Do I need to declare all my Foreign Assets and Income to Indian authorities if I am either an Indian citizen living in India or living outside India?

Introduction:

The 21st century is the time when businesses and startups are growing drastically. Ample of businesses are coming in the society whether it is within India or reaching outside of India. As employment is increasing in India, the burden of paying tax is also increasing. Many Indian citizens prefer to go outside India for the purpose of education or employment. But many people are in confusion of whether they have to declare their assets and income to file the tax after living outside India. Indian citizen that is living outside India for the purpose of employment or any other reason has to pay tax in certain circumstances.

The main question is do I have to pay tax if I am an Indian citizen living outside India?

The government imposes a tax on the income of all the persons depending upon the residential status of an individual, Hindu Undivided Families, Companies, Firms, LLP, the association of persons, the body of individuals, local authorities etc. Residential Status of a person matters if we talk about the declaration of assets and income.

Asset declaration is the process by the government on the citizen of India to earn tax. Tax is paid by the citizen of India depending on the Assets an individual owns. For filing the tax an individual has to declare all the assets and income he owns to the authorities.

Also, one should keep in mind about the double tax avoidance agreement which means there is a collaboration of India with the country where an individual is staying. This collaboration is for the NRIs so as to avoid the double tax. If an individual has already paid tax in one country, then he/she do not have to pay tax in another. This is the agreement which has to be filled.

Now, I would like to explain the declaration of assets and taxes for Indian Citizen living outside India and living in India in detail.

What is an Asset?

An asset is anything that can be converted into cash. An asset has some value of its own. Assets are owned by individuals, businesses, and government. Examples of assets are:

• Cash and cash equivalents – certificates of deposit, checking and savings accounts, money market accounts, physical cash, Treasury bills;
• Real property – land and any structure that is permanently attached to it;
• Personal property – everything that you own that is not real property such as boats, collectibles, household furnishings, jewelry, vehicles;
• Investments – annuities, bonds, the cash value of life insurance policies, mutual funds, pensions, retirement plans stocks and other investments.^[1]

What is an Income?

The amount of money or its equivalent received during a period of time in exchange for labor or services, from the sale of goods or property, or as profit from financial investments.^[2]

Non-Resident Indian (NRI)

Non-Resident Indian is an Indian Citizen who holds Indian Passport. NRI does not stay in India but stays outside India because of any purpose like education, employment or residence. There are many NRIs who still have property or assets in India or their income is coming from India itself. This is the reason the government has rules regarding the declaration of assets and income.

If an Indian Citizen is living outside India(For NRIs):

NRI means non-resident Indian is an Indian citizen who holds Indian passport but is staying outside India for some purpose like education, residence, employment etc. Indian staying outside India is the largest in the world with 16 million people from India living outside their country in 2015, according to the UN survey on International Migrant.^[3]

For NRI’s declaring Assets depends on “Your residential status”. In order to find out your residential status. The Income tax law provides that an individual is a resident in India if he satisfies any one of the 2 conditions:

1. He is in India for a period of 182 days or more in that year
2. He is in India for a period of 60 days or more in the year and for a period of 365 days or more in 4 years immediately preceding the relevant year.

If an individual is satisfying any one of the 2 conditions above, then he will be a resident and if not then he is said to be a non-resident.

If you come under a resident then the income earned outside India will be taxable in India. You may get an exemption from DTAA (Double Taxation Avoidance Agreement) which is to avoid paying taxes on the same income twice.^[4]

If you are an Individual and a resident of India you are liable to declare the assets and income. Also, you have to pay tax on your income i.e. income you earn anywhere in India or outside India.

But if you an NRI, you have to declare only those assets and income which is earned in India during the financial year. So, any income that has been received in India or arises from services in India has to be declared.

Income earned abroad by an NRI will depend upon the residential status. If your status is resident then all the income of that individual will be taxable in India. Salary or Income in India provided in India like income from a house property situated in India, transfer of assets in India will be taxable even for NRIs also.

Income earned outside India is not taxable in India.

If your income is earned in India then, an individual whose income exceeds Rs. 5,00,000 is required to file an income tax return in India.

If you come to India after many years and do not have a regular income source then money brought by you to India will be taxable. However, any income from saving which is already invested in India will be taxed. Dividend income is exempt from tax but interest income is taxable.^[5]

Income except In India for NRI

If an NRI has bank accounts in India, the Indian Residents have to pay tax on their savings bank account interest above Rs.10,000. However, the NRIs are excused from this tax. No tax is to be paid by the NRI on the interest arising out of bank accounts.

If an Indian citizen is living in India

The Constitution of India contains schedule VII in which the central government has the power to levy a tax on any income which is defined in section 10(1) of the Income Tax Act 1961.

Indian citizen has to declare all the assets and income to the authorities as the declaration is used to calculate the tax. An individual is bound to pay tax to the authorities if the tax is not paid he/she can land in trouble. Income Tax departments have given guidelines which should be followed by an individual, any company that is operating in India.

Guidelines for income tax for Indian Citizen are:

• The income tax for people earning Rs 5,00,000 to Rs 10 lakh per annum has to pay tax.
• Income from 5 lakhs to 10 lakhs has to pay 20%
• And more than 10 lakhs has to pay 30 %.

A tax that is applied to the assets of an individual is called Wealth tax. This tax is levied by the government on a person’s personal wealth or capital.  Income tax is different from the wealth tax as the income tax was levied on the income earned by an individual and wealth tax is payable on the assets bought with the income after paying the income tax. As the Union Budget in 2016 abolished the wealth tax. No tax is applied to the assets. This tax is replaced by the surcharge of 2 percentage on super rich with taxable income over 1 crore annually.^[6]

Therefore, as the wealth tax is abolished recently only income tax is levied on the income. But this doesn’t mean that you do not have to show the assets and income to the authorities. Assets describe your net capital from which if the net wealth or income is more than 1 crore then additional 2% will be applied to you.

Conclusion

As we have seen the rules and regulation for NRIs and Indian citizens are being made very easy to follow. So, people can follow it without any confusion. The Government has removed so many taxes to make one tax that is payable by the companies or an individual. For NRIs, rules are made simple as per their requirement. Declaration of assets and income is one important part for the government to keep a track on how much income is still in India. This helps to calculate GDP of the country. It also helps to calculate the tax in the country. The Government is working hard to keep the rules simple.

Name: Karan Singh

College: Jindal Global Law School

^[1] http://www.investopedia.com/ask/answers/12/what-is-an-asset.asp

^[2] http://www.thefreedictionary.com/income

^[3]http://timesofindia.indiatimes.com/nri/other-news/India-has-largest-diaspora-population-in-world-UN-report-says/articleshow/50572695.cms

^[4] http://www.businesstoday.in/moneytoday/tax/is-income-earned-abroad-taxable-in-india/story/7854.html

^[5]http://www.businesstoday.in/moneytoday/tax/is-income-earned-abroad-taxable-in-india/story/7854.html

^[6] https://www.bankbazaar.com/tax/wealth-tax.html