NRI's CORNER
F.E.M.A.
CONTRAVENTIONS UNDER FEMA & INCOME-TAX

NRIs CORNER – CONTRAVENTIONS

 

Important Features...
1.      CONTRAVENTIONS / DICEY ISSUES
More often, out of ignorance, NRIs do contravene the provisions of direct taxes.  Although quite often, such contraventions  are a result of ignorance, but the Law cannot be lenient for such ignorance or otherwise.  Some of the  most contraventions are briefly mentioned herein together with penalties applicable:-
.01       NRIs are subject to Wealth Tax if market value of taxable wealth exceeds Rs.30,00,000/-, being land and properties other than one house property; gold ornaments, jewellery and bullion; propelled vehicle and cash on hand above Rs. 50,000/-.
.02       NRIs are allowed to import gold upto 10 Kilograms and silver upto 100 Kilograms subject to specific conditions.
.03       Such gold / silver will be subject to Wealth Tax if market value as on 31st March exceeds Rs. 3 mn.
.04       Such NRIs are required to pay Wealth Tax and file Wealth Tax return for the market value of taxable asset exceeding Rs. 3 mn.
.05       If returns are not filed within the stipulated time penalty of Rs.1,000 to 25,000  is leviable,
 - and for late filing of return and for non-payment of tax, interest @ 1 % per month is also
   leviable,
 - and for concealment of income penalty shall also be leviable. The minimum penalty leviable
   shall be the amount of tax sought to be evaded which may exceed up to five times the
   amount of tax sought to be evaded.
2.      NON-FILING OF INCOME TAX RETURN ON ALL CAPITAL GAINS ARISING OUT OF SUCH GOLD / SILVER
.01       The capital gains arising on sale of such gold / silver is liable to tax.
.02       In case of NRIs, capital gains are liable to tax from the first rupee as threshold exemption limit is not available for in case of capital gains to NRIs.
a.)         Hence, capital gains arising on sale of gold / silver are subject to tax and such NRIs are also required to file tax return.
.03       If return is not filed, penalty of Rs. 5,000/- is leviable, whereas non-payment of income tax is subject to penalty of in addition to the amount of arrears* and the amount of interest payable under sub-section (2) of section 220, be liable, to pay such amount as the Assessing Officer may direct, however the total amount of penalty does not exceed the amount of tax in arrears.
* Arrear is not a term of art. There must be legal obligation to pay the amount which has been ascertained or easily ascertainable, and a default in the performance of that obligation.
a.)         Moreover, the NRI would be liable to penalty of in addition to tax, if any, payable by him, a sum which shall be not less than, but which shall not exceed three times the amount of tax sought to be evaded, for concealment of income.
3.      RETURNEE NRI - NON-RESIDENT EXTERNAL (NRE) INTEREST
.01       In case of NRI returning to India balance to the credit of Non-Resident External (NRE) is to be transferred to Resident Foreign Currency (RFC) account immediately.
.02       Quite often NRIs continue the NRE account.  In such cases, NRIs do not often pay tax on interest earned.
4.      Sale of immovable property presumptive tax
.01       In case of immovable property, the sale price is to be substituted by stamp duty valuation adopted in the case of the buyer.
a.)         Hence, if the  sale price mentioned in the Sale Deed is less than stamp duty valuation, the NRI seller is to pay capital gains tax on deemed / substituted sale price on such stamp duty valuation.
.02       Quite often, NRI not been aware about these provisions, file tax return on the basis of sale price mentioned on the Sale Deed and not the higher stamp duty valuation.
.03       Such under payment of tax is subject to interest and penalty of concealment in addition to tax, if any, payable by him, a sum which shall range from the tax sought to be evaded up to three time the amount of tax sought to be evaded, for concealment of income.
5.      DEEMED GIFT FOR BUYER
.01       Since 01/10/2009, if an NRI purchases a property at a price which is less than the price determined as market valuation for stamp duty purposes and the difference between market price and price determined for the purpose of stamp duty valuation is more than Rs. 50,000/-, then such difference is taxable in the hands of the buyer as a deemed gift.
.02       If the NRI buyer does not pay income tax on such deemed income, is liable to penalty on outstanding amount of tax for concealment of income as mentioned hereinabove.
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