I hold a PAN (permanent Account Number) and OCI (Overseas Citizenship of India) card and am a current citizen and tax resident of Australia. I am planning to come back to India after retirement. Will my Australian retirement funds which are tax-free in Australia be also tax-free in India, if I decide to become an Indian tax resident in the future?—Jalal Ward
When you are a resident in India for income tax purposes, income earned anywhere in the world shall be taxable in India. Besides, it is mandatory for residents who hold foreign assets, bank accounts and financial interest to report these matters in their tax returns in India. If you have earned any income from these sources, it must also be included in your tax return in India.
Upon your return, check your residential status as per income tax laws. 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 financial year (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 a 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 (NRI). If you meet the first set of conditions but not the additional conditions, you would be resident but not ordinarily resident (RNOR) in India.
If you are a resident, you must report these balances in your Indian tax return. You can avoid paying tax on them twice by referring to the Double Taxation Avoidance Agreements (DTAA).
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I hold few restricted stock units (RSUs) in the US and I’m planning to sell them and remit the amount back to my Indian account. My broker has already deducted a few shares as tax in the US. Do I need to pay tax again in India for the financial year in which I plan to liquidate the RSUs? I’ve read the joint treaty between India and the US and as per my understanding I may not have to pay tax in India again.—Gaurav Mishra
If you are a tax resident of India, your global income would be taxed in India, irrespective of whether or not you have paid taxes on the overseas income abroad.
Similarly, liquidation of RSUs held in the US would result in capital gains on which taxes have to be paid. Though taxes may be deducted in the US, you would have to offer the capital gains income in India too and pay taxes on it. The India-US DTAA also provides for taxation of gains based on the provisions contained in the respective country’s domestic laws. Accordingly, India has a right to tax such income.
However, you can claim credit for taxes paid in the US on such income while discharging your taxes in India.
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Archit Gupta is founder and chief executive officer, ClearTax. Queries and views at firstname.lastname@example.org