NRI TAXATION BC SHETTY & CO. Chartered

Accountants

Non-resident individuals

Persons ofIndian origin

Citizen of India

Provisions relating to Non-residents are relevant for NRIs.Certain concessions are available to citizens of India, certain others to PIO

Scope Of Today’s Discussions

WHO IS AN NRI ?

Non-resident Indian (NRI)Under the Income Tax Act

Non-Resident Indian ( Sec 115(C) (e)

Person of Indian Origin

Indian Citizen

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• Holder of Indian passport

• A person shall be deemed to be of Indian origin if he, or either of his parentsor any of his grand parents, was born in undivided India.

• An individual• Being a citizen of India or a person of Indian origin (PIO)• who is not a ―Resident

DETERMINING RESIDENTIAL STATUS

Residential statusRelevance

under the IT Act & FEMA

• Definitions under the Income Tax Act and FEMA are totally different, possible to be a resident under one and a non-resident under another.Resident under IT Act may not necessarily mean that the person is resident under the DTAA.

Under Income Tax Act

Under the DTAA Under FEMA •

••

Determining scope of income taxableAvailability of special tax rate, concessions on income and long term capital gain etcFor treaty reliefs, residential status under the Treaty is important

Relevance of Residential status as

per IT Act / DTAA •

•••

Permissibility of transactions under FEMA,Designation of Bank accountsAvailability of tax exemption for NRE /Foreign Currency Non-Repatriable account deposits accounts

Relevance of residential status as per FEMA

••

Passport copies with relevant date stampsDocuments to indicate purpose of travel (e.g. for the purpose of employment, business visit etc).

Supporting documents

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Residential Status under the IT ActRelevant Criteria

Stay in India in a tax year

Length of stay in India in the

previous 10 tax years

Purpose ofcoming to

India

Intention ofleaving India Citizenship

SCOPE OF INCOME CHARGEABLE TO TAX

Section 5(2) (relevant extracts)Subject to the provisions of this Act, the total income of a person who is a non-resident includes all income which is received or deemed to be received in India or accrues or arises or is deemed to accrue or arise to him in India during such year

Nature of Income Whether Taxable for an NR

Income earned in India – accrued or arising in India

Taxable

Income deemed to accrue or arise in India Taxable

Income earned outside India, but received in India

Taxable

Income accrued or arising outside India, and received outside India

Not taxable

SCOPE OF INCOME TAXABLE-NRI

• SALARY

The income received or deemed to be received in India on his behalf, and Income which

accrues or arises or is deemed to accrue or arise in India during the previous year.

• HOUSE PROPERTY

Where the NRI owns a house property in India, the same is subject to tax in India. Regular

computation provisions will apply. One property

( where no benefit is derived) may be considered as self occupied property. Rental property

eligible for deductions in respect to Municipal tax, repairs (30%) and mortgage interest.

• CAPIATAL GAINS

When there is a capital gain arising in India (Asset’s location is India), then the Taxability will

arise in India.

• OTHER SOURCES

Incomes Of NRI that are taxed in India

Salaries

Income taxable in India where the same is‒‒

Is received in India or deemed to be received in IndiaAccrues or arises in India or deemed to accrue or arise in India

Where services are rendered in India, related remuneration to be taxable in India(irrespective of place of payment)Points to be considered‒ Salary payable by the Government to citizen of India continues to be taxable in India

though services are rendered outside India.Exemptions u/s 10(6) available to Foreign nationals, hence applicable to PIOs alone.‒• Remuneration as officials or as member of staff of Embassy, high commission etc is exempt

where a similar benefit is available to corresponding officials of the GOIRemuneration for employment on a foreign ship where the total stay in India does not exceed 90 days in the previous year

•

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Income from House Property

Where the NRI owns a house property in India, the same is subject to tax in India.Regular computation provisions apply.

‒ One property ( where no benefit is derived) may be considered as self occupied property.

‒ Rental property eligible for deductions in respect to Municipal tax, repairs (30%) and mortgage interest.

Tax withholding u/s 194(I) applicable to recipient of rent where such person is a resident (10% for house property)For NRI, withholding u/s 195 would be triggered – at rates in force.NRI to provide PAN to the tenant to ensure that the tax withholdings are reflected in Form26AS

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Capital gains

Income arising from the transfer of a capital asset is chargeable to tax under capital gains in the year of the transfer. Capital gains are specified as either short term or long term depending on the holding period of the capital assets.

Points to note for NRI -Short Term Capital GainsShort term capital gain Basic Chapter VIA Applicable tax rate(STCG) – Categories exemption limit deduction

A. STCG arising from specified securities traded on a recognized stock

exchange in India and on which Securities Transaction Tax is paid

(Sec 111A)

Not available* Not available 15 % plus applicable cess

B. Others Available Available At rates in force

*The assessee can structure a mail to the Intnl. Tax Officer for a lower tax rate.

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Special provisions applicable Chapter XIIA

to Non-resident Indians

Investment income ( Section 115E)

Long term capital gains

Applicable

• To investment income from specified assets and other long term capital gains.• Applicable to foreign exchange assets

• Where long term capital gains arise from transfer of specified assets, the applicable tax rate will be 10% (plus applicable cess) on net capital gains.

• From gains on such transfers, only expenses incurred in connection with the transfer are allowed as a deduction to determine net capital gain. The valuation under these provisions is not in foreign currency.

• Therefore, exchange-rate fluctuations are not considered.

• Investment income is taxed at a preferential rate of tax of 20% (plus applicable cess), as against the maximum marginal rate of 30% (plus applicable cess). No deductions however are permitted from income earned on investments (e.g. Chapter VIA deductions)

Special provisionsChapter XIIA

applicable to Non-resident Indians

Foreign Exchange asset

Capital gains from Foreign exchange asset – Sec 115F

Transfer of such new asset within 3 years

• Where the new asset is transferred within a 3 year period the long term capital gain exempt as above would be considered to be taxable long term capital gains in the year of such transfer.

• Capital gains arising on the transfer of foreign exchange assets are exempt from tax if• The asset transferred must be long-term capital assets• Net consideration must be invested in specified assets• Investment should be made within six months of the transfer• Where only a portion of net consideration is reinvested, exemption is proportionate.

• ―foreign exchange asset‖ means any specified asset which the assessee has acquired orpurchased with, or subscribed to in, convertible foreign exchange;

• Specified asset means• Shares in an Indian company;• Debentures issued by an Indian company which is not a private• Deposits with an Indian company which is not a private• Any security of the Central Government• Other assets as the Central Government may specify in this behalf by notification in the

Official Gazette

Avoidance of doubleSection 90 & 91

taxation

• Where there is a Double taxation avoidance agreement(DTAA/treaty) in force, the provisions of the Act or the provisions of the DTAA shall apply to the extent they are more beneficial to the assessee.

DTAA Exists – Section 90

• In respect of countries where India has not entered into agreements (non-DTAA country) a credit for taxes on doubly taxed income shallbe available. Such relief shall be available to residents in India. Such credit shall be limitedto the quantum of taxes paid in the overseas jurisdiction or the taxes payable in India on such income, whichever is lower

DTAA does not exist –Section 91

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Tax Residency Certificate (TRC)

Section 90 amended by Finance Act, 2012; non-resident assessees would not be entitledto claim relief under a double taxation avoidance agreement unless such assesseeobtains a tax residency certificate (TRC) from the country of which the assessee claims to be a resident.Information as prescribed to be provided in Form 10F

This requirement has created practical challenges at the time of withholding such as :

‒ Overseas country may not have a specific provision to issue TRC in the prescribed format. India till recently did not have this provision.

‒ At what point in time TRC Is required i.e. withholding stage / assessment stage?

‒ What if the tax year followed by a foreign country is different – TRC may be available only for part of the period.

‒ Whether TRC is required where a short stay benefit under the dependent personal services clause of the treaty is availed – at what point in time?

‒ TRC only certifies the residential status as per the local laws of a country and not as perthe tax treaty

TRC a challenge in claiming treaty benefit

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NRI- SPECIFIC CHALLENGES

Some Challenges

Tax residency certificates–––

Regulations for issue by the overseas country.Mismatch in financial yearsNo clarity on when the document is to be produced.

Departure formalities––

Tax clearance certificatesConversion of Bank accounts

Travel to Non-treaty countries

‒‒‒‒

NRI deputed to Hong Kong, paid salary in India for services rendered in Hong Kong.Subject to tax withholding in India since salary paid in India.

Subject to tax in Hong Kong since services are rendered in Hong Kong. Mitigation of Double Taxation?

Situations of Non-resident in home as well as host jurisdictions. In the absence of accessto treaty, double taxation results

Wealth tax on net assets in India

CONTACT US

• Mr. Sathya Hegde - BBM, FCA, CPA- Partner BC SHETTY & CO._______________________________________________________Ph.:- +919945179868

Email:- sathyahegde@bcshettyco.com

Address:- # 137, B/w 4th and 5th Main,

MES College Road,15th cross, Malleshwaram,

Bangalore – 560003

THANK YOU.