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Anil

Anil Rego  |346 Answers  |Ask -

Financial Planner - Answered on Aug 26, 2022

Anil Rego is the founder of Right Horizons, a financial and wealth management firm. He has 20 years of experience in the field of personal finance.
He’s an expert in income tax and wealth management.
He has completed his CFA/MBA from the ICFAI Business School.... more
Subbiah Question by Subbiah on Aug 26, 2022Hindi
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I am an NRI. So far I have not filed any income tax. My Indian income is INR 19000 per month through rental income.

I am having a resident demat account and having stocks. I have few MFs for which money is deducted from my wife's resident bank account. My wife is not working and she is with me. I am also having SSY for my daughters and continuing.

Is it okay to have the above accounts being an NRI? Can you please advise course correction if needed?

Ans: NRIs need to convert their accounts to a Non Resident Account status for all their bank accounts and also for their mutual fund and demat accounts. You can approach the respective financial institution to change your status. It may be noted that for NRIs, tax will be deducted at source.

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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I am staying in India from around 4 years and working as a consultant in a Mexican Company (previously I was residing there, but now working from India) and getting income from Mexico. I am also paying tax on my abroad income I am getting in my NRO/ NRE account with Axis Bank. I want to know if I am an NRI or Resident Indian? Whether, I can open Mutual Fund account with NRI status or Resident India status? What will be the tax implications? Please guide me as I am not getting proper explanation.
Ans: Based on available details, you seem to be resident and ordinary resident for income tax purpose.

You can always check status at calculator provided at income tax website (external link)

Accordingly, you should inform bank about change in residential status immediately and change the type of account (NRO/NRE Account).

Also you have to open account as resident for MF and tax implications will arise at the time of transfer of mutual fund units. Tax rate will depend on type of fund (equity based or debt based) and period of holding.

Mutual funds whose portfolio’s equity exposure exceeds 65% are equity funds.

Equity funds held for 12 months or more are considered as long term, whereas it is 36 months in case of debt funds.

Short term equity funds are taxed at 15% and debt funds are taxed at slab rate.

Long term equity funds are taxed at 10% (if capital gains of exceeds Rs 1 lakh) and debt funds are taxed at 20% after indexation.

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Ramalingam Kalirajan  |5055 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 12, 2024

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Thanks a lot for your quick reply. Few queries: 1) If I understood correctly, I will have no additional taxation if I am selling the Shares and Mutual fund, once I am in Resident Indian status and a LTCG of 10% will be cal calculated. But I was planning to invest in ETF in which I will be doing Swing trading, I wanted to know what is the tax implication on that being an NRI? 2) NRE FD is good option with tax free investement , but I came across the term that if your NRI status changes to resident , the resident interest rate and taxation will be calculated. This becomes a loss for me if I change my status in 1-2 years. I was thinking to invest in FD of small finavlce banks with 9% interest. Anyways taxation is 10% above 40000 interest earned. Your suggestions please. Thanks
Ans: Tax Implications on ETFs and Swing Trading: As an NRI, any income earned from securities transactions in India, including ETFs and swing trading, is subject to taxation. Short-term capital gains (STCG) from equity investments held for less than one year are taxed at 15% plus applicable surcharge and cess. However, if you become a resident Indian again, you'll be taxed as per the resident Indian tax laws, which include LTCG tax of 10% on equity investments held for over one year. It's essential to consult with a tax advisor to understand the specific implications of swing trading on your tax liability as an NRI.

NRE FDs vs. Small Finance Banks FDs: NRE fixed deposits offer the advantage of tax-free interest income and full repatriation of funds, making them an attractive option for NRIs. However, you rightly pointed out that if your residential status changes to resident Indian within 1-2 years, the interest rate and taxation will be recalculated based on resident rates. In such cases, investing in FDs of small finance banks with higher interest rates can be a viable alternative. While the interest earned above ?40,000 is subject to a 10% TDS, it's essential to consider factors like liquidity, safety, and the bank's credit rating before investing. Evaluate the interest rate differential and potential tax implications to make an informed decision based on your financial goals and risk tolerance.

Considering your investment horizon and financial objectives, it's advisable to consult with a financial advisor or tax consultant who can provide personalized guidance based on your specific situation and help optimize your investment strategy.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |5055 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 12, 2024

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Thanks for replying. Also, I found below that if my income in india i.e by bank deposits,shares,MF , PPF etc in my case exceeds 2.5L ,only then I will be taxed. Is this correct , sir! "The basic exemption limit for NRIs is INR 2.5 lakhs. If an NRI's taxable income in India during the financial year exceeds this limit, they are required to file an income tax return in India." Thanks
Ans: The statement you found is mostly correct. Here's a breakdown of tax implications for NRIs in India:

Basic Exemption Limit:

Yes, NRIs are eligible for a basic exemption limit of ?2.5 lakhs on their total taxable income earned in India during a financial year. This means if your income from Indian sources (including bank deposits, shares, mutual funds, but excluding PPF interest) is less than ?2.5 lakhs, you generally don't need to pay taxes or file an income tax return in India.
Taxable Income for NRIs:

Interest income earned on NRO accounts is taxable in India.
Dividend income from Indian companies is generally taxable in India at a rate of 20% (plus surcharge and cess if applicable).
Capital gains from selling shares or equity mutual funds in India are taxable depending on the type and holding period of the investment.
Rental income from property in India is taxable.
NRIs and PPF:

NRIs cannot open new PPF accounts, but they can continue to contribute to existing PPF accounts opened while they were resident Indians.
The good news is that interest income earned on PPF and the maturity amount are completely tax-free for everyone, regardless of residential status.
Filing Income Tax Returns:

Even if your total income is below ?2.5 lakhs, you might still need to file an income tax return in India if you want to claim a tax refund on TDS (Tax Deducted at Source) deducted from your income, such as on interest from NRO accounts.
NRIs are advised to consult with a qualified tax advisor or chartered accountant familiar with NRI taxation to determine their filing requirements and tax liabilities.
In summary, while the ?2.5 lakh limit is a general guideline, it's important to consider all your income sources in India and the specific tax treatment of each to determine your tax filing obligations.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Ramalingam Kalirajan  |5055 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 21, 2024

Asked by Anonymous - Jun 11, 2024Hindi
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I was NRI two years back but I still hold the NRE account and also I opened two ordinary non NRI accounts in some other banks . I have about 20 lakhs in NRI account... what should I do and what would be the tax implications
Ans: Having recently transitioned from being an NRI to a resident Indian, you need to reassess your financial strategy. Your situation includes Rs 20 lakhs in an NRE account and ordinary non-NRI accounts in other banks. Let's explore what steps you should take and the tax implications involved.

First, commend yourself for keeping track of your financial assets. Transitioning from NRI to resident status involves several adjustments, and you are on the right path by seeking guidance.

Transitioning Your Accounts
NRE Account
As a non-resident Indian, you were eligible to hold an NRE account. Now, as a resident, it is essential to convert your NRE account to a resident account. Here are the steps:

Inform the Bank: Notify your bank about your change in residential status.
Convert the Account: The bank will help convert your NRE account to a resident savings account or an RFC (Resident Foreign Currency) account, if applicable.
Ordinary Non-NRI Accounts
You already have ordinary non-NRI accounts, which is good. Ensure that all your accounts reflect your current residential status correctly to avoid any legal or tax issues.

Tax Implications
Interest on NRE Account
When you were an NRI, the interest earned on the NRE account was tax-free in India. As a resident, the interest income from these accounts becomes taxable. Here's how it will be taxed:

Interest Income: Interest earned on the converted NRE account will be added to your total income.
Taxation: This interest income will be taxed as per your applicable income tax slab rates.
Ordinary Non-NRI Accounts
The interest earned on your ordinary non-NRI accounts is taxable. Ensure you report this income in your annual tax returns.

Investment Strategy
Now that your status has changed, it's time to revisit your investment strategy. Here's how you can effectively manage and grow your Rs 20 lakhs:

Systematic Investment Plan (SIP)
Investing in SIPs can be a good way to grow your funds over time. SIPs provide the benefit of rupee cost averaging and compound interest.

Diversified Portfolio
Diversifying your investments can help balance risk and returns. Consider a mix of:

Equity Funds: For long-term growth.
Debt Funds: For stability and regular income.
Hybrid Funds: For a balanced approach.
Fixed Deposits
While FDs provide security, they generally offer lower returns. Allocate a portion of your funds here for stability and liquidity.

Tax-Efficient Instruments
Consider investing in tax-efficient instruments such as:

ELSS (Equity Linked Savings Scheme): These funds offer tax benefits under Section 80C and have the potential for high returns.
PPF (Public Provident Fund): Offers tax benefits and long-term savings.
Financial Planning
Regular Review
Regularly review your financial portfolio to ensure it aligns with your goals and changing market conditions.

Certified Financial Planner (CFP)
Working with a CFP can provide personalized advice, periodic portfolio reviews, and help with rebalancing your investments.

Staying Informed
Financial Literacy
Continue educating yourself about financial products and market trends. This empowers you to make informed decisions and enhances your financial planning.

Compliance and Reporting
Income Tax Returns
Ensure you report all your income, including interest from all accounts, in your income tax returns. This compliance is crucial to avoid any penalties or legal issues.

Foreign Income
If you have any foreign income or assets, ensure they are reported correctly in your tax returns.

Final Insights
Transitioning from NRI to resident status involves significant financial adjustments. Converting your NRE account, reassessing your investment strategy, and understanding the tax implications are crucial steps. Regular reviews and working with a Certified Financial Planner will help optimize your financial health. Stay informed, compliant, and strategic in your financial planning to achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |5055 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 19, 2024

Asked by Anonymous - Jul 14, 2024Hindi
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I am a 27 years old Software Engineer. I had a fixed income of 1 Lakh per month, out of which my expenses were 25k to parents, 10k to spouse and 15k monthly personal expenses. After all expenses I would save 50k per month. I recently got a job offer of 42 LPA, so my income now is 3.5L per month. I don't intend to change my lifestyle, so my expenses would still be 50k per month, and I intend to save around 3L per month. I had invested in Equity Funds once a small amount of 10k, and it had given decent returns so I would like to know how I can best utilise my new income going forward from here, not just in equity funds but everywhere, where I can invest that will help me grow. I don't have any emi or loans.
Ans: You are a 27-year-old software engineer.

Your new job offers Rs 42 LPA, so your income is Rs 3.5L per month.

Your monthly expenses are Rs 50k, allowing you to save Rs 3L per month.

You have previously invested Rs 10k in equity funds with good returns.

Financial Goals and Planning
Emergency Fund
Priority: Build an emergency fund.

Liquidity: Keep 6-12 months' expenses in a savings account or liquid funds.

Purpose: Provides financial security during emergencies.

Diversified Investment Strategy
Equity Mutual Funds
Growth Potential: Allocate Rs 1L to equity mutual funds.

Fund Types: Invest in large-cap, mid-cap, and diversified equity funds.

SIPs: Continue with systematic investment plans for rupee cost averaging.

Debt Mutual Funds
Stability: Allocate Rs 50k to debt mutual funds.

Safety: Provides stability and reduces overall portfolio risk.

Returns: Offers better returns than traditional savings accounts.

Balanced Mutual Funds
Hybrid Approach: Invest Rs 50k in balanced or hybrid funds.

Balance Risk: These funds balance equity and debt, offering moderate risk and returns.

ELSS Funds
Tax Benefits: Invest Rs 50k in ELSS funds for tax savings under Section 80C.

Equity Exposure: Provides equity exposure with tax benefits.

PPF and NPS
Long-Term Security: Invest Rs 25k in Public Provident Fund (PPF).

Retirement Planning: Consider investing Rs 25k in the National Pension System (NPS) for retirement planning.

Gold and Digital Gold
Diversification: Invest Rs 20k in gold or digital gold.

Hedge Against Inflation: Gold acts as a hedge against inflation.

Insurance Coverage
Health Insurance
Adequate Cover: Ensure you have adequate health insurance coverage for yourself and dependents.

Additional Coverage: Consider a top-up plan if needed.

Term Insurance
Life Cover: Consider a term insurance plan for financial security for your family.

Adequate Sum: Ensure the cover is sufficient to support your dependents in case of unforeseen events.

Regular Review and Adjustments
Annual Financial Review
Performance Check: Review your portfolio annually.

Rebalance: Adjust your investments based on performance and changing goals.

Final Insights
Your new income allows for substantial savings and investment opportunities. Diversify your investments across equity, debt, and balanced mutual funds. Consider tax-saving instruments like ELSS and PPF. Ensure adequate insurance coverage for health and life. Regularly review and adjust your portfolio to stay aligned with your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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