Non-resident holding resident bank and Demat account

Dear CA Professional. 

I work for a renowned IT company and am sent overseas for International Assignments. On my existing assignment in Kenya, am being paid onsite allowances while I continue to get India salary in my resident Indian bank account.
Please note that I have not credited any money from overseas into my India bank account and neither have I repatriated any India income outside the country.

My employer informed me in July 2016 that my Tax status was Non-Resident for FY 2015-16. However I continued to receive my India salary in resident bank account and I continued to trade in Indian Stock Market through a residential trading/demat account.

In the above context, kindly advise on the below --
1. Have I broken any Indian law and specifically on FEMA act ?
2. In case I have broken any law, then what corrective action I need to take ?

Many thanks for your kind help.
Regards
Asked 4 months ago in Professional Tax from Nairobi, Kenya, Delhi
Hi,
In a layman’s language, a Non-resident means a person who does not reside in India, or who is a foreigner.

The residential status of a person under the Indian tax laws is governed by section 6 of the Income Tax Act, 1961
A person is RESIDENT in India if:

a. He has stayed in India in that year for a period OF ATLEAST one hundred eighty two days. For example, in the Financial Year 2012-13, he has stayed in India for a minimum of 182 days, either at a stretch or in parts;OR

b. He has stayed in India in that year for a period of sixty days AND three hundred sixty five days over a period of four years prior to that year.
Exception to the above rule:
1) in case of an individual, who is citizen of India and who leaves India in any financial year for the purpose of an employment outside India, the 2nd condition stated above shall not be applicable and only 1st condition of 182 and minimum will be applicable.
2) in case of an individual who is citizen of the India or a person of an Indian origin and who being outside India comes on a visit
Vishakha Agarwal
CA, Bangalore
213 Answers
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  Talk to Vishakha Agarwal
Hi,
In a layman’s language, a Non-resident means a person who does not reside in India, or who is a foreigner.

The residential status of a person under the Indian tax laws is governed by section 6 of the Income Tax Act, 1961
A person is RESIDENT in India if:

a. He has stayed in India in that year for a period OF ATLEAST one hundred eighty two days. For example, in the Financial Year 2012-13, he has stayed in India for a minimum of 182 days, either at a stretch or in parts;OR

b. He has stayed in India in that year for a period of sixty days AND three hundred sixty five days over a period of four years prior to that year.
Exception to the above rule:
1) in case of an individual, who is citizen of India and who leaves India in any financial year for the purpose of an employment outside India, the 2nd condition stated above shall not be applicable and only 1st condition of 182 and minimum will be applicable.
2) in case of an individual who is citizen of the India or a person of an Indian origin and who being outside India comes on a visit to India in any financial year, the 2nd conditions stated above shall not applicable and only the 1st condition of 182 days

TAX INCIDENCE:
1)In case of a Resident & Ordinarily Resident, his income earned anywhere around the globe is taxable in India, subject to provisions of Double Taxation Avoidance Agreement if applicable to the countries in which such income is earned.
2)In case of a Non-resident, only income actually earned in India or which is deemed to be earned in India is taxable. 
So in your case- As you are receiving salary in India though you are staying  and working In Kenya, you need to check whether you are paying any taxes in Kenya on salary received in India, if it is a case then It is salary earned in Kenya but received in India, no tax is to be paid in India for the salary received in India.
INCOME FROM INVESTMENTS IN CASE OF A NON-RESIDENT:

Interest received by a non-resident from any person in India or from the government is taxable in India.

Following are some of the incomes from investments in India which are exempt from tax in case of a non-resident:

1. Interest credited to an NRE Account of non-resident Indians
2. Interest paid by a scheduled bank on RBI approved foreign currency deposits.
3. Certain specified dividends and income in respect of units of mutual fundsThe above list of incomes from investment is not exhaustive as there are other types of incomes which are not subject to tax, but may not be directly applicable to an INDIVIDUAL.
So in your case, dividends received from shares traded in Indian Stock Market are tax free. any short term capital gain arises from sale of shares in India are taxable, in your hands.

As regards FEMA:
Foreign Exchange Management Act defines a NRI as ‘an individual who stays in India for more than one hundred and eighty two days during the course of the preceding financial year will be treated as a person resident in India.’ The exceptions to this definition state that:

    If a person goes/stays outside India for (a) taking up a job, (b) carrying on any business or any vocation, or (c) for any other purpose, for an uncertain period, he will be treated as a person resident outside India, that is a Non-Resident Indian; AND
    If a person who is residing abroad, comes/stays in India for (a) taking up a job, (b) carrying on any business or any vocation, or (c) for any other purpose, for an uncertain period, he will be treated as person Resident in India.

NON-RESIDENT INDIANS AND BANKING ACCOUNTS

As per the guidelines issued by the Reserve Bank of India from time to time, NRIs are allowed to open and operate certain type of banking accounts. The guidelines are in the form of Master Circulars and various Master Circulars are issued by the RBI on various matters. The latest Master Circular relating to interest rates on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts was issued on July 1, 2013. The salient features of the Master Circular are explained in the following paragraphs.

Ordinary Non-Resident (NRO) Accounts

NRIs can open NRO Deposit Accounts for collecting their funds from local bonafide transactions. Since NRO is a Rupee deposit account, the exchange rate fluctuation risk is borne by the account holder himself. NRO Accounts can be maintained as savings, current, recurring or term deposits. The principal of NRO deposits is non-repatriable, but current income and interest earning can be repatriated. A NRI/PIO can remit an amount, not exceeding USD 1 million per financial year, out of balances held in NRO account/sale proceeds of assets/assets acquired in India by him, by way of inheritance or legacy, subject however to, providing evidence of such  acquisition, inheritance or legacy as the case may be. There are further additional compliances that need to be met in order to repatriate the proceeds up to the limit stated hereinbefore.

Non Resident (External) (NRE) Accounts

The Non-Resident (External) NRE Account, also known as the NRE Scheme, was introduced in 1970. Any NRI can open an NRE Account with funds remitted to India through a bank abroad. This is a repatriable account and transfer from another NRE Account is also permitted. An NRE Account may be opened as a savings, current or term deposit account. A NRI can use his NRE Account to make local payments also. Since an NRE account is a Rupee deposit account, the depositor is exposed to exchange risk. NRIs and PIOs have the option to credit their current income to NRE Rupee accounts, provided the Authorised Dealer (AD) is satisfied that the credit represents current incomes of the non-resident account holder and such income is credited after giving due effect to tax at source thereon.
Vishakha Agarwal
CA, Bangalore
213 Answers
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Hi, 
No you have not committed any illegal act, but you need to change your residential status in your Demat account and  bank accounts SHOULD BE CONVERTED into NRO accounts.
As per FEMA regulation, when a status changes to NRI the resident savings account have to be converted to a NRO account.All income which is receivable in India such as rentals from property, investments, pension etc has to be deposited in this account and any payment towards insurance premiums or EMIs on loans which you availed while in India also has to be mandated from NRO account. For this you need to inform your bank on status change within a reasonable time period.(This period is not defined but you can consider maximum 3 months) The bank then will designate your existing resident account to NRO account and your payment will continue as it is. Alternatively, you have an option to close existing account and open a new account in case you choose to change your bank.Do remember that if you continue the resident savings account and it come to the notice you will be penalized for the same. 
The Reserve Bank of India (RBI) has allowed non-resident Indians (NRIs) to operate resident bank accounts on “either or survivor” basis. According to RBI, banks may include an NRI close relative in existing / new resident bank accounts as joint holder with the resident account holder on “either or survivor” basis, subject to fulfillment of a few conditions.The resident relative can operate the account as a Power of Attorney holder during the life time of the NRI/ PIO account holder.
hope it resolve your query.
Vishakha Agarwal
CA, Bangalore
213 Answers
5.0 on 5.0
  Talk to Vishakha Agarwal

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