A non-resident cannot file ITR-1, but those who are resident and ordinarily resident in India can only file ITR-1 (Photo: iStock)
A non-resident cannot file ITR-1, but those who are resident and ordinarily resident in India can only file ITR-1 (Photo: iStock)

NRIs can use ITR-2 form to report rental income earned from Indian property

  • You are required to inform your bank about change in your residential status and request for your holdings to be moved to an NRO demat account
  • TDS compliance is required when an auctioned property is being purchased. Even though the bank is auctioning the property, TDS must be deducted on the PAN of the original owner

I recently got my US green card. I am 64 years old and I file my income tax returns (ITR) in India regularly. My income is below the taxable limits. I had bought shares 30 years back. Is it possible to transfer these to a non-resident ordinary (NRO) demat account? Can I sell these shares and then transfer the money to an NRO account? Will Foreign Account Tax Compliance Act (Fatca) apply on this? Please advise.

—Karthik

You are required to inform your bank or service provider about change in your residential status and request for your holdings to be moved to an NRO demat account. As a non-resident Indian (NRI), all your demat holdings must be moved to an NRO demat account. Besides, you must comply with Foreign Exchange Management Act (FEMA) and the Reserve Bank of India rules related to demat account holdings and investments. You can sell these holdings and receive the proceeds in your NRO account and further remit them to your country of residence after meeting specified conditions. Fatca compliance is required, and it may be requested at the time of conversion to NRO demat account.

I recently got an auctioned property from a bank where the defaulter is an NRI. I have made 25% of the payment. Before filing for tax deducted at source (TDS), the bank realized that TDS for NRIs is 22% on capital gains and they don’t have the knowledge or any set procedure to get through this deal. I don’t think they even have details about the original seller. How do I deal with this situation?

—Allwyn Castelino

TDS compliance is required when an auctioned property is being purchased. Even though the bank is auctioning the property, TDS must be deducted on the Permanent Account Number (PAN) of the original owner. TDS rate for NRIs is 20% (additional cess and surcharge, as applicable). Ideally, the bank should be able to provide information about NRIs’ PAN to you. You can adjust TDS on the subsequent payment you make; remember that it is required to be deducted from each instalment paid. You must make sure that TDS is adjusted from payments made by you and duly deposited to the government with any interest applicable. The onus of TDS compliance is on the buyer.

I am an NRI and have rental income in India. Which form should I use to submit my ITR? Some people are suggesting ITR-1, while others ITR-3. Please advise.

—Suren

A non-resident cannot file ITR-1, but those who are resident and ordinarily resident in India can only file ITR-1. Based on your other incomes, you should be able to file ITR-2 to report your rental income from property situated in India. This is assuming that you meet other conditions. For instance, you should not have earned any income in India that is taxable under the head business or professional income in your ITR.

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

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