For purpose of taxation of an individual under the income tax laws, there are three residential categories of an Individual for tax purposes.
I have been working in Canada for more than 12 years and now my family and me are moving back to India for good this year on 25th Aug 2022. I have the following questions: What will be the tax implications if I sell my house in Canada and bring that money in India? I will transfer to my balance in Canada to Indian NRO account. Since I am moving back to India for good I am expected to convert NRO account to domestic account. Then won’t the interest accrued on ₹5 crore in domestic account be taxed at regular income tax?
Answer: The income is taxed in India on the basis of your residence as well as source of the income. For a tax resident his global income is taxed in India and for non-resident only Indian income gets taxed in India. For purpose of taxation of an individual under the income tax laws, there are three residential categories of an Individual for tax purposes. The resident and non-resident are two main categories. There is one more category of resident but not ordinary resident in between these two main categories. For a person who is resident and not ordinary resident income arising to him in India as well as income arising outside India from business controlled in India or profession set up in India also gets taxed in India.
You would be treated as resident but not ordinary resident presuming that in addition to satisfying the basic conditions of physical stay in India during the previous year, you were a non-resident of India for nine years out of ten preceding years or you were not physically present in India for more than 729 days during the seven years you prior to the relevant year. Since you are returning to India on 25th August 2022, you will be resident and non-resident for initial two years and any income which arises to you abroad like capital gains on selling the assets in Canada will not be taxed in India for initial two years.
Since you will come back to India for good and thus would become a resident for the purposes FEMA and thus would not be entitled to continue with your existing NRO account. You will have to redesignate all your existing NRO account as regular account and income from all your bank accounts in India will become taxable in India. In case of your NRE account, the income will be exempt for the period till you are non-resident under FEMA and once you come back to India, you will resident for FEMA and thus even interest on NRE accounts will also be taxed in India.