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Tax queries on us income for us citizen living in india

Sunder (Manager) (95 Points)

14 January 2014

This is for US Citizen living in India for last six years. Can one of you please confirm the following?

1. He will be considered R&OR for tax filing purposes.

2. Where there are new investments made (either by purchase OR dividend reinvestments) in past 3 years, can I pro rate the gains as short term capital gains and Long term capital gains?
Example : I have 110 shares as of FY end. I have 10 shares bought in the past three years. I have LTCG of $10. Given this situation, can I categorize (100/110*10) as LTCG and (10/110*10) as STCG for Indian Income Tax filing?

3. As far as Indian Income Tax filing is concerned, Dividend/Interest/STCG from foreign mutual funds are taxed at ordinary Income tax rate and LTCG are taxed at 20%. Am I right?

Thank You

Sunder

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2 Replies

Saurabh Anokhchand Jain (Chartered Accountant) (1043 Points)
Replied 14 January 2014

b) A person who is a resident as per sec. 6(1) can either be an ordinarily resident or a not ordinarily resident. Sec. 6 (6) lays down conditions for becoming a not ordinarily resident. Foreign sourced income of a NOR is not taxable in India (unless it is derived from a business controlled or a profession set up in India).

Presently the section reads as follows:

“(6) A person is said to be not ordinarily resident in India in any previous year if such person is
(a) an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less”

so keeping in mind above provision of Income tax,

Person in your example is Ordinary resident for the purpose of Income Tax Act(Since he was in india for more than 181 days in previous years and have been in india for more than 729 days in previous 6 years)

I hope this will clear your doughts

Sunder (Manager) (95 Points)
Replied 16 January 2014

Originally posted by : CA Saurabh Jain

a) A person becomes resident in India if he is physically present in India for a substantial period of time during the relevant financial year. Sec. 6 (1) (a) defines substantial period as more than 181 days irrespective of his past stay in India.

b) A person who is a resident as per sec. 6(1) can either be an ordinarily resident or a not ordinarily resident. Sec. 6 (6) lays down conditions for becoming a not ordinarily resident. Foreign sourced income of a NOR is not taxable in India (unless it is derived from a business controlled or a profession set up in India).

Presently the section reads as follows:

“(6) A person is said to be not ordinarily resident in India in any previous year if such person is
(a) an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less”

so keeping in mind above provision of Income tax,

Person in your example is Ordinary resident for the purpose of Income Tax Act(Since he was in india for more than 181 days in previous years and have been in india for more than 729 days in previous 6 years)

I hope this will clear your doughts

Dear Saurabh,

Thanks for the reply. Keeping in mind that the person is "Resident and Ordinarily Resident". My queries were more on how to handle LTCG, STCG, Interest and Dividends from foreign sources, specifically:

1. Where there are new investments made (either by purchase OR dividend reinvestments) in past 3 years, can I pro rate the gains as short term capital gains and Long term capital gains? Example : I have 110 shares as of Finacial Year end. I have 10 shares bought in the past three years. I have LTCG of $10. Given this situation, can I categorize (100/110*10) as LTCG and (10/110*10) as STCG for Indian Income Tax filing?

2. As far as Indian Income Tax filing is concerned, Dividend/Interest/STCG from foreign mutual funds are taxed at ordinary Income tax rate and LTCG are taxed at 20%. Am I right?

Thank You

Sun