DETERMINING YOUR LIABILITY TO TAX IF YOU ARE NON-RESIDENT OR NOT ORDINARILY RESIDENT IN INDIA

Transcription

1 DETERMINING YOUR LIABILITY TO TAX IF YOU ARE NON-RESIDENT OR NOT ORDINARILY RESIDENT IN INDIA

2 Determining residency status Your liability to tax in India in a given tax year depends on your residency status. This is defined in the Income Tax Act 1961 (ITA) and is based on the number of days you spend in India. Determining residency status The ITA deems you as resident in India in a financial year (1 April to 31 March), and therefore liable to Indian tax on your worldwide income, if: you are present in India for 182 days or more during the financial year, or you are present in India for 60 days or more in the tax year and you have stayed in India for a total of 365 days or more in the previous four financial years. Those who do not meet the criteria are deemed as non-resident for the relevant tax year, and are liable to Indian tax only on income that arises or accrues in India. The ITA also defines a further residency category Not Ordinarily Resident, which applies to you if: you have been non-resident in India in nine out of the 10 tax years preceding the year under review, or you are present in India for 729 days or less immediately prior to the tax year under review in the preceding seven tax years. You can be deemed to be not ordinarily resident for up to two tax years. This means you are liable to Indian tax only on income that is accrued, received or deemed to be received in India. You are also liable to Indian tax on income that accrues or arises outside of India but was generated by an Indian business you control. The example below shows how the rules operate: The outcome will result in an individual being Non Resident NR, Not Ordinarily Resident NOR or Resident R. Aarav returns to India on 1 June 2014 to live and work permanently in the country. He has not been present in India in any of the previous 10 tax years. Tax Year Presence NOR tests NOR test results Residence Status 2003/04 to 2013/14 0 days Not applicable NR 2014/ days 2015/ days 2016/ days 2017/ days 9 out of 10 previous tax years NR Yes Less than 730 days in India in previous 7 tax years Yes 9 out of 10 previous tax years NR Yes Less than 730 days in India in previous 7 tax years Yes 9 out of 10 previous tax years NR No Less than 730 days in India in previous 7 tax years No 9 out of 10 previous tax years NR No Less than 730 days in India in previous 7 tax years No NOR NOR R R The tax details stated in this document will apply if you qualify as a non-resident or not ordinarily resident in India. Old Mutual International life assurance and capital redemption policies will not be taxable in India if you qualify as a NR or NOR. The tax treatment will only apply if you receive the maturity/surrender proceeds of the policy into your bank account into India. In case of any double taxation, subject to fulfilment of the conditions specified in the ITA or any other applicable tax treaty, you may be able to claim credit for any tax paid. 2

3 Which assets are liable to tax? Which assets are liable to income tax? The Indian Ministry of Finance s Central Board of Direct Taxes administers the direct taxation system. For tax purposes, the tax year is from 1 April to 31 March. Tax is payable on your normal income, capital gains (both long and short term) and on certain gifts you receive. There is no tax due on your wealth or estate on death. The ITA contains legislation to tax individuals on their income and capital gains. Normal income The income tax rates for the 2017/18 tax year are: Taxable Income SLAB National Income Tax Rates 1-250,000 0% 250, ,000 5% 500,001 1,000,000 20% 1,000, % Education cess (a tax to help cover government-sponsored programs) can also apply at the rate of 3% (inclusive of surcharge, if any). You can also benefit from additional income tax relief if you re deemed to be resident and are aged over 60, as follows: Individuals aged 60-80: no tax is payable until your taxable income is over 300,000. Individuals aged over 80: no tax is payable until your taxable income is over 500,000. Furthermore, if your income is below 500,000, a tax rebate of up to 2,000 is available. Tax on capital gains Tax is due when you dispose of a capital asset and make a gain. Short-term gains: Your normal progressive income tax rate will apply (plus the surcharge as applicable and education cess). Short-term capital gains arise when the asset has been held for 36 months or less. This excludes shares listed on the Indian Stock exchange, Unit trust of India, zero coupon bonds and units in specified equity-oriented mutual funds, for which the term is 12 months or less. Long-term gains: Tax is applied at a flat rate of 20% (plus the surcharge as applicable and education cess). Long-term capital gains arise when the asset has been held for more than 36 months. Certain tax exemptions are available for capital gains on long-term assets if specified conditions are met. 3

4 Tax on gifts There is no gift tax charged on donors in India but recipients of certain gifts, made without consideration or inadequate consideration, are subject to an income tax charge if: the fair market value of the gift is more than 50,000; or the consideration received is less than the fair market value of the gift by 50,000. The gifts covered by the legislation include policies provided by us, but there are certain exemptions in place whereby no tax is payable. Please see page 6 for more information. Wealth Tax Wealth Tax has been abolished by the Finance Act, Inheritance Tax Estate duty was removed in 1985 so, if property is inherited by an individual as the result of a death, the estate does not pay Inheritance Tax. 4

5 HOW OUR CAPITAL REDEMPTION POLICIES ARE TAXED IN INDIA For the purposes of taxation in India, Old Mutual International s capital redemption policies are capital assets. Establishing the Investment When setting up a single premium bond or regular savings policy, there is no tax on the initial investment, additional single premium investments or ongoing contributions. Investment growth inside the policy There is no Indian tax liability on any growth inside the policy, prior to withdrawing capital, provided the funds held under the policy are for a personal investment and are not business assets. Old Mutual International is based in the Isle of Man. No tax is payable by us on income and gains. So, you benefit from gross returns on your investment, except for any nonrecoverable withholding taxes for example, on US share dividends. Withdrawing money from the policy You can make withdrawals from the policy in a number of ways: regular periodic withdrawals partial lump-sum withdrawals full surrender, (which brings the policy to an end) on the maturity date, when relevant. You will be liable to tax at your progressive rates of tax (plus surcharge as applicable and education cess) on any profit arising when money is withdrawn after 36 months from the start date of the contract. Certain tax exemptions are available with respect to capital gains, on long-term assets, subject to specified conditions. Please contact your tax adviser to discuss your individual circumstances. Making a gift of the policy to another individual transferring a capital asset An individual transfers a capital asset when they sell, transfer or relinquish it, giving up all the rights to benefit from the asset. Savings and investment policies can be transferred by way of assignment, during the lifetime of the policy owner or on death. When a gift of a capital asset is made without consideration, it does not create a liability for the donor as India does not have gift tax. However, the tax position for the recipient depends on their residency status and relationship to the donor. Individuals who qualify as non resident/not ordinarily resident are not liable to pay tax on receiving one of our policies as a gift. The general rule for residents is that a gift for no consideration, the fair market value of which is in excess of 50,000, is taxable in full on the recipient at the normal progressive rates of Income Tax. There are exceptions. The recipient is not liable for tax, provided the gift is: from any relative made on the occasion of marriage made under a will received by way of inheritance made in contemplation of the death of the donor. 5

6 CONTINUING YOUR POLICY AFTER BECOMING RESIDENT IN INDIA Foreign Exchange Management (Insurance) Regulations 2000, as amended, prohibit a resident from purchasing a new LIFE assurance policy from an Insurer outside India, without first obtaining Reserve Bank of India (RBI) approval. However, the rules are different if the life assurance policy was purchased whilst non-resident. The owner in this case can continue with the life assurance policy on their return to India, without first having to obtain RBI approval. Residence for the above regulations is not the same as described earlier in this guide. In this case it is defined as a person: residing in India for more than 182 days during the previous financial year; staying in India on taking up employment; or carrying on a business or vocation in India; or indicating by any other circumstances that their intention is to stay in India for an uncertain period. The Liberalised Remittance Scheme (LRS) enables further investment to be made up to US$ 250,000 in the aggregate each financial year from funds held in India, for permissible capital investment transactions, including Old Mutual International policies and other current account transactions. Example Amit has worked in the United Arab Emirates (UAE) for the last 10 years and wants to return home to India to live permanently with his family. Whilst resident in the UAE, Amit purchased a life assurance policy with an original investment of US$250,000 and made regular additional investments each year. The LRS allows Amit to continue investing without RBI approval up to US$250,000 each year in the aggregate in permitted capital account transactions, including Old Mutual International s life assurance policy. Using the LRS, further investment can be made and ongoing contributions can continue so a return to India doesn t mean having to terminate existing offshore investments. Therfore, if you return to India, you can continue to make payments to your existing life assurance policies either using money in overseas foreign currency accounts, or resident foreign currency accounts maintained with an authorised dealer or as a remittance from India using the LRS. If you become an Indian resident and continue to fund your life assurance policy using the LRS, under current regulations, it is a requirement that any money received from the policy as; part of a claim; or full surrender; or partial withdrawal must be repatriated to India through normal banking channels within seven days of receipt of the money. 6

7 BENEFITS OF AN OFfSHORE LIFE ASSURANCE POLICY Aside from the possible tax benefits, offshore life assurance and capital redemption policies (also known as offshore bonds ) can also offer a number of other advantages, particularly when compared to holding a range of different assets in an unwrapped investment portfolio. The convenience of being able to amalgamate a variety of assets into one product is further enhanced with consolidated reporting and removes the individual asset paperwork, dividend receipts and tax returns. In addition, updated customer due diligence may not necessarily be required when you buy or sell assets within the life assurance policy. All of this may help save costs (less work for your Accountant), and will most certainly save time and effort. The offshore bond comes with online access with just one log-in process rather than across multiple sites. Whether online or offline, you can manage your bond and underlying investments, easily moving between assets. All deals are co-ordinated by us (or an agreed 3rd party) with one consistent dealing process rather than dealing with multiple different fund managers and stock brokers. We place multiple deals on behalf of investors every day and as a result can negotiate higher interest rates on deposits, reduced initial fund charges and also ensure that fund managers provide high service standards. We also provide you with the option to pay in, withdraw and invest in multiple currencies. As all assets are held in one clearly identifiable offshore bond, it makes it easier to place the bond into a trust. We have a range of trusts available, designed to cover common situations. Assuming trusts are recognised in your country of residence, they can be valuable as part of comprehensive generation planning, especially where forced heirship is a concern or there is a complicated family structure. Trusts can also avoid or simplify probate issues. And these benefits can be complemented by our professional trustee service, Old Mutual International Trust Company, which is available at a very competitive fee. 7

8 Please note, your investment may fall or rise in value and you may not get back what you put in. This document is based on Old Mutual International s interpretation of law and tax practice as at November We believe this interpretation is correct, but cannot guarantee it. Tax relief and the tax treatment of investment assets may change in the future. Calls may be monitored and recorded for training purposes and to avoid misunderstandings. Old Mutual International Isle of Man Limited is registered in the Isle of Man under number 24916C. Registered and Head Office: King Edward Bay House, King Edward Road, Onchan, Isle of Man, IM99 1NU, British Isles. Phone: +44 (0) Fax: +44 (0) Licensed by the Isle of Man Financial Services Authority. All promotional material is approved by Old Mutual Wealth Limited. Old Mutual Wealth Limited is authorised and regulated by the Financial Conduct Authority. Financial Services register number The rules made under the Financial Services and Markets Act 2000 (as amended) for the protection of retail clients in the UK do not apply. Old Mutual International Isle of Man Limited is a member of the Association of International Life Offices. Old Mutual International is registered in the Isle of Man as a business name of Old Mutual International Isle of Man Limited. SK11816/INT /November 2017 (life assurance version)