Taxes During And After RNOR Status
Posted on October 01 2020
Mr. Pankaj’s wife has inherited a land in Karnataka from her father, which he had inherited. The land is a subject matter of compulsory gain from the National Highways Authority of India. In such a case where there is no trace of cost of land at all, how can we arrive at cost of acquisition for the purposes of Capital Gains?
For the assets obtained former to 1981, either by the purchaser or the previous owner from whom the asset was inherited or obtained as a gift, the value as April 1, 1981 has to be maintained as the original cost. You can get the value of the land as on that date determined from an official chartered valuer who will provide you with a certificate of the determined the value. This cost can then be recorded as per the declared figure to appear at the recorded cost then the same can be reduced from the sale price to appear at the capital gain amount. Likewise, regardless of the period of holding of the land by his wife then the gain will be long-term capital gain.
For example Mr. Kumar has been out of India for the last 15 years. He will be returning back to India for settling down permanently. He is not clear about when the Resident not Ordinarily Resident status it will implement and for how long. Likewise, to whom should he implement to get his RNOR status? If he gets the RNOR status, any interest accumulated to his Term deposits and Savings Bank deposits in the NRI accounts will not draw any tax in India, right?
After all he is returning back for the financial year 2015-16, he will continue to be a Non-resident Indian even if you have returned back to India. This is by the ethic of the fact that he will end up spending less than 182 days in India in the financial year.
He will remain RNOR for the next two financial years i.e FY 15-16 and FY 16-17. The RNOR status is a sub-set of the Resident Status. He is a Resident but Not Ordinarily Resident. Consequently, he is not entitled to continue his NRI-related bank accounts and will have to get them re-designated as Resident accounts.
Likewise, the interest on the past NRE account now which is re-designated as the Resident deposit will be taxable in the normal course. It is only the interest on the Foreign Currency Non-resident account that will continue to be tax-free until he maintains his RNOR status.
The RNOR status is automatically relevant to a person based on his or her length of stay abroad then he you do not have to administer to any authority at any time for the same.
For example Mrs Verma is a United States citizen. She receives Social Security pension income. She have not yet administered for Overseas Citizenship of India. If she wants to stay for a extended time in India, six months or longer, do she have to take the permission from any authority? How can she do so without losing her NRI status? She will be depending mainly on her social security checks to take care of her living expenses for which she will require to transfer the money to India; will the social security income become taxable in India?
The law for its part welcomes her to India without having to take any special permissions etc as long as she have a valid visa. Since she is no longer an Indian citizen, for any stay above six months then she will have to register her presence at a local police station. If she wishes to bypass this process then she will require to attain an OCI card.
Once she crosses the 182 days limit in a FY then she will become a Resident of India. As such, her global income will be taxable in India. Under the Double Tax Avoidance Agreement treaty that the US has with India, Social Security payments are taxable, if at all, only in the US and not in India. Therefore, the other income could become taxable only after the first two years.
For the first two years of her stay in India, her status will be that of RNOR, where any foreign income remains tax-free in India.
It is absolutely important for her to get the value of the redeveloped flat that she owned as on the date she was given the possession of the flat by the builder. This can be attained from the builder or the neighbours who have bought their flat from the builder. If this is not possible then she can get the flat determined for its value on that date from an official valuer. This is her assumed cost of acquiring of the redeveloped flat.
If she had been the owner of the redeveloped property for a period of over 3 years and measure the long-term capital gain based on this assumed cost of acquiring. She can save 20% tax on this capital gain by investing this amount, in Capital Gains Bonds of the Rural Electrification Corporation or NHAI. If she had been occupying the property for less than 3 years then she will earn short-term capital gains.
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