Definition of NRI

An Indian Citizen who stays abroad for employment/ carrying on business or vacation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. ( persons posted in U.N. organisations and officials deputed abroad by Central/ State Government and Public Sector Undertakings on temporary assignments are also treated as non-resident) Non-resident foreign citizens of Indian Origin are treated on par with non-resident indian citizens.

Who is a person of Indian Origin

For the purpose of availing of the facilities of opening and maintenance of bank accounts and investments in shares/ securities in India:
A foreign citizen ( other than a citizen of Pakistan or Bangladesh ) is deemed to be of Indian Origin, if,
(i) he, at any time, held an Indian passport,
(ii) he or either of his parents or any of his grand parents was a citizen of India by virtue of the Constitution of India or Citizenship Act, 1956( 57 of 1955)

Note: A spouse ( not being a citizen of Pakistan or Bangladesh ) of an Indian Citizen or of a person of Indian Origin is also treated as a person of Indian origin for the above purpose.
For Investment in immovable properties:
A foreign citizen ( other than a citizen of Pakistan, Bangladesh, Afghanistan, Bhutan, Sri lanka or Nepal ), is deemed to be of Indian origin if,
(i) he held an Indian passport at any time, OR
(ii) he or his father or paternal grand-father was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 ( 57 of 1955).
Non-Resident under Income Tax Act, 1961
Liability to pay tax in India does not depend on the nationality or domicile of the Tax payer but on his residential status.
Residential Status is determined on the basis of physical presence i.e. the number of days of stay in India in any year.
Resident:
(a) An individual is resident if any of the following conditions are satisfied:
he stayed in India for 182 days or more during the previous year, or he stayed in India for 365 days or more during the four preceding years and stays in India for atleast 60 days 9 182 days in case of an Indian citizen or a person of Indian Origin coming on a visit to India or 182 days in case of an Indian citizen going abroad for an employment ) during the previous year.
Stay in India for the above criteria may be continuous or intermittent.

(i) it is an Indian company, or
(ii) during the previous year, the control and management is situated wholly in India.
(iii) A person resident in India, in a previous year in respect of any source of income shall be deemed to be resident in India in respect of his other sources of income.

(b) Hindu Undivided Family (HUF) or firm or other Association of persons is resident of India except in cases where the control and management of its affairs is wholly situated outside India in the previous year
(c) A company is resident in India if-
(i) it is an Indian company, or
(ii) during the previous year, the control and management is situated wholly in India.
(iii) A person resident in India, in a previous year in respect of any source of income shall be deemed to be resident in India in respect of his other sources of income.

Do non-resident Indian citizens require permission of Reserve Bank to acquire residential/commercial property in India?
· No

Do foreign citizens of Indian origin require permission of Reserve Bank to purchase immovable property in India for their residential use?
· Reserve Bank has granted general permission to foreign citizens of Indian origin, whether resident in India or abroad, to purchase immovable property in India for their bona fide residential purpose. They are, therefore, not required to obtain permission of Reserve Bank.

In what manner the purchase consideration for the residential immovable property should be paid by foreign citizens of Indian origin under the general permission?
· The purchase consideration should be met either out of inward remittances in foreign exchange through normal banking channels or out of funds from NRE/FCNR accounts maintained with banks in India.

Can such property be sold without the permission of Reserve Bank?
· Yes. Reserve Bank has granted general permission for sale of such property. However, where the property is purchased by another foreign citizen of Indian origin, funds towards the purchase consideration should either be remitted to India or paid out of balances in NRE/FCNR accounts.

Can foreign citizens of Indian origin acquire or dispose of residential property by way of gift?
· Yes. Reserve Bank has granted general permission to foreign citizens of Indian origin to acquire or dispose of properties up to two houses by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin whether resident in India or not, subject to compliance with applicable tax laws.

Can foreign citizens of Indian origin acquire commercial properties in India?
· Yes. Under the general permission granted by Reserve Bank properties other than agricultural land/farm house/plantation property can be acquired by foreign citizens of Indian origin provided the purchase consideration is met either out of inward remittances in foreign exchange through normal banking channels or out of funds from the purchasers' NRE/FCNR accounts maintained with banks in India and a declaration is submitted to the Central Office of Reserve Bank in form IPI 7 within a period of 90 days from the date of purchase of the property/final payment of purchase consideration.

Can they dispose of such properties?
· Yes.

Can the properties (residential/commercial) be given on rent if not required for immediate use?
· Yes. Reserve Bank has granted general permission for letting out any immovable property in India. The rental income or proceeds of any investment of such income are eligible for repatriation.

Can NRIs obtain loans for acquisition of a house/flat for residential purpose from authorised dealers/financial institutions providing housing finance?
· Reserve Bank has granted general permission to certain financial institutions providing housing finance e.g. HDFC, LIC Housing Finance Ltd., etc., and authorised dealers to grant housing loans to non-resident Indian nationals for acquisition of a house/flat for self-occupation subject to certain conditions. The purpose of the loan, margin money and the quantum of loan will be at par with those applicable to housing loans to residents. Repayment of loan should be made within a period not exceeding 15 years out of inward remittances or out of funds held in the investors' NRE/FCNR/NRO accounts.

Can Indian companies grant loans to their NRI staff?
· Reserve Bank permits Indian firms/companies to grant housing loans to their employees deputed abroad and holding Indian passports subject to certain conditions.

Can authorised dealer grant housing loan to non-residents of Indian nationality where he is a principal borrower with his resident close relative as a co-obligant/guarantor or where the land is owned jointly by such NRI borrower with his resident close relative?
· Yes. However, in such cases the payment of margin money and repayment of the loan instalments should be made by the NRI borrower.

Exemption From Capital Gains On Sale Of Residence
· Capital gains arising on transfer of a residential house, comprising buildings or land appurtenant thereto, is exempt if the amount of capital gains is utilized in acquiring another residential house, either by purchase or by construction. The exemption cannot be claimed for vacant land as it is niether a residential house nor income therefrom is chargeable. The conditions required to be fulfilled to claim exemption here are :
· the capital asset being transferred is a residential house, including self occupied house
· income from the house is chargeable under the head - Income from house property
· the house is a long term asset
· the tax payer purchases or constructs a new residential house within the time specified.

What is capital gain?
When you sell any asset you own (house, land, shares, mutual fund units, gold, debentures, bonds) and you make a profit on the sale, it is known as capital gain. The tax you pay on this profit is called the capital gains tax.
If you make a loss (you sell at a lower price than you bought it), you incur a capital loss.

What are the types of capital gains?
Depending on how long you held the asset, the capital gain is classified either as short-term or long-term.
Short-term capital gain: If you sell the asset within 36 months from the date of purchase (12 months for shares or mutual funds)
Long-term capital gain: If you sell the asset after 36 months from the date of purchase (12 months for shares or mutual funds)

How is short-term capital gain taxed?
Very simple. A short-term capital gain is added to your total income. Depending on which tax bracket you fall under, you will be taxed.

How is long-term capital gain taxed?
Tax on long-term capital gain (other than shares and mutual fund units), is more complicated. This is because inflation is taken into account. This is good because it reduces the amount of capital gain and the amount you end up paying as tax.
Let's say Mr Mani purchased a house of Rs 2,50,000 (Rs 250,000) on June 20, 1996. He sells it on January 20, 2005, for Rs 4,50,000 (Rs 450,000). Since the house was sold over 36 months after being bought, the capital gain will be long term.
First, you calculate the Cost Inflation Index. These indices are fixed and declared by the Central Government every year (see table below). This is called indexation.

Cost inflation index:
Index of the year it was sold / index of the year it was bought
2004-05 index / 1996-97 index
480/305 = 1.57377

Indexed cost of acquisition
= Buying cost x CII
= 250000 x 1.57377
= 3,93,443

Long term capital gain
= Selling price - Indexed cost
= 4,50,000 - 3,93,443
= Rs 56,547
Tax payable will be 20% of Rs 56,547 ie Rs 11,310. (Plus surcharge of 10% if applicable)
Cost Inflation Index for the various financial years

FY
CII
FY
CII
1981-82
100
1993-94
244
1982-83
109
1994-95
259
1983-84
116
1995-96
281
1984-85
125
1996-97
305
1985-86
133
1997-98
331
1986-87
140
1998-99
351
1987-88
150
1999-00
389
1988-89
161
2000-01
406
1989-90
172
2001-02
426
1990-91
182
2002-03
447
1991-92
199
2003-04
463
1992-93
223
2004-05
480