My daughter will be leaving for the UK in the first week of September 2018 for higher studies and will not return to India till August 2019. So, she will be an NRI for financial year 2018-19, as she will be out of India for more than 182 days. When should she declare her NRI status to the bank or mutual fund? Should it be just before leaving or only after 31 March 2019, when the financial year will be over and her absence from India will exceed 182 days? Which other financial institutions need to be informed of her NRI status? She holds a PAN but is not assessed for income tax.
RBI, for the purpose of Foreign Exchange Management Act (FEMA), accords special status to students going abroad for studies. They would be treated as NRIs from the day of their departure from India.
Therefore, she must intimate banks about the change in her residential status (under FEMA) before her departure. She can also update her KYC details with mutual fund houses and other financial institutions.
Is it true that NRIs have to pay tax in the US on the increase in value of mutual fund units? For example, if I had invested ₹10,000 through SIP route in a mutual fund and now its value is ₹11,000, do I have to pay tax on that gain (₹1,000) even though I might not have sold off the units and intend to hold them for longer? I have also invested in NPS. Do I have to pay tax on the gains in the value of assets even though I haven’t encashed them yet?
According to the US tax laws, tax is payable on notional or undistributed gains from holding of foreign mutual funds i.e other than mutual funds of the US. Such foreign mutual funds, for the purpose of US tax laws, fall under the category of Passive Foreign Investment Company (PFIC). Therefore, as an NRI, you must report notional gains in the market value of your holdings of India mutual funds during the year, even if they have not been redeemed. You must report these details in Form 8621. However, this is subject to the PFIC guidance and regulations prevalent in the US. So you must also verify locally.
Stocks held through foreign pension funds (NPS) are exempted from the PFIC reporting requirement. Hence, the gains on the value of asset would not be taxed on notional basis in the US.
Are the deadlines to file tax returns the same for resident Indians and NRIs?
Yes, the broad guidelines remain the same. However, the minimum exemption limit for NRIs is ₹2.5 lakh, irrespective of their age. NRIs do not get the higher exemption limit of ₹3 lakh for those between 60 and 80 years of age and ₹5 lakh for those more than 80 years old. NRIs must file their tax returns by the due date, which is the same as applicable to resident individuals.
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Archit Gupta is founder and chief executive officer, ClearTax. Queries and views at firstname.lastname@example.org