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NRI’s income not taxable

Q. I worked in Hong Kong from 2001 to 2018 and came to India in December 2018. I still have my investments in Hong Kong such as fixed deposits, mutual funds and stocks. My queries are as under



SC Vasudeva

Q. I worked in Hong Kong from 2001 to 2018 and came to India in December 2018. I still have my investments in Hong Kong such as fixed deposits, mutual funds and stocks. My queries are as under:

a) Since I am a resident of India now, is any income from investments in Hong Kong taxable here?

b) Do I need to show the money I transfer from my Hong Kong bank to Indian account as income in I-T return?

c) For how long am I allowed to earn foreign money and transfer the same to my Indian account?

- Rameshwar Agarwal

A. (a) Since you were a resident of Hong Kong in AY 2018-19 (i.e. FY 2017-18), your status was that of a non-resident Indian. For the next assessment year, i.e, AY 2019-20 (FY 2018-19) since you returned to India only in December 2018, your stay was of around 90 days. Hence, as per provisions of Section 6 of the Income Tax Act, your status would be that of a non-resident Indian. Therefore, as a non-resident, your income from foreign investments (i.e. global income) would not be taxable in India.

(b) Any amount received from Hong Kong, being in the nature of amount transferred from Hong Kong would be on a capital account and would not be taxable.

(c) There is no time limit up to which you can earn foreign money. However, you are supposed to declare in the income-tax return the details of your investments and bank account which are held abroad, once you become a resident ordinary resident (ROR) in India as per the provisions of Section 6 of the Act.


Q. My son and his family are citizens of Australia. They have inherited agriculture and urban property in Punjab. Income from the said property is deposited in HUF account and SB account of his wife and some portion of income is deposited with commission agents. They have been filing I-T return of agriculture and interest income for the past many years. TDS is also deducted and refund is deposited in their HUF and savings account. Now, the bank manager has asked me to close his HUF account and savings account of his wife and open an NRI account. Please advise what to do. Can agriculture income, interest income and TDS refund be deposited in their NRI account? How will they file I-T return?

- TR Nagpal

A. A non-resident Indian is required to open a non-resident ordinary (NRO) account with a bank in which income arising to him in India is required to be deposited. It seems the bank was not aware of the non-resident status of your son and therefore the normal account was being maintained by the bank. The existing account of your son and his wife will have to be converted into NRO account. On an enquiry from a bank it has been ascertained that NRO account cannot be designated as HUF account. Therefore, the contention raised by the bank manager is correct and your son will have to take action according to the advice given by the bank.


Q. We are a partnership firm having three partners. The firm owns a godown. The godown has been let-out to a government undertaking. The only income earned by the firm is from the rental received from the said entity. Currently, no other business is being carried out by the firm. The firm is paying tax on such income @30% plus cess on such income-tax. We have been advised that it would be advisable for the partners to become co-owners so that each one of the co-owners is charged tax at the slab rate applicable to him. Please advise.

- Lal Singh

A. The Partnership Act, 1932 defines partnership as a relation between the partners who have agreed to share the profits of business carried out by all or any of them acting for all. The basic test for the existence of a partnership is the carrying on of business. Since no business is being carried on by the firm, it can be assessed as an association of persons (AOP) by tax authorities at the maximum marginal rate. I would suggest that steps should be taken to dissolve the partnership and by executing a dissolution deed, the partners can be given 1/3 share in the godown at the time of distribution of assets on account of such dissolution. The partners would thus become joint owners. I may add that this would attract the provisions of Section 45(4) of the Income-tax Act 1961 (The Act) and the firm shall be liable to pay tax on capital gain with reference to the fair value of the godown. This may also involve the payment of stamp duty. It would be advisable to compare tax payable under the proposed structure with the tax payable under the present structure. Any decision in this regard should be taken after comparing the tax under both the alternatives taking into account the expenditure on stamp duty and the amount of tax on long-term capital gain.

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