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Some tips for NRI investors

Some tips for NRI investors

Money brought into India as an NRI doesn't attract tax. But if invested, the income from it will be taxed.

 In 2006-7 I had changed three jobs where my status changed from employee to consultant to employee again. How do I settle my tax liability? Will I get a Form 16 from all three employers?

Your income will be taxed under two heads of income namely income from salaries, and profits and gains from business or profession. You will get Form 16 from the employers where you worked as an employee and Form 16A from places were you worked as a consultant, provided they deducted your tax at source. For the income as a consultant you will have to draw up a profit and loss account. There are expenses that you can claim as professional expenses to reduce tax outgo. After computation of annual income (which will include salary income and “profit” you earned as a consultant), if you find that the total tax due to you was not deducted by your employers while paying you the salary or consultancy fee, you will have to deposit self-assessment tax before filing your return of income.

How is capital gains treated from the sale of shares within a year of buying? Please clarify with an example. I am a salaried employee.

When you make a gain by selling shares which were acquired within one year from the date of sale, the income thus earned is termed as a short-term capital gain. While computing the total income of an assessee, this amount will be included under income from capital gains. Supposing your net taxable income under the head salary is Rs 5 lakh a year and the net amount of short-term capital gain is Rs 1.5 lakh, assuming that you do not have any other income, your gross total income will come to Rs 6.5 lakh. From this amount you will get qualifying deductions under Sections 80C and 80D of the Income Tax Act 1961. The tax will be payable on the amount arrived at after allowing for deductions. If you paid the securities transaction tax, at the time of sale and purchase of shares, you will be taxed at a concessional rate of 10% on the income from shortterm gain. Rest of your income will be taxed at the rates applicable to your income slab.

I have availed the full Rs 1 lakh under Section 80C towards tax saving investments. However, my employer had asked for proof towards this in February, which I could not furnish. He has indicated a huge sum to be deducted from my March salary.What is my recourse? Can I claim the money from him or the tax authorities? He says it has been deducted to pay income tax.

If your employer has already deposited the tax with the tax authorities, he cannot refund the amount to you. The employer will give you a TDS certificate. Attach the proof of the investment with your return of income for the relevant period. This way you will get the credit for the tax paid by your employers on your behalf. If the overall amount of tax paid on your behalf works out to be more than the tax due after accounting for your income under all the heads, you will be eligible for a refund. While filing your return of income you must mention your bank account details, so that the Income Tax Department sends it directly to your bank through electronic clearing system.

I have returned to India after 14 years. I do not have any regular source of income now. I have invested my earnings in deposits, mutual funds and shares. I do not know anything about income tax laws here. Please advise.

Since your status for the purpose of income tax in India was that of a non-resident for the past 14 years, the money brought by you into India will not attract any tax as such. However, once you have invested your savings, the income from these investments will be taxed in India. As indicated by you, your income will be either in the form of interest or dividend. As per the present tax laws the dividend income is exempt from tax. Tax will be deducted at source from the interest income. What you need to do is to estimate your income for the entire financial year and compute the total tax payable. If the tax payable works to more than the tax deducted at source, you will need to deposit advance tax. However, if you feel the need you may consult a chartered accountant who will help you.

My father was a famous painter and died over 10 years ago. I have inherited some paintings done by him.As I did not buy these paintings, will I still attract capital gains tax if I sell them in the market today?

The capital gains which arises on the sale of paintings will be taxed in your hands. Since the intrinsic cost (the cost of material used such as canvas, colours, frame, etc.) of the painting will be negligible, almost the entire net sale proceeds will be taxed as long-term capital gain. The applicable rate of tax as on date is 20% flat on the amount of capital gain.

Next year my salary is going up by 50% from Rs 5 lakh to Rs 7.5 lakh. I wish to know if my tax liability will also go up in similar proportion?

The rate of personal income tax starts at 10% and goes up to 30% depending on the level of taxable income. Assuming the other parameters to be equal, you will have to pay 30% tax on your additional income. At the rates applicable for the assessment year 2007-8, the tax liability on net income of Rs 5 lakh works to Rs 1.02 lakh including the education cess whereas the tax liability on an income of Rs 7.5 lakh will come to Rs 1.78 lakh. This shows the increase in tax liability in your case is much more than 50%, which is the rate of increase in salary. But income is only one factor that determines your tax payment, the other factor being the amount and kind of investments you make in a year. A judicious mix of investment can lower the extent of increase in your tax.

My employer does not give me driver allowance. However, I have one. Can I deduct his salary from mine and reduce my tax liability?

No, you cannot deduct your driver’s salary from your taxable income and reduce your tax liability. As a salaried employee, as regards a conveyance-related deduction is concerned, if you get a conveyance allowance of up to Rs 800 per month, it is exempted from tax.

My wife and I are retired and live alone. Our children are settled abroad.We make one six-month trip a year to be with them.We have sublet our house and receive rent in cash. Do we add this to our income from pension and other savings?

Income received from any source must be added to your gross total income. Therefore, you will have to add the amount received as rent from your tenants in your total income. On the rental income, you will get a standard deduction equal to 30% of the rent received and the balance amount will be taxed along with the other incomes from savings and pension.