r2i forum

We have a thread My silly finance question ! in the Finance General sub forum.

Many simple tax related questions get posted in this sub forum and we merge them to above thread in Finance General.

We are creating this thread here so tax related simple queries can go here.

Simple finance queries can go in either thread with prefarbly tax related queries in this thread.

Hello Folks,
I'm planning to r2i soon and I had a question regarding the definition of RNOR. The definition as per GOI is as follows -

Resident but not Ordinarily Resident (RNOR) is a person who satisfies any one of the following two conditions ---
a) he has been a non-resident in India in nine out of the ten previous years preceding that year, or
b) has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, 729 days or less.

How is a year considered - is it tax year or is it considered as per the date of individual's return? If it is tax year, I suppose it is the Indian tax year (i.e. April-March).

I'm checking on my options for withdrawal from 401K/RothIRA and am trying to plan the right date for my move between Sep-Dec 2007.

I could not find any thread devoted to RNOR so I started a new one. someone please point me to the right thread if one alread exists.

Thanks!

My Simple /Silly Tax related question

MT: General Indian Taxes

are appropriate threads to post questions such as yours (Admin please move the posts in this thread to one of the threads above).

Now to your questions and their answers:

How is a year considered - is it tax year or is it considered as per the date of individual's return?

Indian tax / financial year.

If it is tax year, I suppose it is the Indian tax year (i.e. April-March).

Yes, April 1 to March 31.

There is an RNOR Calculator that Member Sohu posted in the old MSN forum. I dont know if it is available in the new forum.

I dont think that the RNOR Calculator spreadsheet is on the new forum. I should copy it to the new forum. In the mean time, you can browse the documents section in the old MSN forum for the RNOR Calculator. Hope it helps.

I was able to look up the calculator and other threads on the old forum.

Thanks Bobus!

Based on RNOR excel sheet, I should have RNOR status till 2010 but I am not sure what will be impact of earning US salary. I am GC holder.

Where (US or India) will the work be done for the salary you refer to above?

After R2I, I will have no income in India but plan to invest on behalf of my children who are USC. What would be tax impact as they will be 4 and 6 by then.

What is the source of the assets to be invested in the name of the children?

I have about 60K in 401K and no IRA and plan to withdraw only to manage tax etc. I am thinking that I should withdraw funds after 4/4/08. Please confirm if this makes sense.

Not obvious. Please explain the rationale.

How should we plan on moving this money to India?

Via normal banking channels.

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Some comments:

US Taxes

(a) A GC holder has to file as US resident until GC is relinquished even if GC holder spends 365 days in Antartica. Same holds true for USC until USC is relinquished.

(b) Someone who has to file as US resident is subject to US tax on global income (global income includes income if any from Mars and income of all types i.e. rent, salary, capital gains, interest, dividends, ...).

(c) Someone who can file as US resident is eligible to file as MFJ (if married). MFJ filing means that income of both spouses will be combined.

India Tax

(i) Salary for work done in India (even sitting in front of a terminal at home or in a hill station - so does not have to be in an "office") accrues in India (location of where work is done is the key), even if paid in Martian Currency and credited to a bank in Jupiter by an employer based in Pluto.

(ii) Income that accrues in India is subject to India tax, regardless of residential status of employee.

(iii) However if certain India-US tax treaty conditions are met, salary for work done in India by a non-resident of India will be exempt from India taxes. These conditions are that the employer should not be a resident of India, and employer shd not have a permanent establishment in India that bears the burden of the salary.

(iv) Income that accrues outside India is exempt from India taxes if the income accrues to a non-resident of India or an RNOR.

I suggest you read the above carefully, and answer the questions asked, if you want to pursue the issues you have raised further.

Thank you so much for your detailed comments on GS, US Tax and Tax in India. I will do more research before I ask follow up question. I found another relevent thread http://www.r2iclubforums.com/clubvb/showthread.php?t=1553

Here are answer to some of your questions.
Where (US or India) will the work be done for the salary you refer to above? [India]

What is the source of the assets to be invested in the name of the children? [My salary given by Us employer, for work to be done on India soil]

Not obvious. Please explain the rationale(401 K). I will stop earning US salary before current tax year ends for Indian IT year. So I am thinking that may be I shodul start withdrawing money from 401 starting next India tax year from my 401K (I will rollover 401K to IRA after leaving US job)

Thanks again....

Where (US or India) will the work be done for the salary you refer to above?

[India]

Then the salary accrues in India and is subject to India tax, per Indian tax law, regardless of residential status of employee.

The only possible way to avoid India tax on the salary above is by appealing to the India-US tax treaty. For the appeal to have merit, conditions mentioned in a prior post need to be met.

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What is the source of the assets to be invested in the name of the children?

[My salary given by Us employer, for work to be done on India soil]

Then per India tax law (Section 64), the income of the children will be clubbed with yours and taxed in your hands.

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I have about 60K in 401K and no IRA and plan to withdraw only to manage tax etc. I am thinking that I should withdraw funds after 4/4/08. Please confirm if this makes sense.

Not obvious. Please explain the rationale.

I will stop earning US salary before current tax year ends for Indian IT year. So I am thinking that may be I shodul start withdrawing money from 401 starting next India tax year from my 401K (I will rollover 401K to IRA after leaving US job)

India does not have any right to tax IRA withdrawals that are taken into US bank account. India has a right to tax only accruals (realized cap gains and dividend distributions by underlying funds) in IRA that occur when owner is ROR.

For US tax, if you are filing MFJ, you need to consider spouse's income too in planning your IRA withdrawals. Of course, there is the possibility of appealing to India-US tax treaty after verifying the conjecture described in the thread you refered to.

Then the salary accrues in India and is subject to India tax, per Indian tax law, regardless of residential status of employee.
The only possible way to avoid India tax on the salary above is by appealing to the India-US tax treaty. For the appeal to have merit, conditions mentioned in a prior post need to be met.
[Catonmat ? I assume that it will make no difference from TAX POV, if the person is working or on paid vacation. ]
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Then per India tax law (Section 64), the income of the children will be clubbed with yours and taxed in your hands.
[Catonmat ? Thanks. I need to find our more on process as kids have PIO, so in terms of requirement etc for investing on their name.]
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India does not have any right to tax IRA withdrawals that are taken into US bank account. India has a right to tax only accruals (realized cap gains and dividend distributions by underlying funds) in IRA that occur when owner is ROR.
For US tax, if you are filing MFJ, you need to consider spouse's income too in planning your IRA withdrawals. Of course, there is the possibility of appealing to India-US tax treaty after verifying the conjecture described in the thread you refered to.
[Catonmat ? In that case, looks like withdrawal will make sense after both of us R2I]
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