A Facebook group Asan Ideas for Wealth member recently posted a question about onsite assignments and action to be taken with current investments in India. We asked SEBI registered flat fee-only investment advisor Chandan Singh Padiyaar to expound on his reply to the question. It is reproduced here with the member’s permission.
About the author: Chandan Singh Padiyar is a SEBI Registered Investment Advisor, part of the freefincal list of fee-only advisors and fee-only India. His journey has been profiled earlier: Fee-only Advisor Journey: Chandan Singh Padiyar finds Inner Peace. If you wish to work with Chandan on your financial plan, you can contact him via his website: padiyars.
My wife has gone to Europe for a medium-time onsite assignment in late July. The expected timeframe of return is April/ May 2024. Her base location is India, and her employer will continue with a minimum EPF contribution during the tenure of the assignment. From February 2024, she will be out of the country for 182 days. So, does that mean she will be treated as an NRI for tax purposes? What compliances does she need to follow, given the situation?
The Understanding is correct, as she will be out of India for over 182 days for FY 2023-24. ‘Non-resident Indian’ is an individual who is a citizen of India or a person of Indian origin who is not a resident of India. Thus, to determine whether an individual is a non-resident Indian, his residential status must be determined under Section 6. As per section 6 of the Income-tax Act, an individual is said to be non-resident in India if he is not a resident in India and an individual is deemed to be resident in India in any previous year if he satisfies any of the following conditions:
- If she was in India for a period of 182 days or more during the previous year or
- If she is in India for a period of 60 days or more during the previous year and 365 days or more during four years immediately preceding the previous year.
However, regarding an Indian citizen and a person of Indian origin who visits India during the year, the period of 60 days, as mentioned in (2) above, shall be substituted with 182 days. A similar concession is provided to the Indian citizen who leaves India in any previous year as a crew member or for the purpose of employment outside India.
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The Finance Act, 2020, w.e.f., Assessment Year 2021-22, has amended the above exception to provide that the period of 60 days as mentioned in (2) above shall be substituted with 120 days if an Indian citizen or a person of Indian origin whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. Income from foreign sources means income that accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).
Note: The Finance Act 2020 introduced new section 6(1A) to the Income-tax Act 1961. The new provision provides that an Indian citizen shall be deemed a resident in India only if his total income, other than from foreign sources, exceeds Rs. 15 lakhs during the previous year. For this provision, income from foreign sources means income that accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).
However, such an individual shall be deemed an Indian resident only when he is not liable to tax in any country or jurisdiction because of his domicile or residence or any other criteria of similar nature.
Thus, from Assessment Year 2021-22, an Indian Citizen earning a total income over Rs. 15 lakhs (other than from foreign sources) shall be deemed a resident in India if he is not liable to pay tax in any country.
A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grandparents, was born in undivided India.
What must be done with her mutual funds and direct equity investments (via Zerodha)?
She must update the NRI KYC with MFs and the Demat Account. As per Zerodha: A resident Zerodha account can be used even after going abroad if the stay is less than six months. If it is more, a resident would be considered NRI, and the resident account would have to be converted to an NRO account,
Apart from that, she is the sole holder of her salary account (HDFC), the first holder of a savings account in SBI, and the second holder in some other savings account where the first holder is a resident Indian.
As per RBI Regulations, a Non-Resident Indian (NRI) cannot open and operate a regular resident Savings Account. Further, any account should be converted into an NRI Account by the bank before one gets NRI status. An NRI needs to open a Non-Resident External (NRE) or Non-Resident Ordinary (NRO) Account to do any banking transactions in India. However, depending upon the transactional requirements of the NRI/PIO, he/she can decide to open either an NRE or NRO Account or even both.
Hence, all accounts where she is a primary account holder must be converted to NRO accounts.
Where she is a second holder, the account operation will be converted to former or survivor, and she won’t be able to operate the respective account.
Her PPF investment for the current FY was already made in April ( she had no idea this assignment would come up then).
As the PPF account was opened when she was a Resident Indian, she can continue the PPF account till maturity with regular contributions.
Also, what are the rules regarding remittance?
There are no specific rules for remittance. As such, she is free to remit her earnings as she wishes.