Expert Zone
Straight from the Specialists
Budget 2012: Common man’s expectations
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The weeks before the Union budget are days of wishful thinking for the common man. It is always the expectation that the threshold and tax exemption limits will be increased. This year is no exception, and the common man would definitely be happy if his wishes are met.
Realistically speaking, as we move closer to implementing the Direct Taxes Code (DTC), the personal tax slabs in this budget could be aligned to the proposed DTC thresholds. So we can expect the minimum income limit not subject to tax being raised to 2 lakh rupees from 1.9 lakh rupees.
Also, the threshold limit of applying 30 pct tax rate may be raised to 10 lakh rupees from 8 lakh rupees. This together would account for reduction of taxes by 21,000 rupees (plus the reduction in effective surcharge).
There are certain other areas in which amendments are welcome. For example, deductible interest on home loans taken for houses for self-use are pegged at a maximum of 1.5 lakh rupees. It would be a welcome move to increase this limit to 3 lakh rupees or keep it at par with the provisions applicable to a house on rent. In the latter case, the entire interest payout is allowable as a deduction.
In the absence of state-funded social security schemes for retired people in India, unlike the West, it is important for an individual to secure his post-retirement life.
Unfortunately, tax saving is often the driver for investing in such retirement plans. Presently, deductions under section 80C, which allows tax sops on such savings is pegged at a maximum limit of a lakh rupees. This limit can be extended to 3 lakh rupees to encourage more saving.
International workers and social security regulations in India
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The movement of employees across countries has been a growing trend in recent years with increasing multinational presence of companies.
Planning taxation or social security compliances in more than one country, triggered by the presence of cross-border employees, has been a constant challenge for companies.
Social security (primarily provident fund and pension) was not mandatory for cross-border employees coming into India until 2008.
The concept of International worker (IW) was introduced in India for the first time in October 2008 and social security contributions were made mandatory for IWs in India.
A foreign national (non-Indian passport holder) coming to India will qualify as an IW if he or she is coming to work in an establishment covered by Indian social security provisions.
An Indian national will qualify as an IW if he/she has worked or is going to work in a country with which India has a Social Security Agreement (SSA) and is eligible to avail its benefits.
Tax issues for individuals travelling abroad
(The views expressed in this column are the author’s own and do not represent those of Reuters)
Taxability in India is based on an individual’s residential status. As per the Indian Income Tax Act, 1961, an individual may be an Ordinary Resident (OR), Non Resident (NR) or Not Ordinarily Resident (NOR) based on the number of days of physical presence in India.
The residency rule is liberal for Indian citizens leaving India for taking up employment outside the country and is triggered only if the individual spends more than 182 days in India in the year of departure. However, in the year of return, the 60 days rule shall be applied for determining residential status.
A NR and NOR is taxable only on India-sourced income or income received in India. However, an OR is taxable on worldwide income in India. So, if an individual leaves India for the purpose of taking up employment abroad but still continues to be an OR in a particular year, he shall be taxable on income earned in India and outside the country, irrespective of where he renders his services or receives salary.
DOUBLE TAXATION Double taxation shall arise when an individual is taxed on the same source of income in more than one country. Both the domestic tax laws and Double Taxation Avoidance Agreements (DTAA or tax treaty) entered into by India with various countries provide relief to Tax Residents to mitigate double taxation.
The domestic tax laws provide the mechanism of claiming relief — bilateral (where DTAA exists) and unilateral (where no DTAA exists). But in cases where the individual qualifies a NR, there will not be any relief when deputed to a country with which India does not have a DTAA.
BRITISH GAS RULING The Authority for Advance Ruling (AAR), in the case of British Gas held that salary paid by employer to employees for rendering services outside India shall not be taxable in India in accordance with the provisions of Indo-UK DTAA.
Nice article. It has been judicially held that DTAA supersede Income Tax Act if it s favorable to assessee. http://taxworry.com/dtaa-supersede-i-t-a ct/
NRI returning to India? How to calculate your tax
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The grass is not really greener on the other side as many Indians abroad are figuring it out the hard way. Faced with a gloomy economy and career prospects, some are packing their bags and heading back to test the job market.
Though finding a job would be easier in India, especially for those with good degrees and employment background, figuring out the tax liability — especially in the initial years — may be a daunting task. If you are returning to India for employment, there are some tax issues one has to consider before taking the final decision.
This is crucial because the taxability of overseas income (such as rental income from property outside India, capital gains, bank interest, dividends, etc.) for returning Indians largely depends on their residential status in India. Planning the timing of one’s return is very important.
RESIDENTIAL STATUS Residency rules play an important role in determining the income that is taxable in India. Indian residency is triggered in either of the following situations:
1. The individual is in India in that financial year for 182 or more days; or
2. The individual is in India in that financial year for 60 or more days and 365 days or more in the four financial years prior to that financial year.
Hi, I am an NRI. Regarding the NRI status, many interpretations on various sites hence, need to ask you on this subject
After retirement, we want to be in India under NRI status since myself and my wife do not want to stay permanently in India. The 182 days to maintain NRI status is a bit confusing not for the previous year, but further going back to previous years for which no explanation on the web – so here a try!
Below the example of stay for 182 days, every year, in India to keep the NRI Status:
Between April till March during the taxation period/year taken as example/ Duration of stay:
2000-2001 182 days/
2001-2002 182 days/
2002-2003 182 days/
2003-2004 182 days/
2004-2005 182 days/
2005-2006 182 days/
2006-2007 182 days/
2007-2008 182 days/
2008-2009 182 days/
2009-2010 182 days/
2010-2011 182 days/
My question: Does the above slab allow a NRI status to a person who have stayed in India every year for 182 days, i.e; from the year 2000 till 2011. Or is it differently understood by a non-professional like me?
Really appreciate your response in this regard.
Thank you very much
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