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What NRIs earn in India is taxed in India

As soon as you return to India and intend to stay for most part of an FY, you must redesignate your non-resident accounts to resident accounts

I live in London and want to rent out a flat in Hyderabad to another NRI for 2 months. The rent will come to my NRO (non-resident ordinary) account. What will be my tax liability? 

—Vikrant Nayar

Income from a flat in Hyderabad will be taxed in India in your hands. You will have to report this income under the head 'income from house property' while filing your income tax return (ITR) in India. You will be allowed to deduct municipal taxes paid by you and claim 30% standard deduction from rental income. The lessee may deduct tax at source (TDS) if the monthly rental exceeds Rs50,000. TDS is deducted for the whole year in March or when the last payment is made. You will be able to see this TDS in your Form 26AS. You can claim it from total tax payable at the time of filing ITR. 

I am a US citizen since 2015. I had an Aadhaar card before that. From March 2017, I started living in India but go to the US at least once a year for 1-2 months. I have NRO and NRE (non-resident external) accounts. What should be my tax residency status? Can I still use my Aadhaar card? If I get income during my stay in the US, will I have to pay taxes in India?

—Anju Bansal

To report your income and to pay taxes, you must find out your residential status. In India, ITR is filed for a financial year (FY). Residential status must be found out for each FY. A person may be resident or non-resident in India. A resident may be resident and ordinarily resident (ROR) or resident but not ordinarily resident (RNOR).

To be a resident of India for tax purposes, you must meet any of the following ‘conditions’ and both the ‘additional conditions’. The ‘conditions’ are: you are in India for 182 days or more in the FY; or 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’ are 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 a non-resident in India. If you meet the first set of conditions but not the additional conditions, you would be RNOR in India. Since you spend a majority of your time in India, starting March 2017, you are likely to be RNOR for tax purposes in India. 

Your Aadhaar is still valid.

As soon as you return to India and intend to stay for most part of an FY, you must redesignate your non-resident accounts to resident accounts.

For an NRI and RNOR, only income earned in India is taxed in India. But if and when you become a resident (likely after 2 years of your return) you will have to report your global income in your Indian ITR and pay tax on it in India. So, on becoming a resident of India you will have to include income earned in the US in your ITR in India. To avoid paying tax on the same income twice, you can claim credit of taxes paid abroad by referring to Double Tax Avoidance Agreement between India and the US.

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

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