Your Taxes

I am an NRI working in Saudi Arabia for the past 23 years. I intend to retire by August 2015. Kindly advise regarding tax issues related to the final payments received and transferred to India during financial year 2015-16 — whether I will be taxed as Indian resident; whether all my income transferred from earning in current job to my NRE account will be treated as Indian income and taxed; whether I am a tax payee for the income generated in India.

Nellicherry Sriraman

As per section 6 of the Income-tax Act, 1961, the taxability in India would depend upon your residential status in a given tax year. This, in turn, would be based on the number of days you are present in India. Generally any person having very minimal/no presence in the past 10 previous years relevant to the current financial year would be a ‘Resident and Not Ordinarily Resident’ (RNOR) for the initial two years on permanently returning to India. For an RNOR, incomes that are earned or received in India would only be taxable in India. Only from your third year of stay, when you may qualify as ‘Ordinarily Resident’ in India, you would be taxable on your worldwide income.

Accordingly, the salary income earned in Dubai and transferred to the NRE Account would not be taxable in India. Further, interest on NRE account is tax exempt though this would be the case only until such time the account is converted into a Resident Foreign Currency account or a savings bank account upon permanently settling in India. With regard to income generated in India, the same would be taxable irrespective of your residential status. Hence, you would have to continue paying taxes on the said income.

I am a government employee and living as tenant on rent of ₹12,000 per month in Jaipur. As house rent allowance I have received ₹84,000 during 2014-15 from employer. What is the actual amount that is taxable? My office accountant says I will get a rebate of ₹44,000 and the remaining ₹40,000 will be considered as income and shall be taxable.

Rakesh Kaushal

We understand that you have received house rent allowance (HRA) amounting to ₹84,000 during the financial year 2014-15. In this regard, please note that HRA is taxable as salary, subject to exemption prescribed under the Income tax Act. The Act provides that HRA received from employer would be exempt to the extent of least of the following: rent paid in excess of 10 per cent of salary; 40 per cent of salary (for Jaipur); actual HRA received.

‘Salary’ for this purpose includes basic salary as well as dearness allowance if the terms of employment so provide. In the absence of salary information, we are unable to determine the amount that will be exempt.

The writer is Partner, Deloitte, Haskins and Sells, LLP. Send your queries to taxtalk@thehindu.co.in

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