I have been living in the US for the last 10 years. I have my PAN and aadhar card in India where my parents live. I transfer some money regularly to my father’s bank account from the US and he has been investing this amount in the share market, mutual funds and in real estate.
Recently, I visited India and asked my father about the filing of income tax return (ITR) in India and he replied that my income is not taxable and so they have not been filing any tax returns. Furthermore, as per my understanding, my residential status in my demat (dematerialisation) account is given as Indian. What is the difference (as per Indian income tax laws) if I was to keep my residential status as Indian or get it changed to non resident Indian (NRI)?
– Name withheld on request
As you have been living outside India for more than 10 years, you may qualify as ‘non resident’ under the India Income-tax law and exchange control law.
The money transferred by you to your father’s bank account from time to time is not liable to tax in India.
However, if your father has invested these funds into various investments in his name, the income from such instruments will be taxable in his hands.
If your father has invested the funds in your name, the income from such investments will be taxable in your hands in India.
The taxation of income could differ for you (as a non- resident) and your father (resident) as different rules and tax rates may apply.
You could also avail the benefit of the double taxation avoidance agreement between India and the US.
You will also need to consult a professional tax advisor to determine your tax filing requirement in India.
Under the exchange control law, when an individual leaves India for employment or for business or vocation outside India or for any other purpose indicating his/her intention to stay abroad for an uncertain period, his/her existing resident bank account should be designated as Non-Resident Ordinary (NRO) account.
You may need to open a new non-resident demat account on a repatriable or non-repatriable basis and transfer your securities from a resident demat account to a non-resident demat account.
Sonu Iyer is tax partner and people advisory services leader, EY India.