Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

Income tax arises in the year of accrual or receipt of income

The chargeability to income tax arises in the year of accrual or receipt of income. Tax incidence does not arise on remittance made

I have been working in the UAE since September 2017 (more than 182 days in the 2017-18 fiscal). My work contract is likely to get over in May 2018, and I will return to India. How will my salary for the 2 months in 2018-19 fiscal be taxed?

—Rahul Narang

Based on the facts as stated by you in your query, you have been a resident of India until FY 2016-17. During FY 2017-18 (in September 2017), you moved to the UAE for work. It is not clear if you have gone on an employment contract or on a contract of some other nature. Therefore, if you have moved to UAE for employment, since your period of stay in India for this year is less than 182 days, you will be a non-resident Indian for FY 2017-18. Alternatively, if you have gone on a contract of any other nature, since your stay in India is greater than 60 days, you will qualify as a resident of India for FY 2017-18. So it's important that you first identify what your residential status in India is.

For the FY 2018-19, since your days of stay in India will be greater than 182 days, you will qualify as a resident of India and your global income would be taxable. Accordingly, you will be taxed on the income you receive from the UAE for the 2 months of April and May 2018 too. In case your UAE income has already been taxed in the UAE, you can still claim such taxes paid there as a deduction from the tax payable by you on such income in India in accordance with the India-UAE Double Taxation Avoidance Agreement.

I lived in the US for 2 years and did local work there. The money was transferred to my account via cheque. I came back to India 2 years ago and was still carrying the debit card from that bank account, which has close to $7,000. It is easiest for me to use the debit card to withdraw the money from that account. The card is expiring in 3 months and I want to take out or use all the money in it. If I do that, will there be any tax implication on me?

—Parvati Venkatesh

The chargeability to income tax arises in the year of accrual or receipt of income. Tax incidence does not arise on remittance made. In your case, we are assuming that in the year you received income in the US, you were a resident there and have also paid the taxes on it in the US. So, your subsequent arrival in India and your qualifying as a resident of India in the later years when you propose to withdraw your foreign earnings, would not make you liable to pay taxes on the same income in India.

I have been in Bahrain for 15 years. I plan to return to India in 3-4 years, and move my savings into an India bank account. From a tax perspective, what is the best way to do it? Can I transfer 10-20% of my corpus every month into my son's and wife’s accounts?

—Josy Kurien

Yes, you can consider transferring a portion of your corpus to the accounts of your son and wife on a monthly basis. This would not give rise to any income tax in their hands as they fall under the specified list of “relatives", gift of money to whom is exempt from income tax. However, if this money is in turn invested by your wife or son, which yields income, such income would be taxed (clubbed) in your hands when your wife or son are not income taxpayers.

As regards other assets, in case you are contemplating to dispose them, it is recommended that you alienate them before you move back to India permanently to ensure you don’t end up paying taxes on the same in India, as once you become an Indian resident, you would be taxed on your global income.

Archit Gupta is founder and chief executive officer of ClearTax. 

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