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April 10, 2000

Real Estate

"Do I need to file a return in spite of TDS?"

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

Readers' Note: Please keep your questions short.

I have been working abroad for two years ending March 1999. I returned end-March 1999 to India and went back for a few days to bring back my money in June 1999. All the money was brought back via bank drafts, mostly in dollars, which was credited to my NRE account.
The rupee drafts were deposited in my savings accounts in India and TDS has been deducted on the interest earned. Since April 1999, I have not been earning any income. I am now a representative for a foreign firm and they pay me no money - I only get a percentage when some sale is made. Do I have to pay any taxes? The interest from the rupee deposits amounts to about Rs 49,000 per annum.

—Ashok Madhavan

Regarding on tax exemption on income generated from deposits in NRE/FCNR/NRNR and mutual fund units from the savings from US earnings are as follows:
Interest on NRNR/NRE/FCNR deposit with banks: Exempted upto maturity of deposit (RNOR) or taxable as normal resident with an option for flat rate of 20 per cent up to maturity (ROR).
RFC (NRE/FCNR converted): Exempt even on deposits renewed during the above status (RNOR) or taxable as a normal resident (ROR).

Based on the data provided by you, we have presumed that Rs 49,000 is the only income during the year 1999-2000. As your income is below the maximum threshold limit of Rs 50,000, you are not required to file IT return. However, in case of any refund of income tax, you would still be required to file the return.

I am an NRI working in USA for the past four years. While I was working in India, I purchased a Life Insurance Policy from LIC for Rs 1,00,000 to save some money on taxes. I have been regularly paying my premium since then. Since I am eligible to withdraw 20 per cent of my savings from my policy after five years, I have decided to withdraw Rs 20,000 from my account. Do I need to pay taxes on this amount?

— Ragu Srinivasan

Based on the information provided by you, we infer that the policy you are referring to is a money back policy that releases specified sums of money at the period/intervals stipulated therein. If you receive the money per reasons mentioned above then the same is not taxable at the time of receipt.

I recently joined a bank in Kuwait and moved here on an indefinite job assignment. I have a rupee fixed deposit in my bank account in India whose interest is credited to my savings account. Do I need to file a return for this interest income despite the fact that the bank deducted TDS?

—N S Sriram

An Indian citizen who leaves India for the purpose of employment outside India would be treated as an NRI if his stay in India during that year is less than 182 days. Hence if you satisfy the above condition you would be treated as an NRI.
Resident individuals are required to file the income tax returns if the total income exceeds the maximum threshold limits (Rs 50,000 for the current year) or if they fall in the One-By-Six category.
Non-Resident individuals are not required to file return of income in case such person has income only from a foreign exchange asset or income by way of long term capital gains arising on transfer of a foreign exchange asset, or both and tax deductible at source from such income has been deducted.

In your case deposits made in Indian rupees are not foreign exchange assets and you would need to file I.T return if your income exceeds Rs 50,000.
Once you become an NRI as defined under FERA, you have to convert your saving account into an NRO account.

I am currently working in US as a software developer from past five years. Now I am planning to come back to India, by the end of year 2000. I will be either working as independent consultant for 2-3 US firms sitting in India OR I will be still employed with one of the firm, but I will do my work from India. My company is ready to pay my salary in US Dollars.
Since after coming back to India I will loose my NRI status? How much tax will I have to pay on my salary after returning to India? Are there any special benefits if I am getting salary in dollars?

—Aniruddha Ainapure

Your taxability will depend on which income slab you fall into. Presently the various income slabs and the relevant tax rate is given below:
Up to Rs 50,000: Nil
Rs 50,000 - Rs 60,000: 10%
Rs 60,000 - Rs 1,50,000: 20% + 10%
Above Rs 1,50,000: 30% + 10%

There are no specific deductions for earning income in dollars.

I am an Indian residing in India for most part of the year but visiting UK for a month or two. Hence I don't have an NRI status. I get paid a salary in India and when in the UK, I am paid there. My earnings in UK invite 40 per cent of tax which is deducted at source by the company in UK. Since I am not an NRI am I liable to pay tax in India for the earnings in UK in spite of paying tax in UK? If not, do I have to still declare my UK salary in India when I submit my returns? If I am liable to pay tax in India then how much am I liable to?

— Gautam Karkera

One of the important considerations for taxability is residential status. Since you are abroad for a month or two, we presume that you are Ordinary Resident of India. In this case the salary earned by you and received in the U.K. is taxable in India.
However under section 90 of the Income Tax Act,1961 Government of India has entered into a Double Taxation Avoidance Agreement with the U.K. Double Taxation relief provides for credit to the tax payer on account of tax paid by an assessee in the foreign country on the income earned by him in the foreign country.
You are also eligible for deduction under section 80 RRA which allows you deduction upto 75 per cent of salary earned abroad subject to certain conditions as specified in the section.
You have to declare your salary earned in the U.K. while filing your returns in India.
If you have to pay tax on your U.K. salary, the same will be taxed at the marginal rate of income tax charged on your regular income.

When an NRI returns to India, what happens to his FCNR deposit? Is the interest taxable? For how long can he avail of the benefits under the NRI status?

— Ashish Gupta

Incomes accruing to you on deposits will be exempt under section 10(15) (fa) till the time you do not become an Ordinary Resident. As long as you do not become an Ordinary Resident, you can enjoy this benefit.
A resident is considered as Ordinary Resident if he satisfies both the conditions given below:

  • He has been resident in India in atleast 9 out of 10 previous years and
  • He has been in India for a period of 730 days or more during the 7 years preceding the relevant previous year.
Thus as long as you remain a Resident but Not Ordinary Resident you will qualify for the preferential treatment.

After working several years in the Indian subsidiary of an MNC, I was posted to Singapore two years ago. I have been an NRI from the FY 1989/90 onwards and have not been assessed for any income tax in India. I am a taxpayer in Singapore. From April 1, 2000, I am opting for taking voluntary retirement. But, instead of returning to India, I plan to set up my own consulting business in Singapore, for which I have already received all approvals.
At the time of my retirement from the Indian company, in addition to my PF, I am likely to receive:

Gratuity: Rs 7,00,000
Leave encashment: Rs 4 lakh (for leave accumulated during my service in India)
An ex-gratia payment of approximately Rs 1.4 million

Since I will continue being an NRI, am I liable to income tax on the above receipts in India? If so, what is the likely amount of tax and what avenues are available to minimise the tax liability?

— Satish Kalra

We have based our answer on the information provided by you that you are an NRI and the above mentioned receipts are received by you in India.
Any income received in India is liable to be taxed regardless of the residential status of the person receiving such amounts. Hence in your case these amounts are taxable.
As the information supplied by is inadequate we have taken an example to illustrate the provisions of the IT Act 1961. The limits and conditions of allowability or taxability of such amounts are mentioned below. However, the following assumptions have to be kept in mind:

  • You have rendered service of, say, 10 years and 8 months
  • Last drawn monthly salary is, say, Rs 60,0003
  • You have not claimed relief for gratuity earlier

If you are covered under Payment of Gratuity Act
Deduction is limited to the least of these amounts:

  • 15 day's salary based on salary last drawn for every completed year of service or part thereof in excess of six months
  • Rs 3,50,000
  • Gratuity actually received
Salary computation:

Rs 60,000 x 15/26 = Rs 34,615 x 11 years = Rs 3,80,765


Rs 3,80,765
Rs 3,50,000
Rs 21,00,000 (7+ 1.4 million)
Deduction = Rs. 3,50,000

If you are not covered under Payment of Gratuity Act
Deduction is limited to the least of these amounts:

  • Half month's average salary for each completed year of service (computed based on last 10 months average salary
  • Rs 3,50,0003
  • Gratuity actually received
Salary computation:
Rs 60,000 x 10/10 = Rs 60,000/ 2 = Rs 30,000 x 10 years = Rs 3,00,000


Rs 3,00,000
Rs 3,50,000
Rs. 2.1 million
Deduction = Rs 3,00,000

Leave salary in case of a non-government employee is exempt from tax to the extent of the least of the following:

  • Cash equivalent of the leave salary in respect of the period of earned leave standing to the credit of the employee at the time of retirement / superannuation (earned leave entitlements cannot however exceed 30 days for every year of actual service rendered for the employer from whose service he has retired); or
  • 10 month's average salary; or
  • The amount specified by the government under section 10(10AA)(ii) {currently Rs. 240000}; or
  • The amount of leave encashment actually received at the time of retirement
Hence following the above example, in your case the following amount would be exempt from tax:
  1. Average salary for last 10 months is Rs 60,000 (as computed earlier) and say you are entitled to 26 days in a year - then the number of days you are eligible is - 10 years x 26 days = 260 days. The earned leave is Rs 5,20,000 (Rs 60,000 x 260/30)
  2. 10 months average salary = Rs 6,00,000
  3. Rs 2,40,000
  4. Rs 4,00,000
Least of the above, which is not taxable is Rs 2,40,000

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