OCI Tax Implications
Taxation of OCI cardholders living in India is a confusing prospect for many. Many of the OCI cardholders who are living in India are not aware of the OCI tax implications in India. The OCI cardholders should know that while they enjoy the benefits of being an OCI, they could also be liable to pay tax on their income generated. However, the taxation of OCI holders living in India is not very complicated and is similar to the taxation of resident Indians. The OCI card grants you same rights to purchase property as an NRI. You are likely to be taxed on your income generated in India, as well as any capital gains tax for the current fiscal year. In order to get more information regarding the income tax liability for OCI holders in India, continue to read this article.
How Can You Determine Your Residential Status For The Current Financial Year?
Before we go into the details of taxation of OCI holders living in India, we will first need to ensure that your residential status is. This is calculated on a yearly basis. This is because the tax you pay is levied based on your residential status for the year. You will be considered a resident of India for the current fiscal year if you meet either one of the following criteria:
- You have lived in India for 182 days or six months in the current year
- You have lived in India for 60 days in the current financial year and you have been in India for more than 365 days in the past four years.
However, if you have just moved to India from abroad, then you may be eligible for the Resident But not Ordinary Resident (RNOR) status. You are considered an RNOR for the current year if:
- You have been a non-resident for 9 out 10 of the past years.
- You have been in India for 729 days or less in the past seven years.
The difference between taxation of an ordinary resident and RNOR is that while the ordinary resident will be taxed on their global income, an RNOR will be taxed only on income generated from India. Your earning from abroad will be exempt from taxes.
When Should You File Tax Returns?
As an OCI holder living in India, you should file your income tax returns if you meet one of the following criteria:
- Your taxable income in India exceeds the minimum slab of exception, which is currently at INR 1.6 lakh.
- You have earned short-term or long-term capital gains from sale or investment in assets. Even if the amount is less than the slab, you will still have to pay this tax.
What Is The Best Way To File Tax Returns In India?
One of the easiest ways to pay taxes in India is online. There are several portals through which you can pay your tax. Otherwise, you can choose to send all your documents to a tax expert in India who could calculate and pay the taxes on your behalf. If you are living abroad, you can also pay your taxes using a Power of Attorney.
How Can You Avoid Double Taxation?
This is one of the major concerns for any OCI holders. Some countries, like USA tax their citizens on their global income. So if you are a US citizen with an OCI card living in India, you may be required to file taxes in the United States as well. In such a case, you will have to make use of the provisions of the Double Taxation Avoidance Agreement (DTAA), and claim a tax credit from USA. As this varies from country to country, you should get in touch with a qualified Chartered Accountant to ensure that you avoid double taxation.
Are there any Exceptions?
There are two notable exceptions you should know about. These are:
- If your income includes only investment income (like interest) and capital gains income where the tax has been deducted at the source, then you will not have to file your tax returns again.
- If you have earned long-term capital gains from the sale of equity shares or mutual funds, you will not be taxed for this income and you will not have to file your returns.
Now that you have a clear idea about the taxation of OCI cardholders living in India, you have already won half the battle. You can surely see now that the OCI tax implications in India for you are not all that complicated. Once you have settled your income tax liability for OCI holders in India, you can surely continue to enjoy the benefits of being an OCI. We hope this article has helped clear up all your confusion regarding taxation of OCI holders in India.