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Tax: Query Questions
March, 17th 2010

My NRI son wants to invest in shares, mutual funds, bonds, fixed deposits, etc in India. He doesnt have any other income in India. Will return on investment in the form of capital gains, dividend and interest be totally taxable?

Sanjeev Sathe

An NRI would be eligible to claim basic exemption of Rs1,60,000 in respect of interest income of the current financial year. The rest of the interest income would be taxed as per the slab rates.

Alternatively, he may also opt to pay tax on interest income at a flat rate prescribed in Double Tax Avoidance Treaty, if any, between India and his country of residence. In most treaties, such flat rate is either 10% or 15% and such option to use the treaty rate is exercised to reduce the amount of tax when the quantum of interest income is very high.

In case there is no treaty with the country of residence or the rate provided in treaty is high, he can opt to pay tax on his interest income at a flat rate of 20.6% under section 115E of the Income Tax Act, 1961. Unlike a resident, an NRI is not eligible to claim basic exemption in respect of his short-term capital gains arising on sale of equity-oriented mutual funds and Indian shares on which securities transaction tax is paid.

Such short-term gains would be taxed at a flat rate of 15.45%. Similarly, an NRI is not eligible to claim basic exemption on taxable long-term capital gains. Dividends received from companies and mutual funds are exempt from tax.

Finally, an NRI should check tax implications of his Indian income in the country of his residence unless, of course, he is a resident of one of the Gulf countries which has no personal taxes. Most other countries tax their residents on their worldwide income.

If an Indian having USA citizenship takes up work in India, does he need to pay taxes in both countries?

Kaushik Das

Generally, income earned in India is liable to be taxed in India. If the same income gets taxed in the US, you will be able to claim relief in accordance with Indo-US Double Tax Avoidance Treaty.

I am retired and expect substantial arrears with my pension of March 2010. Then I can invest one lakh for rebate u/s 80C in April 2010. But it cannot be used got this financial year 2009-2010. Kindly advise.

A L DSOUZA

Pension is taxable on due or receipt basis, whichever is earlier. As you have mentioned, pension for the previous month becomes due and is received on the first of the following month, in this case it would be April 1.

Hence, pension for March 2010 which becomes due and is paid on April 1, 2010, will be taxed in financial year 2010-11, and not in the current financial year.

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