on the India-sourced income.
Salary earned in the US and received in the US will not be taxable in India.
Claim credit for tax deducted by US payroll: In case of double taxation, you may claim credit for US Federal taxes against India income-tax payable on doubly taxed income as per the provisions of the Double Taxation Avoidance Agreement between India and the US.
You will also need to file Form 67 (statement of foreign tax credit) along with requisite proof of taxes paid outside India electronically before filing the India tax return. Also, you will have to report your assets outside India (such as bank account in the US).
Home loan: You will continue to get tax deduction for home loan interest (up to Rs2 lakh if house is self-occupied) and principal repayment (up to Rs1.5 lakh) during the period of the US assignment.
Informing bank: The determination of residential status under the exchange control law is different from income-tax law. Under the exchange control law, when a person leaves India for another country for employment, his existing accounts should be designated as a Non-Resident (Ordinary) account (NRO account).
Accordingly, you may inform your bank to designate your existing resident savings bank accounts to NRO accounts. On return to India permanently, you may redesignate your NRO accounts to resident accounts.
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Sonu Iyer is tax partner and people advisory services leader, EY India