Taxation for funds from abroad
deepali sharma
(Querist) 24 February 2012
This query is : Resolved
Respected Sir/ Madam,
Person A was resident in India. She resigned her job and out of any financial earnings in that financial year (2010-2011). She received the funding she was waiting for in Feb, 2011. This funding was given by a foreigner (a retired British professor settled in Paris who sent this fund through the account of his organization in Switzerland) to support her education. She was misguided by her banker regarding the availability of the resident foreign currency accounts and hence she kept the amount in her resident bank account in INR. All the funds were received through the proper banking channel undergoing the foreign exchange. She left abroad in September, 2011 to study.
1) She did not file the returns in 2011 for the funds she received in Feb, 2011 as it is not her earning but a donation/gift from abroad to serve as a scholarship for her education. Is it a mistake?
2) She is out of India for more than 180 by this March and hence could she transfer these funds into her NRE account and take the interest by investing in NRE fixed deposits which are tax free now?
3) She must use this funding for 5 years of her education abroad. So she would like to deposit this money in 5 different deposits (one that matures by 1 year, another that matures by 2 years and so on for 5 years) so that she could get some additional money to support her studies. Since NRE deposits now are not taxable, could she proceed without any declaration?
4) After receiving the funds she was in India for a period of 6 months to carry outthe visa formalities.Then she deposited this amount in term deposits for the sake of accountability and clarity so that her transactions in her account will not get confused with this funding. She had not used that interest. Now is that interest taxable? Does she need to file a return for that? Can she invest that interest along with her funding amount in her NRE account?
Please guide me.
Regards
Deepali Sharma
Raj Kumar Makkad
(Expert) 24 February 2012
1. Even though the receipts are donation even then A is required to file her income tax return as per provisions of IT Act.
2. She can do as desired.
3. She is required to declare.
4. Interest earned in the given matter is taxable
prabhakar singh
(Expert) 25 February 2012
1.yes! that is a mistake.
2.yes!she can make desired deposits.
3.She can NOT avoid declaration.
4.Interest so earned is taxable.No! clubbing thereof in NRI a/c is not advisable.
deepali sharma
(Querist) 25 February 2012
Thank you sir(s) for your kind guidance
deepali sharma
(Querist) 25 February 2012
Respected Sir,
Kindly enlighten me on the following:
1) When is an NRI needed to file returns? If an NRI has no source of earning at all in India, is she still supposed to file a return?
2) The only possible earning she could get is from some investments - Years ago she invested in a mutual fund that has a full tax exemption on the returns and this is going to mature in 5 years and one another investment of the same kind that would mature after 10 years.
Thank you
Deepali Sharma
C. P. CHUGH
(Expert) 25 February 2012
Every Person(including NRI or Foreign Residents) whose income durint the given year exceeds maximum amount not chargeable to tax are compulsorily required to file their return of income and discharge their tax liability in the manner prescribed under the Law. In case her total income is going to be below the threshhold limit, she is not required to file her return of income.
Vineet
(Expert) 02 March 2012
Sorry. I partially disagree with answers of experts above. First your first set of queries Ms Deepali:
1. During FY 2010-11, A was resident of India. Hence, she had to file her return for AY 2011-12. The funds received in Feb 2011 are nothing but in nature of gift from a non-relative, hence they are taxable in the hands of recipient as income from other source. A can claim relief of Rs 50,000/- out of the said gifted sum but simultaneously she may have to explain the source, person and genuineness of this gift. Return for AY 2011-12 can still be filed till 31-3-2012 without penalty and till 31-3-2013 with penalty.
2. No, she cannot transfer funds from resident saving account to NRE account. Only foreign remissions and certain dometic incomes from investment made out of foreign funds can be credited to NRE account. She should intimate her attainment of NRE status to her banker who will redesignate the saving account to NRO account. Interest accruing to such account is taxable. In any case A is resident in India for Taxation purposes for FY 2011-12 as she has stayed more than 60 days in India.
3. As she cannot transfer funds to NRE account, the question does not arise. All her other incomes arising in India including bank interest are taxable in India though she may be NRI.
4. I think you got answer in earlier point.
For your second set of queries, yese NRI is taxable in India for incomes arising in India. So if interest and other incomes are more than threshhold limit Rs 1.90 Lakh per annum, she has to file return in India.
