Q476. US citizen spending four months in India every year effect on taxes | Business partnership in India

Question: Mr. Chand,

Are you available for consultation by phone? If so please let me know the Tel Number, charges and payment method. I would like consultation for:

1. I previously owned agricultural land which was obtained as a gift for my wife from her god-father, and then we had purchased additional land. That land was taken over about 15–20 years ago by government for the use of Indian Oil in Chandrapur, India. Now I have a proposal from my friend to purchase agricultural land in partnership with the intention of developing or plotting. Can I invest in it? Also I had agricultural land purchased and sold around 1998.
2. I am a US Citizen for 30 years and PIO for about 15 years. I am retired now and would like to spend winters in India. I want to know the restrictions and tax consequences on US income. I get about 3–4 lakh interest on FCNR deposits, about 2–4 lakh in rental income and about 50,000 to 1,00,000 in profit from business in partnership, all in Maharashtra. Can I stay in India 3–4 months every year?

Thanks Suresh Wattamwar

Answer: You can save your money — this is a free site. Regarding your questions 1 and 2:

1. As a US citizen, you are not allowed to invest in agricultural land in India under any scenario. Some may suggest creative ways to get around such restrictions; however, in my opinion, they are not legal.

   Though you may have purchased and sold agricultural land in 1998 despite being a US citizen at the time, and I assume there might be other non-residents who continue to circumvent the rules and own agricultural land purchased probably by not declaring their citizenship — they may or may not get caught, but their agricultural land ownership is certainly not legal. I also have a comment on business partnerships by NRIs in India at the end of this post.*

2. As far as restrictions and tax consequences on US income are concerned, any individual who moves to India from abroad to live in India may at some point become a resident of India for taxation purposes. Eventually, such a person's worldwide income may also become taxable in India. However, in a scenario such as yours — where you do not plan to move permanently to India — there is not much to worry about your US income being taxed in India, as long as you plan your visits with the residency rules in mind.

   • Even if you become a resident but continue to qualify as a Resident but Not Ordinarily Resident (RNOR), your US income will be exempt from taxation in India. For more on RNOR status, see the answer to question 561 titled "USA Citizen with OCI in India can avoid paying Indian taxes on US income".
   • Income from FCNR deposits is not taxed in India. It is however taxable in the USA.
   • Rental income in India is taxable in India and must also be declared in the USA.

I would suggest that you consult a tax professional in the United States / India to ensure you get the best advice to plan your finances.

*NRIs getting involved in partnership business in India

OCI / PIO / NRIs who are thinking of getting into a partnership business relationship in India should be aware that:

• OCI / PIO / NRIs cannot partner in a firm if it is engaged in any of the following types of business:
  • Any agricultural / plantation activities
  • Real estate business
  • Print media sector
• As an NRI, they can invest by way of contribution to the capital of a partnership firm in India on a non-repatriation basis. Those who wish to invest in a partnership firm with repatriation benefits are required to get prior approval of the Reserve Bank of India (RBI).