1. NRI Meaning:

• Non-Resident Indian (NRI) refers to an Indian citizen or a person of Indian origin who resides outside India for employment, business, or any other purpose indicating an indefinite stay abroad.

2. NRI Status Calculation Process:

• NRI status is determined based on the individual’s physical presence in India during a financial year (April 1 to March 31).
• If an individual stays in India for less than 182 days in a financial year, they are considered an NRI for that year subject to meet out other conditions of status determination

3. Income Tax Applicable to NRIs:

• NRIs are taxed on income earned or accrued in India, such as income from property, capital gains, interest, dividends, etc.
• Income earned outside India is generally not taxable in India for NRIs.
• The tax rates applicable to NRIs are the same as those for residents of India.

4. Interest in NRE and NRO Accounts:

• NRE (Non-Resident External) accounts: Funds in NRE accounts are freely repatriable (can be transferred abroad) and are exempt from Indian taxes, including interest earned.
• NRO (Non-Resident Ordinary) accounts: Funds in NRO accounts are not freely repatriable, and the interest earned is subject to Indian taxes.

5. Double Taxation Avoidance Agreements (DTAA):

• DTAA aims to prevent double taxation of income in two countries.
• NRIs can benefit from DTAA provisions by claiming tax credits or exemptions in one country for taxes paid in the other country.

6. High-Value Transactions to be Kept in Mind by NRIs:

High-value transactions for NRIs can include various activities or financial transactions that involve significant sums of money or assets. Here are some examples of high-value transactions that NRIs should be mindful of:

Property Transactions:

• Purchase or sale of real estate: NRIs investing in or disposing of property in India should be aware of the high value associated with real estate transactions. This includes buying, selling, or gifting property.
• Rental income: NRIs earning rental income from properties in India should keep track of the high-value transactions associated with rental payments, lease agreements, etc.

Investments:

• Stock Market Investments: NRIs investing in the Indian stock market may engage in high-value transactions through buying or selling shares, mutual funds, or other securities.
• Fixed Deposits and Financial Instruments: Investments in fixed deposits, bonds, debentures, and other financial instruments may involve significant sums of money.

Banking and Remittances:

• Transfer of Funds: NRIs transferring large sums of money to or from India for investment, business, or personal purposes should be aware of the high-value nature of these transactions.
• Foreign Currency Accounts: Opening or closing foreign currency accounts, especially NRE and NRO accounts, involves high-value transactions that NRIs should monitor.

Loans and Borrowings:

• Loans and Mortgages: NRIs obtaining loans or mortgages from Indian banks or financial institutions for property purchase or other purposes may involve high-value transactions.
• Repayment of Loans: NRIs repaying loans or mortgages to Indian lenders also constitutes high-value transactions.

Business Transactions:

• Setting up Business Entities: NRIs establishing businesses or investing in Indian companies may engage in high-value transactions related to company formation, capital infusion, etc.
• Commercial Contracts: Business agreements, contracts, and transactions involving significant monetary values should be carefully documented and monitored.

Tax Payments and Compliance

• Payment of Taxes: NRIs fulfilling their tax obligations in India, including payment of income tax, property tax, or other levies, may involve high-value transactions.
• Compliance Reporting: Meeting reporting requirements for high-value transactions, such as filing tax returns, disclosing foreign assets, and complying with regulatory norms, is essential for NRIs.

7. Tax Filing for NRIs:

• NRIs are required to file income tax returns in India if their total income exceeds the basic exemption limit.
• Even if income is below the taxable threshold, filing a return may be necessary to claim a refund of taxes withheld at source or if certain types of income (like capital gains) are involved.
• Timely filing of tax returns and compliance with reporting requirements are crucial for NRIs to fulfill their tax obligations in India.

For personalized advice and assistance with tax matters, NRIs should consult with qualified tax professionals or chartered accountants familiar with Indian tax laws and regulations pertaining to NRIs.

When U.S. stocks are given to an employee in India, taxation can be complex due to the international nature of the income and the need to consider tax regulations in both the United States and India. Here’s a simplified overview of how taxation generally works for such cases, keeping in mind that tax laws are subject to change and can vary based on specific circumstances. Always consult a tax professional for advice tailored to your situation.

1. At the Time of Granting Stock Options:

In general, if the stock options are granted to the employee but not vested, there is no immediate tax implication in India. The taxation event occurs at the time of exercise.

2. At the Time of Exercise:

When an employee exercises their stock options (i.e., buys the stock), the difference between the exercise price and the fair market value (FMV) of the shares is taxed as a perquisite (a benefit in addition to salary) under the head “Salaries.” This is subject to income tax according to the individual’s income tax slab rates in India.

3. At the Time of Sale:

When the employee eventually sells the stocks, the gain from the sale is subject to capital gains tax. The tax rate depends on whether it’s a short-term or long-term capital gain:

• Short-term Capital Gains (STCG): If the stocks are held for less than 24 months from the date of exercise, the gain is considered short-term and is taxed according to the individual’s income tax slab rates which is applicable.
• Long-term Capital Gains (LTCG): If the stocks are held for more than 24 months, the gain is considered long-term and is taxed at 20% with indexation benefits, which adjust the purchase price for inflation to calculate the gain.

4. Double Taxation Avoidance Agreement (DTAA):

India has a DTAA with the U.S., which means taxpayers can avoid being taxed twice on the same income. If taxes are paid in the U.S. on the income from the sale of stocks, you may be eligible for a credit for those taxes against your tax liability in India. The specifics depend on the DTAA provisions and should be reviewed carefully.

5. Tax Filing in India:

It’s important for the employee to disclose international assets and foreign income in their Indian tax return if they qualify as a resident for tax purposes in India.

If you receive the RSU of a foreign company, you must disclose it under the Foreign Asset Schedule (FAS). If you paid taxes at vesting by selling shares, those shares wouldn’t be mentioned in FAS. While selling your RSU holdings, you pay tax only on the profit made and not the entire value of the shares. This also helps in avoiding double taxation

Non-disclosure can lead to penalties and interest and further Scrutiny by the tax department

6. Documentation:

Maintaining detailed records of the dates of grant, exercise, sale, and the amounts involved is crucial for calculating taxes accurately and for compliance with both U.S. and Indian tax laws.

This overview is a simplification, and the actual tax implications can vary greatly based on individual circumstances, specific types of stock options (e.g., ESOPs, RSUs), and changes in tax laws.

We will recommend to Consult with a tax professional who has expertise in cross-border taxation to navigate these complexities.