The Indian finance minister Ms. Nirmala Sitharaman presented the first budget of the Modi 2.0 government on 5th July, 2019. In this article, we shall focus on the high points of the budget relevant to non- residents and the points to be mindful of while filing the return of income for the financial year ended 31st March, 2019.
Changes in taxation norms as per Union Budget 2019
- Considering the fact that numerous NRIs invest in immovable property in India, one particular amendment in the Union Budget 2019 would prove to be favourable to them:
- The loan should be sanctioned by the financial institution during the period 1st April, 2019 to 31st March, 2020;
- The stamp duty value of the residential house property should not exceed INR 4.5 million;
- The taxpayers should not own any other residential house property on the date of sanction of the loan.
A new section, 80EEA has been introduced to provide a deduction upto INR 1,50,000 for interest paid on housing loan taken from a financial institution to by buy or construct a home that qualifies under the “Affordable Housing” scheme. The following conditions will have to be satisfied in order to claim the deduction:
This deduction would be in addition to the deduction of INR 2,00,000 already available under another section.
- Readers would recollect that in the earlier interim budget presented on 1st February, 2019, two more amendments were made which would be useful for NRIs as far as immovable property in concerned:
- No notional rent is to be offered to tax on the second self-occupied property (SOP), if any, owned by a taxpayer. This is a major relief to taxpayers who own more than one residential house property and where the houses are not actually let out. However, the aggregate deduction for interest on housing loan on both such SOPs shall be restricted to INR 2,00,000.
- In a case where a residential house is sold and tax on the long term capital gains is to be saved, one can invest in another residential house property and claim exemption subject to certain conditions. An amendment now permits the taxpayer to avail the exemption even if such gain is reinvested in two residential house properties in India provided the LTCG does not exceed INR 2,00,00,000. Also, this benefit of claiming exemption by investing in two houses can be availed only once in a lifetime.
- Another amendment that has been proposed with reference to immovable property is an amendment to Sec 194 IA which deals with deduction of TDS @ 1% on purchase of immovable property if the consideration exceeds INR 5 million. The term sale consideration is now proposed to be widened to include all charges such as club membership fee, car parking, electricity and water supply, maintenance fees etc. paid at the time of purchase. The intention is to include all charges incidental to the transfer of immovable property within the purview of TDS.
- Another very important amendment that will affect NRIs is the provisions dealing with deemed taxable income relating to gift of money or property. Gifts in excess of Rs. 50,000 received from a person other than a relative (as defined) is taxed as income in the hands of the recipient. Hitherto, a view was taken that when a resident gives a gift to a NR, the same does not accrue or arise in India and hence was not subject to taxation in India. It is now proposed to amend the relevant sections so that gift by way of any sum paid or property transferred to non-residents on or after 5th July, 2019 shall be deemed to accrue in India and hence, would be taxable in India.
- Even though the tax slabs and rates of tax have remained unchanged, there has been a steep increase in the rates of surcharge. Readers would be aware that if income exceeds certain levels, then in addition to the income-tax, a surcharge calculated at a given rate is also to be paid with reference to the tax. The table below summarises the rates of surcharge and the income slabs to which it shall apply:
Total income exceeding INR 5 million but less than INR 10 million
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10% of tax
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Total income exceeding INR 10 million but less than INR 20 million
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15% of tax
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Total income exceeding INR 20 million but less than INR 50 million
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25% of tax
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Total income exceeding INR 50 million
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37% of tax
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These new rates of surcharge are applicable to the current financial year (2019-20).
Changes in Tax Return forms for A.Y 2019-20 (F.Y. 2018-19)
- The two ITR forms generally applicable to NRIs would be:
ITR 2
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For Individuals (other than resident and ordinarily resident individuals) and HUFs not having income from profits and gains of business or profession
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ITR 3
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For individuals and HUFs having income from profits and gains of business or profession
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- The most striking change in the recently notified ITR 2 form is that it now requires detailed information on the number of days spent in India. NRIs are expected to furnish their overseas residency information along with tax identification number. These details are to be furnished for the relevant financial year and also the four financial years immediately preceding the year for which the return is being filed.
- ITR 2 also requires tax payers to disclose details of their holding in unlisted shares. The details required would include company’s name, PAN, number of shares held, purchase price or cost of subscription, shares transferred during the year and closing balance of shares.
- Further, a taxpayer who has sold a house property during the year will be required to mention additional information as compared to the previous year’s ITR forms comprising the buyer’s name, PAN, transaction price and address of the property.
Non tax related changes impacting NRIs:
Apart from the changes in the taxation norms, the Union Budget, 2019, also proposes to consider issuing Aadhaar cards to NRIs holding Indian passports upon their return to India without waiting for 180 days. This would quicken the KYC process for NRIs and enable them to use their Aadhaar card to expedite financial transactions in the country.
In her budget speech, the FM also spoke about merging the NRI-Portfolio Investment Scheme Route with the Foreign Portfolio Investment Route. While this has yet to be actioned out, if this happens, it will be a boon for NRIs as there has been a growing demand for this merger.
Finally, an interesting investment related development for NRIs is the focus of the government on International Financial Services Centres (IFSC). There is already an existing exemption for interest earned by non-resident in India under Income Tax Act,1961 on deposit placed with an “offshore banking unit” in a Special Economic Zone (like the GIFT City in Gujarat). So, if you already have a deposit with Kotak Mahindra Bank’s set up in the GIFT City, the interest on that is exempt in the hands of non-resident in India under Income Tax Act,1961. Now, a similar exemption is granted to interest earned by an non-resident in India under Income Tax Act,1961 on money lent by e him to a unit located in an IFSC on or after 1st September, 2019. Both these exemptions provide a unique and attractive investment opportunity to NRIs.
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