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Regulations in India

NRI has to file income tax returns in India:-

  • If TDS has been deducted on some income and NRI wants to claim refund of the same.
  • Taxable income in India during the year was above the basic exemption limit.
  • NRI has short-term or long-term capital gains from sale of certain investments and assets, even if the gains are less than the basic exemption limit.
  • The income could be interest, rent, salary or professional fees once basic exemption limit is crossed NRI has to file IT return in India.

Permanent Account Number (PAN) is required if NRIs want to invest in Indian stock market or real estate in India.

If you are looking to transfer fund from India, tax clearance, RBI clearance, Form 15CA and 15CB are required.

If same income is getting taxed in two different countries NRI can seek relief from DTAA (Double Tax Avoidance Agreement) between two countries.

Long term capital gain tax saving:-

NRIs are allowed to claim exemptions under section 54, 54F and 54EC of Income Tax Act on long term capital gain in India:-

Exemption under section 54

When there is Long Term Capital Gain (LTCG) on sale of house property to the NRI, a new residential house is constructed within 3 years, or purchased 1 year before or 2 years after the date of transfer, then exemption on the LTCG is available on the amount of investment in the new asset to the extent of the capital gains. The exemption is available even if the money is deposited in Capital Gain Deposit Scheme of any nationalised bank, the money deposited should be utilised within 3 years to buy a new house.

Exemption under section 54F

When the asset transferred is a long term capital asset other than a residential house, and if out of the consideration, investment in purchase or construction of a residential house is made within the specified time as in sec. 54, then exemption from the capital gains will be available as:

  • If cost of new asset is greater than the net consideration received, the entire capital gain is exempt.
  • Otherwise, exemption = Capital Gains x Cost of new asset/Net consideration.

Provided exemption is not available on the date of transfer the taxpayer owns any house other than the new assets.

Exemption under section 54EC

If any long term capital asset is transferred and out of the consideration, investment in specified assets (any bond issued by National Highway Authority of India or by Rural Electrification Corporation redeemable after 3 years), is made within 6 months from the date of transfer, then exemption would be available as computed in Sec. 54EB. Annual ceiling of Rs. 50 lakh is applicable for the investment made under this section.

Losses under capital gain cannot be set off against any income under any other head but can be carried forward for 8 assessment year to be set off against any gain in these years.