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I have transferred money (20lac+) on behalf of a friend to builder as slab payments from my NRE account. The friend is going to dispose old flat and pay back that amount. Can this amount be taken back in NRE? If this is transferred to savings will I have to pay tax? if yes how much tax? How can this tax be avoided / minimised? The friend is going to transfer higher amount than the amount received from me.

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    Could you add a country tag? – Michael May 6 '17 at 14:29
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Assuming that your friend is residing in India, any money that he returns to you cannot be deposited into your NRE (NonResident External) account; it must go into your NRO (NonResident Ordinary) account. You don't have an NRO account, only ordinary savings accounts in India that you established before leaving the country and becoming an NRI (NonResident Indian) ? Well, you are in violation of FEMA regulations and need to convert all those ordinary savings accounts into NRO accounts as soon as possible. Your bank will help you in doing this (by letting you hold ordinary accounts while you have NRI status, the bank too is in violation of FEMA regulations).

With regard to taxation, unless you have created a paper trail by documenting the money sent to the builder as a loan to your friend, the entire amount (less INR 50,000 exemption) that your friend will return to you will be considered a gift from your friend to you, and it will be taxable income to you in India, and possibly taxable income to you in your country of residence, though there may be tax treaties that will let you pay taxes in one country only. If you do have a paper trail, then only the excess of what your friend returns to you is interest income to you; the bulk is just repayment of the loan principal, and is nontaxable.

If you are residing in the US, I do hope that you have reported the fact that you had foreign bank account(s) totaling more than US$10K in value to the IRS and the US Treasury as per FBAR regulations; because if not, you have many more tax issues to worry about. The fines for not filing these reports are onerous.

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  • I am based in Dubai, UAE. Can take cheque in wife's name and deposit amount in my wife's savings account? Old bank statements downloaded have the mention of payments to builder with the amount which can be submitted as proof if asked. – Nilesh Rajadhyaksha May 9 '17 at 12:45
  • Although the bank statements documenting the original transaction (loan) are important, I believe more is necessary. You should also have paperwork (a written agreement between you and your friend) describing the reason for the original transfer (loan) and other details. – Kevin Fegan Sep 28 '17 at 20:23

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