Case Study on NRI Taxation Having Multiple Countries Residence
Mr. X is having a property situated in Singapore. X wanted to sell that property. For the purposes of Indian Income Tax Act, X is a resident and ordinarily resident, also X is having a permanent home available in India where X comes to and fro. X is also a Green Card holder of USA.
Question
Where the gains from the sale of the Singapore property should be taxed?
Answer
India
As per Section 5 of Indian Income Tax Act 1961, the income of a resident and ordinarily resident shall includes all income from whatever source derived which –
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year; or
(c) accrues or arises to him outside India during such year :
So, applying provisions of Section 5, global income of resident is taxable in India.
Singapore
Since the property is located in Singapore, it will be taxable in Singapore. Since this transaction is taxable both in Singapore & India, we need to analyse DTAA provisions between Singapore & India.
Article 13 of Singapore and India DTAA
Article 13 of DTAA between Indian & Singapore describes that capital gains derived by an Indian resident from the sale of property located in Singapore may be taxed in Singapore.
Article provides dual taxability of capital gains from property located in Singapore, However, as per the tax laws of Singapore, capital gains are exempt from Income Tax. Hence the sale of the Singapore Property will not attract capital gains tax in Singapore.
USA
Being a US Green card Holder, X will be liable to income tax in the US for his worldwide income. Hence the sale of Singapore house will attract income taxes in the USA.
Since, this transaction is taxable in both India & USA, we need to analyse DTAA provisions between both the countries about which country has the first right of taxation
Article 4 of USA and India DTAA
As per the Article 4 of USA and India, where an individual is a resident of both the countries, then he shall be deemed to be a resident of the country in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (Centre of vital interests).
As per Article 4 of the DTAA between USA and India, X will be considered a tax resident of India. This is because, X has a permanent home available to him only in India and not in the US. Hence the first right of taxation of the capital gain will be in India. X can, however, claim the Foreign Tax Credit in the USA for the taxes paid in India.
To Conclude
- The capital gains are exempt from Tax in Singapore.
- The capital gains is taxable in India under the Indian rules.
- The capital gains is taxable in the United States with taxes paid in India available as a credit against US taxes.
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