I have invested in US stocks and am coming back to India. The income tax rule explained
I am an NRI male who retired and returned permanently from USA to India in August 2019 and have been retired ever since. I am an American citizen. I am 66 years old. Almost all my money is invested in the United States in stocks. My total deposits in banks in India are less than $10,000. I own a house in Mumbai. What is my current immigration status? Am I currently “Resident but not Ordinary Resident”? Do my savings accounts in India have to be NRO and NRE savings accounts or regular savings accounts? What are the rules that apply to me in terms of tax declarations? In which country should I file tax returns? My income is zero since I moved, but I would still like to file US taxes because I have already incurred capital losses in stocks and for withdrawals from my IRA account. Do I have to file tax returns in India and/or the United States? If so, which Indian tax forms should I use and what are the Indian tax deadlines for filing tax returns? I always invest in US stocks and receive dividends and interest on them. I also get interest in my Indian savings accounts. Are there refund rules if I file taxes in both countries?
To respond: You were a “resident but not an ordinary resident” for two years, 19-20 and 20-21. From FY 21-22 you are a true resident of India for tax purposes. You can keep your investments outside of India for as long as you want. Since you have assets outside India and you are a tax resident of India, you are required to file an income tax return (ITR) in India whether or not you have income in India, and you will need to disclose details of all your foreign assets. held as well as bank accounts you maintain outside India in your ITR to be deposited in India. You can use ITR 2 to file your taxes in India if you have no business income. The deadline for filing your ITR in India is July 31 every year, but you can file it before December 31 the following year with a late filing fee.
Residency status under the Foreign Exchange Management Act (FEMA) and the Income Tax Act are determined differently because the purpose of the two is different. You had become resident of India under FEMA on the day you landed in India with the intention of spending your retirement days in India. You should therefore have designated all your bank accounts as ordinary NRO/NRE accounts once you return to India for good. Since you are a tax resident of India, your aggregate income will be taxed in India. However, you can claim a tax credit for taxes paid in the United States on income taxed in India. I am not aware of the requirement to file your US tax return, but I believe you will also need to file your US tax return as you have income from your investments in the US United.
Balwant Jain is a tax and investment expert and can be reached on [email protected]l.com and @jainbalwant on Twitter