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News based articles
NRIs keen on riding the Indian investment wave
MUMBAI : A stint or two abroad is a common thing for most professionals these days. No wonder, financial advisors have to deal with many Indians with non-resident tag these days.
 According to them, most non-residents are keen to keep their Indian ties intact and invest in various avenues like mutual funds (MFs), fixed deposits, real estate and so on. “Most of these people look to return to India finally. That is one of the reasons why they are keen to invest here,’’ says Suresh Sadagopan, chief financial planner, Ladder7 Financial advisories.
Besides emotional reasons it also makes perfect sense as India is one of world’s fastest growing economies and they can hope to pocket superior returns here. “The chances of getting double digit returns abroad are limited. In India, you can always hope to get 8-10% returns,’’ says a wealth manager with a bank. “For example, Indian stock market has given even 100% returns till a few years ago, something one can never dream of in a developed country. Even fixed income investments will offer you around 8-10%, whereas getting even 3-4% from such instruments is considered great abroad,’’ he said.
But what are the investment avenues the NRI lot flocks to? Many a financial consultant maintains that property is a big attraction for them. “Most of the queries I get are related to property,’’ says an investment consultant who doesn’t want to be named. “Some people want to buy a home because they want to return to India eventually. Others look at property as pure investment. In fact, NRIs were a major force behind the real estate boom that went bust recently,’’ he adds.
Sadagopan says some NRIs are also keen on MFs as they are permitted to invest in the entire universe of schemes. “It is not true that everyone wants to invest only in property. Some are also keen to invest in mutual fund schemes, as they know there is a possibility of superior returns,’’ he says. “Also, there are no restrictions on where they can invest. OIC and PIO enjoy all privileges like ordinary Indians. They can invest anywhere they like,’’ he adds.
However, financial advisors caution NRIs that they have to be careful while listing the details at the time of investment. They should clearly mention their status, complete with relevant documents and details. Suresh Sadagopan offers an example of investing in MFs: “They should clearly mention in the application form that they are NRIs. They should also provide their overseas address.’’ He also adds that in the case of fixed deposits, they should know the difference between various deposits like NRE account and NRO account. This is crucial because you can repatriate the income under NRO, while you can’t do the same in NRE account.
The issue of relevant papers and documents is something that creeps up regularly in conversations with financial experts. They all insist that having relevant documents is a key factor. “Some investments may require the investor’s status card abroad. If they are going for insurance cover, the company may ask for details like work permit in some cases. It can vary from company to company,’’ says Sadagopan.
Buy property with Caution
SUBRATA BISWAS
In instances where immovable property sale by non-resident entails payment of sale consideration by the buyer who is a resident Indian, tax has to be deducted at source and paid to government as per Section 195 of the Income Tax Act before paying the sum to the non resident seller of the property.
 1. Who is responsible for deduction of tax?
As per Section 195 of the IT Act, the person who is paying any sum to non resident is responsible for deducting tax before making payment or crediting the payment in his accounts. Thus the buyer of the property is responsible for deducting tax.
2. What are the consequences of non-deduction of tax?
A resident who buys property from a non resident but fails to deduct tax at the time of payment or credit of the amount to his account, shall be liable for penalty equal to the amount of tax not deducted or after deducting not depositing the tax. A person is also liable for prosecution for such failure.
3. Can the resident buyer be assessed under I T Act for income arising to a non resident?
Yes, Clause (C) of section 163(1) of the I T Act says,
“For the purpose of this Act, agent in relation to a non-resident, include any person in India - from or through whom the non-resident is in receipt of any income, whether directly or indirectly”.
So, a buyer through whom the income to non-resident arises can be treated as agent of the non-resident and therefore can be assessed as “representative assessee” as per Section 160(1) of the I T Act.
4. What is the amount on which tax has to deduct?
Tax at source is on gross amount of payment or only on the gains.
The Supreme Court has set the confusion at rest by its order in Transmission Corporation (239 ITR 587) where in it has been ruled that tax should be deducted on the income embedded in the payment.
But confusion regarding quantum still remains, regarding the decision about the computation of gain. The points for confusion for the deductor concern knowledge of cost. The seller, may also claim exemption u/s 54 or 54EC , which may make his gains tax exempt, in that case there is no need of deduction of tax .Therefore, solution to sort out such problem are taking one of the following steps :
a) TDS should be deducted only after making an application in Form 13 before A.O u/s 195(2) for determination of the amount on which tax has to be deducted.
b) Even non-resident sellers can also make an application in Form 13 before A.O u/s 195(3) for determination of quantum of tax to be deducted.
5. What are the various rates of deduction?
The rate of deduction in case of 20 % plus Education Cess is 3%.
6. When is the amount required to be deducted and deposited?
The amount is required to be deposited:
a) Within one week from the end of month in which the payment was made.
b) Within two months from the end of month in which credit was made.
7. What are the other formalities under the IT laws?
a) Get a tax deduction number (TAN) by applying in Form 49B to UTI's TSL or NSDL.
b) File a statement of tax deduction in Form 27Q of the I T Act quoting TAN.
c) Issue a certificate of deduction in Form 16A to the non-resident within one month from the end of month in which payment was made. |
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