Wealth tax implications on NRI Returning India

Wealth tax implications on NRI Returning India

Wealth tax shall be levied @ 1% of net worth exceeding INR 30 Lakh on 31st March (previous year ending called valuation date) on every individual assessee on the basis of his nationality and residential status in previous year ending on March 31.

Net worth for wealth tax purposes  means aggregate value all the assets(Eligible assets), wherever located, belonging to the assessee on the March 31 (valuation date) less  aggregate value of all the debts owed by the assessee on the valuation date incurred in relation to the said assets.

The scope of net wealth in case of Indian National is determined as below:

Residential status	Assets		Debts
	Assets located in India	Assets located outside India	Debts located in India	Debts located outside India
Resident and ordinarily resident in India	Included	Included	Included	Included
Resident but not ordinarily resident in India	Included	Not included	Included	Not included unless incurred in relation to asset located in India
Non resident	Included	Not included	Included	Not included unless incurred in relation to asset located in India

Residential status shall be determined as per criteria set out in Income Tax Act, 1961. 

Wealth tax exemption for returning Indian

Wealth tax exemption is provided to Indian citizen or a person of Indian origin ,who was ordinarily residing in a foreign country and returning India with the intension of permanently residing in India.  

Exemption is provided subject to the following conditions:

1.    Individual should be a citizen of India or a person of Indian origin;

2.    He was ordinarily residing in a foreign country;

3.    He, on leaving such country, has returned to India with the intention of permanently residing in India.

Clarification on 'ordinarily residing in a foreign country' and' intention of permanently residing in India' Mad-HC V.E. Periannan V/s.CWT 1999 Section 5(1)(xxxiii) of the Wealth-tax Act, 1957){Earlier provision, now renumbering Section 5(1)(v)}, is a provision meant to encourage persons of Indian origin or citizens of India who have lived abroad for a long time and acquired assets there and who decide ultimately to settle down in India permanently. Such persons have been granted exemption under the Wealth-tax Act in respect of the assets brought by them to India and reinvested in India. Section 5(1)(xxxiii)uses the words ordinarily resident in a foreign country with reference to the persons who are eligible to claim the benefit under the section and the further qualification required to be met by them is couched in language which leaves no doubt about the intention of the Legislature. The second qualification required for such persons is that they should return to India with the intention of permanently residing therein. Those words employed in the section clearly indicate that it was not a provision made to benefit persons who ordinarily reside in India who choose to go abroad for a short time and return to their original permanent home. Such persons are not those contemplated by the Legislature when this provision was incorporated. Though the word ordinarily is not defined under the section or elsewhere in the Act, the true scope of that word does not pose any major problem of interpretation as that word has to be understood in the light of the other words used in the section. Ordinarily resident in a foreign country must be read along with the other words which require an intention to permanently reside in India after return. Ordinarily in this context refers to residence of long duration outside the country. The duration being long enough for the person to regard himself as being ordinarily resident in the country outside India and not to regard India as his permanent place of residence. A person who normally resides in India and for whom India is a permanent residence cannot claim the benefit of the section merely by travelling abroad and residing abroad for a period of one year and thereafter returning to his own country. [240 ITR 723]

Assets which are exempt if the above conditions are satisfied:

1.    Moneys and the value of assets brought by him into India; and

2.    The value of the assets acquired by him out of such moneys within one year immediately preceding the date of his return and at any time thereafter.

Period of exemption:

The exemption in this case is available for a period of seven successive assessment years commencing with the assessment year next following the date on which such person returned to India.

Moneys standing in Non-resident (External) Account:

Moneys standing in a Non-resident (External) Account on the date of his return to India shall be deemed to be moneys brought by him into India on that date;

Extract of Section 5(1)(v) for reference

Exemptions in respect of certain assets.

5. [[***] Wealth-tax shall not be payable by an assessee in respect of the following assets], and such assets shall not be included in the net wealth of the assessee—

¹⁰[¹¹[(v)] in the case of an assessee, being a person of Indian origin [or a citizen of India (hereafter in this clause referred to as such person)] who was ordinarily residing in a foreign country and who, on leaving such country, has returned to India with the intention of permanently residing therein, moneys and the value of assets brought by him into India and the value of the assets acquired by him out of such moneys [within one year immediately preceding the date of his return and at any time thereafter] :

Provided that this exemption shall apply only for a period of seven successive assessment years commencing with the assessment year next following the date on which such person returned to India.

Explanation [1].—A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India.]

[Explanation 2.—For the removal of doubts, it is hereby declared that moneys standing to the credit of such person in a Non-resident (External) Account in any bank in India in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder, on the date of his return to India, shall be deemed to be moneys brought by him into India on that date;]

Regards,

Bipul Kumar

Cell: 9560084833

bkumarca80@gmail.com