Photo: iStock
Photo: iStock

No tax implication for NRIs buying a car in India

Car can be purchased in India by making withdrawals from non-resident external (NRE) account

I am an NRI living in Abu Dhabi. I want to buy a vehicle in India for my son who is studying there. I will be using funds from my non-resident external (NRE) account. What will be the tax implication if the car is in my name?

—Meghna Sharma

Withdrawals from NRE account can be made in Indian currency. You can also purchase a car in India by making withdrawals from your NRE account. There is no tax implication of buying a car in India for you. However, if you are filing a tax return in India and your total income in this tax return exceeds 50 lakh, you’ll be required to report your assets and liabilities in India. This car will then be reported under movable assets (vehicles).

I returned to India in 2017 after three years as an NRI and earned salary abroad. I filed my returns in India during those three years for income, interest and rental earned in India. For salary paid in US dollars, I paid my tax abroad. Savings accrued in my NRO/NRE account was converted into domestic account in 2017 when I returned to resident status and my started earning in India. How is the interest earned on the money accrued for 2018-19 be treated? During NRI status, interest earned was totally exempt. Also, if I had accumulated 20 lakh through my NRI earnings, how would this deposit’s interest be treated?

—Sivasubramanian

To identify how income earned by you will be taxed, it’s essential to find out your residential status for each financial year in question.

To be a resident of India for tax purposes, you must meet any of the following conditions and both the additional conditions:

Conditions: a) you are in India for 182 days or more in the financial year (FY); or b) you are in India for 60 days or more in the FY and 365 days or more in the four FYs immediately preceding the relevant FY.

Additional conditions: you are resident in India in two of the 10 FYs immediately preceding the relevant FY; and you are in India in the seven years immediately preceding the relevant FY for 729 days or more.

If you do not meet any of the first set of conditions, you would be an NRI. If you meet any of the first set of conditions but do not meet the additional conditions, you would be resident but not ordinary resident (RNOR) in India.

You must use the above to identify your residential status for FY 2017-18 and FY 2018-19. For an NRI or an RNOR, only the income earned in India is taxed in India. Whereas for a resident, entire income earned anywhere in the world is taxable in India.

Due to RBI rules on non-resident accounts, such accounts must be converted to resident accounts immediately upon your return to India for good. When this happens, the interest earned on NRE accounts is no longer exempt. Therefore, for the financial year of your return and thereafter, the interest income earned by you shall be taxable in India. Any accumulations to your account will earn interest and this interest income will be taxable in India.

Archit Gupta is founder and chief executive officer, ClearTax. Queries at mintmoney@livemint.com

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