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Investment Taxation for Expats in India

Submitted: October 2013

Taxable income in this category includes:

  • interest from bank and building society deposits
  • interest from government and corporate stocks (bonds)
  • rental income from properties both in India and abroad
  • dividends, and
  • capital gains.

As a non-resident, or a resident but not ordinarily resident (NOR) in your first two years of employment in India, you will generally only be liable for tax on investment income earned in India.

Interest

For residents, NORs and non-residents, Indian-sourced interest income is generally treated as ordinary taxable income in India, and has withholding tax of 10% deducted at source. This rate is increased to 20% if you do not provide your PAN to the interest payer. If your actual income tax rate is higher than this you will need to pay the difference when you submit your tax return. There is an allowance of Rs10,000 on which no tax is payable applied to interest earned from savings bank accounts only. This does not apply to fixed or recurring deposits. Income from bonds issued by certain government-owned infrastructure companies is tax exempt. If you are a resident you will also have to pay tax on interest received from other countries, and may be subject to withholding taxes in the country of origin. For residents, NORs and non-residents, if the country of origin of interest payments has a suitable tax treaty with India, the amount of tax that can be charged by the country of origin is generally reduced.

Rental income

Generally rental income is treated as ordinary income for residents, NDRs and non-residents alike. However for an individual, taxable rental income from an Indian residential property is calculated after a deduction of 30% for repairs, maintenance and other expenses. Additional deductions include interest paid on a mortgage and property insurance. In certain cases tax will be withheld by the tenant and paid directly to the Tax Department. If you actual income tax rate is higher than that applied to the rent withheld, you will need to pay the difference when you submit your tax return. If you are a resident you will also have to pay tax on rental income from outside India and may be subject to withholding taxes in the country of origin.

Dividends

For residents, NORs and non-residents, dividend income from Indian sources must be reported with all your other income on your tax return. There is no withholding tax on dividends in India. Residents also have to pay income tax on dividends received from other countries, and may be subject to withholding taxes in the country of origin. For residents, NDRs and non-residents, if the country of origin of dividend payments has a suitable tax treaty with India, the amount of tax that can be charged by the country of origin can be substantially reduced.

Capital gains

For residents, NDRs and non-residents, long capital gains accrued in India are generally taxed at a rate of 20%. Short-term capital gains are taxed as ordinary income; this generally applies to assets held for less than 36 months. Both must be reported on your tax return. Sales of shares and securities on which securities transaction tax has been paid are taxed at lower rates. Residents also have to pay tax on capital gains made in other countries.

 

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