The reason for this article is that I believe this is
an important area of interest to all Indians living in
the UK and holding some kind of assets in India. There are a lot of
enquires, and people get confused and they panic about the
subject. So I thought it is good idea to clarify the points of
this matter.
As per RBI, NRIs/ PIOs are allowed to
repatriate an amount up to USD one million, per financial year (April-March).
This amount includes sale proceeds of assets acquired by way of inheritance or
settlement.
Agriculture land is allowed to be transferred by way of sale or
Gift.
Many Indians live in the UK and still believe
they should not pay any tax on the income or assets held in India. They
think they have paid tax on their UK income and it has nothing to do with
their Indian assets or income. This is wrong, because they are
avoiding UK tax and that leads to penalties and later a big tax bill.
As for the tax laws of UK concerned, worldwide income
is taxable for the UK tax resident.
Tax residency should not be confused with your residential or
passport status. Even if you are Indian passport holder and/or a student
in the UK , you are still a tax resident in the UK.
While you are filing a tax return or declaring income in
the UK, it is your responsibility as a UK tax payer to disclose
your worldwide income. If you are domiciled in UK, you have to pay
tax on your worldwide income, whether or not it has been remitted or
not. But if you are a non-domiciled in the UK, you can opt for a
remittance basis. In that case, you need to pay a fixed tax payment on the
basis of the number of years of residency in the UK.
I believe this tax rules will affect all Indians
living in the UK, who have some kind of assets or income
in India. It will affect even property inherited from parents or a
share of family property.
Considering the laws of two countries, it is very complex
subject unless you planned in right way.
If you buy a house, property or land in India and
subsequently you sell it, you need to pay tax in India as well as tax in
the UK. Even though this property is inherited from your parents, you
still need to pay tax in India as well as in the UK. However
you could claim ‘foreign tax credit relief’ whilst
computing their UK tax liability.
Many residents in UK still think they are not required
to pay tax in either place and are being wrongly advised, and finally end up
with more tax liability.
This article is specially
targeted at Indians who have settled in the UK, US or other
countries and having assets in India. The assets may be owned out of the
investment from overseas income or inherited from their parents. We will
analyse below these two in a separate way
1. NRI’s
acquired assets out of NRI saving and living in the UK and
abroad & subsequently disposing.
Tax payable in India
They are liable to income tax or short-term or long-term capital
gains tax. NRIs cannot purchase Agricultural land in India. However, if the
land they bought is used for agriculture, sale of same will be exempt from
capital gains tax in India if the same is located in rural area. In case
of house properties and other assets, they are subject to income tax as short-
or long-term capital gains tax.
Tax is levied on Long term capital gains at flat 20% and on
Short term capital gains at applicable slab rates.
NRIs are exempted from tax upon making of specified investment
within specified time limit. Various investment options are available for
assessee to reduce tax burden.
The buyer needs to
deduct the withholding tax, and he can transfer up to 1
million US dollars to the UK. For any amount more than
that, he is required to obtain prior RBI permission. Otherwise,
he needs to open an NRO account and repatriate only the cost of
investment and the remaining amount can be repatriated after paying the
appropriate tax in India. Any transaction in property over 3
million Indian Rupees needs to be informed by the registrar to the
local income authority, and subsequently they can be investigated.
Rate of Tax: On Long
Term CapitalGain-20%
On Short Term Capital Gain-
a) 15% in case of transfer of Equity shares or
units in Equity oriented funds and transaction was subject to securities
transaction tax.
b) slab rate in other
cases of short term capital gain.
Tax payable in the UK
The person needs to pay tax, either income tax or capital gain
tax, depending on the cases. But they are eligible to apply for double
taxation exemption and claim back that tax credit.
But in the case of a non-domiciled UK resident, they
can opt for the remittance basis. Many Indians can claim for
non-domiciled status .But if they are domiciled in the UK, even though
they are in Indian, they need to pay tax on worldwide income, whether it is income
tax or capital gains tax. They are not able to pay tax on a remittance
basis, but they need to pay tax on an accrual basis of income.
2.
NRI’s
acquired assets by inheritance from parents in India or their family
share of property and assets in India
This is a very typical situation of Indians living in
the UK with their parents living in India who are tax resident
in India.
While parents have passed on their assets to their children, but
if they are UK resident, they are taxable for the capital gains tax,
while they are selling this property in India. We can analysis the
tax treatment of both the countries, as follows:
Tax payable in India
Assets received from parents are not taxable at the time of
receipts. Sale proceeds from such assets, land, property or any other assets in
India are subject to capital gains tax. This will happen at the time of
selling the inherited property in India.
If the property is agricultural land it is exempt from capital
gains tax and income tax if the same is situated in rural area.
But if the property is situated in non-rural area, it is not
exempt from income tax or capital gain tax.
Again, NRIs can avoid tax by making specified investments to the
tune of capital gains or net sale proceeds as per available options.
Indian tax shall be withheld by the buyer and pay to the credit
of central government and balance amount remitted to the UK up to an
annual limit of one million US dollars. For any amount higher
than that, prior RBI permission is required.
NRI need to open a NRO account and transfer all
the sale proceeds to that account. After paying the local tax the Tax clearance
certificate is required to remit up to one million US dollars, and
they can even pay more with the prior permission of RBI.
Claim of specified investments in India out of the sale proceeds will be available, against Indian tax,
but they still need to pay UK tax and Foreign tax credit can be
claimed.
Rate of Tax: On Long
Term CapitalGain-20%
On Short Term Capital
Gain-
a) 15% in case of transfer of Equity shares or
units in Equity oriented funds and transaction was subject to securities
transaction tax.
b) slab rate in other
cases of short term capital gain.
Tax payable in the UK
The tax payer in the UK needs to pay income tax or
capital gains tax depending on the nature of the Indian income. But
they can claim double taxation relief on tax they have already paid for the
same income in India. But in the case of non-domicled residents, they
can opt for a remittance basis, but they need to pay fixed fees up to £50,000,
depending on the individual case.
But in the case of a domiciled person in the UK, they need
to pay tax on an accrual basis of income. This means they need to pay tax,
whether remitted to the UK or not remitted to the UK
By applying non-domicile status, they need to state separately
in their tax return that their status is non-domiciled.
3. Other Income or profit
in India
Tax payable in India
Any Gift received without consideration or for inadequate
consideration for an amount more than Rs. 50,000 is taxable in the hands of
person receiving gift. Tax shall be charged at applicable slab rates.
Gift received from certain persons and under certain situations
are exempted from tax.
In case of income from residential property such as Rent, NRIs
shall be chargeable to tax. While calculating taxable rental income NRIs can
claim municipal tax, 30% of rent received, interest & principal amount on
housing loan. Balance amount shall be taxed at applicable slab rates..
The following income is
exempt from taxation for NRIs:
·
Interest on notified
securities or bonds and premium on redemption of such securities
·
Interest on Non
Resident External rupee account (NRE account) / Foreign Currency Non Resident (FCNR)
Accounts/ non resident non repatriable (‘NRNR’) Deposits and other securities,
bonds, savings certificates notified
·
Interest on notified
saving certificates subscribed in foreign currency by an Indian citizen/person
of Indian origin
·
Income from units of
Unit Trust of India (‘UTI’) acquired in foreign exchange by Indian
citizen/person of Indian origin.
·
Interest from notified
bonds (7 year dollar bonds issued by the state Bank of India notified)
purchased in foreign exchange, exemption continues even after person becomes
resident
·
Interest paid by
scheduled banks on RBI approved foreign currency deposits
Tax payable in the UK
NRIs who are UK Residents need to pay tax in
the UK and they can claim double taxation tax relief. Cash gifts from
non-resident parents are not taxable and this exempt from tax.
Mortgage
NRI / PIO can mortgage a
residential / commercial property to:
(a) an Authorised Dealer / the
housing finance institution in India without the approval of Reserve Bank
(b) a bank abroad, with the prior approval of the Reserve Bank.
(c) A foreign national of
non-Indian origin can mortgage a residential / commercial property only with
prior approval of the Reserve Bank.
(d) A foreign company which has
established a Branch Office or other place of business in accordance with
FERA/FEMA regulations has general permission to mortgage the property with an
Authorised Dealer in India.
Agricultural Land
NRI / PIO may
sell agricultural land /plantation property/farm house to a person resident in
India who is a citizen of India. NRI / PIO can gift an agricultural land / a
plantation property / a farm house in India only to a person resident in India
who is a citizen of India. However a NRI cannot purchase Agriculture land in
India.
In case
Agricultural land falls in rural area, sale of same is exempt from Capital
gains tax. So, if the agricultural land falls in non rural area same shall be
taxed. But, NRIs can avoid tax charge through specified investments
Other Matters
TDS
Person paying Income
to NRIs by way of rent or sale proceeds of property sold shall deduct Tax at
source;
In case of Short term
capital gain/Rental Income/Interest – 30% + applicable cess
In case of Short term
capital gain from sale of Equity shares/units of Equity oriented funds which is
subject to security transaction tax - 15%+ applicable cess
In case of Long term
Capital Gain – 20%+ applicable cess
NRI by submitting Form
10F, TDS on interest on Bank deposit shall be deducted at a lower rate.
Situations where NRIs have to file Income Tax
Return:
·
The Indian Taxable
income exceeds 2,50,000
·
For claiming Refund
· For claiming DTAA
benefits
Assessment
India
CBDT has the power to
reopen assessment and determine Income and Income tax payable upto16 previous
Financial years. So willful neglect would attract Tax with huge Penalty and
Interest. In India to avoid the cases, assessee’s are required to declare their
income and to file proper return of income in the resident country.
UK
Residents need to
follow money laundering regulation and bank will verify the source of income
and will report of HMRC. Tax and Penalty is charged to non-disclosed tax payee.
Remittance of Sale Proceeds to Abroad
NRI to remit sale
proceeds to abroad have to submit Form 15CA along with Form 15CB certified by
Chartered accountant to the bank through which remittance is to be made.
Checklist of Remitting money from India
1.
Sale
of property in India
2.
Approach
local bank for remitting
3.
Bank
will instruct Tax clearance certificate from Chartered Accountant
4.
Electronically
upload remittance details in Form 15CA, submit signed copy of same along with
certificate from Chartered Accountant to bank.
5.
Bank
will finally remit the amount after communicating with RBI and Income tax
authorities.
6.
I
million US$ can be transferred without RBI permission.
Form 15CA and 15 CB is not
required to be submitted for transactions covered in notification no. 67/2013
which is as follows;
|
Sl.No.
|
Purpose code as per RBI
|
Nature of payment
|
|
(1)
|
(2)
|
(3)
|
|
1
|
S0001
|
Indian investment abroad -in equity capital (shares)
|
|
2
|
S0002
|
Indian investment abroad -in debt securities
|
|
3
|
S0003
|
Indian investment abroad -in branches and wholly owned subsidiaries
|
|
4
|
S0004
|
Indian investment abroad -in subsidiaries and associates
|
|
5
|
S0005
|
Indian investment abroad -in real estate
|
|
6
|
S0011
|
Loans extended to Non-Residents
|
|
7
|
S0202
|
Payment- for operating expenses of Indian shipping companies
operating abroad.
|
|
8
|
S0208
|
Operating expenses of Indian Airlines companies operating abroad
|
|
9
|
S0212
|
Booking of passages abroad -Airlines companies
|
|
10
|
S0301
|
Remittance towards business travel.
|
|
11
|
S0302
|
Travel under basic travel quota (BTQ)
|
|
12
|
S0303
|
Travel for pilgrimage
|
|
13
|
S0304
|
Travel for medical treatment
|
|
14
|
S0305
|
Travel for education (including fees, hostel expenses etc.)
|
|
15
|
S0401
|
Postal services
|
|
16
|
S0501
|
Construction of projects abroad by Indian companies including import
of goods at project site
|
|
17
|
S0602
|
Freight insurance - relating to import and export of goods
|
|
18
|
S1011
|
Payments for maintenance of offices abroad
|
|
19
|
S1201
|
Maintenance of Indian embassies abroad
|
|
20
|
S1 202
|
Remittances by foreign embassies in India
|
|
21
|
S1301
|
Remittance by non-residents towards family maintenance and-savings
|
|
22
|
S1302
|
Remittance towards personal gifts and donations
|
|
23
|
S1303
|
Remittance towards donations to religious and charitable institutions
abroad
|
|
24
|
S1304
|
Remittance towards grants and donations to other Governments and
charitable institutions established by the Governments.
|
|
25
|
S1305
|
Contributions or donations by the Government to international
institutions
|
|
26
|
S1306
|
Remittance towards payment or refund of taxes.
|
|
27
|
S1501
|
Refunds or rebates or reduction in invoice value on account of
exports
|
|
28
|
S1503
|
Payments by residents for international bidding".
|
Who needs to file tax return in the UK?
1.
If you are
self-employed
2.
Company directors,
3.
Ministers of religion
4.
£10,000 or more income
from saving and investments
5.
£2500 or more
untaxed saving and investments
6.
£10,000 or more income
from property before deducting allowable expenses
7.
£2500 or more income
from property after deducting allowable expenses
8.
If your annual income
is more than £ 100,000
9.
If you are
employed and want claim for expenses or professional subscriptions of £
2500 or more
10.
You have capital gain
tax to pay
11.
You are living or
working abroad or not domiciled in the UK
12. If you are trustee
Global Company
Formation UK Ltd
Tel: +44(0) 2079 935 929
+44(0) 7474 590 500
E :info@globalcompanyformation.co.uk
W :www.globalcompanyformation.co.uk
Mathew Stephen
FCA, AAIA, CeFA
Fellow member: The Institute of Chartered Accountants, India.
Associate member: The Association of International Accountants, UK.
Financial Advisor: IFS School of Finance, UK.
Mr. Mathew
Stephen is the founder Director of Global Company Formation UK Limited. He is
also the Director of Pearl Outsource Private Limited, our outsource partner in
India to offer outsource facility as well as outsource service and was the
founder Director of Global Accountancy Services too. He is a qualified
accountant from the Association of International Accountants in the UK and the
Institute of Chartered Accountants of India. He is also one of the partners of
international Chartered Accountants firm P. Parikh & Associates. He has 20
years’ experience in accounts, business consultancy, taxation & statutory
audit. He is also a UK Independent Financial Advisor (IFA) and CeFA qualified
at the IFS School of Finance.
He has won the
Online Technology Award in two consecutive years, 2011 and 2012, from the Tenet
Network. He specializes in Global Company Formation, International Taxation and
also as Corporate Protection Advisor to the directors of Limited Companies.
