Non-resident Indians (NRIs) and their investments or incomes earned in India are governed by a separate set of rules, compared to resident Indians. Matters could be simple if these investments were to be held singly. However, if held jointly with a resident-Indian family member, things may get complicated for the latter.
Broadly, your residential status for the next financial year depends on the number of days spent in India during the current year. If one has stayed in India for less than or up to 182 days (period of stay may not be continuous) during the current financial year, his/her residential status would change to that of an NRI the next year.
So, if you are on your way to becoming an NRI, here are some taxation-related complications you may have to face for jointly-held investments.
Rental income: Rental income earned by a resident Indian is not subject to tax deducted at source (TDS). One simply adds it to the overall income and pays the tax according to the slab. However, all income earned by an NRI is subject to TDS, typically at a flat 30 per cent rate, which is the tenant's legal obligation. That is, he must deduct the amount and issue you a TDS certificate.
In case of a joint property, though, the applicability of TDS will depend on who the first owner is — the NRI or the resident Indian family member. "For all investments, taxes are the first holder's obligation. So, if the first holder is a resident India, there need not be any TDS," says Sandeep Shanbhag, a chartered accountant. Both would then have to bear the tax liability independently.
Fixed deposits: NRIs cannot hold a resident fixed deposit (FD) in India. But, if you are already holding one jointly with an NRI family member, the bank may allow you to hold the deposit till maturity and not renew it further. If you still wish to hold a deposit jointly, then the NRI can open a non-resident ordinary or NRO deposit, with the resident family member as a second holder.
There will, however, be a difference in the TDS rates applicable. For regular FDs, the TDS is calculated at 10 per cent. The entire interest amount is added to the overall income and taxed according to the slab. One can then claim a TDS credit for it while filing returns.
For NRO deposits, though, the TDS rate is a flat 30 per cent. If you fall in the highest tax bracket, this may not change matters. But, if you fall in a lower bracket, instead of claiming a credit, you must now ask for a refund.
Equities: Similar to bank accounts and deposits, NRIs can hold mutual fund investments jointly with their family members. However, the stocks cannot be held jointly, as NRIs who want to trade in the Indian stock markets have to register with a bank offering portfolio investment schemes, specially designed for them.
With regard to mutual funds, again there will be a first and second holder concept. Taxation remains the same for both NRIs and residents. Except, in case of short-term capital gains (STCG) for NRIs, flat 15 per cent is deducted for any gains from equity mutual funds and 30 per cent for debt funds. "Adjustments against short-term capital losses, if any, can be made at the time of filing returns," says Hemant Rustagi, CEO, Wiseinvest Advisors.
The STCG tax for equity funds is at par with that levied for residents. For debt funds, though, the gains are added to income and taxed according to slab. The 30 per cent TDS rate could be higher than your income.
