TAXATION OF NRI’S - CA Prachi Parekh Ghatkopar Study Circle 18 TH January 2014
May 06, 2015
TAXATION OF NRI’S- CA Prachi Parekh
Ghatkopar Study Circle
18TH January 2014
THE BASICS…
Non-Resident –
Person who is NOT a resident [Sec 2(30)] For the purpose of sections 92, 93 & 168
(Executors), also includes a person who is Not Ordinarily Resident.
(one who does not fulfil additional conditions of Sec 6(6))
THE BASICS…
Tie- Breaker Rule Article 4: Tie Breaker rule, to be checked if a
person is resident in both countries: Permanent home, centre of vital interests, habitual abode, national of State in question.
o Dependent Personnel Services Article 16, 19 – Sec 9(1) Salary to Indian
Govt. employees
o Liason Office - Not considered a Permanent Establishment.
THE BASICS…
Section 9:
BUSINESS CONNECTION
We’ll dwell upon it later…
WITHHOLDING TAX & NRI’S Section 194E: On payments made to NR sportsmen /
Entertainer / Sports Institution (income referred to in sec 115BBA)
@ 20%o Section 195: On payments made to NR/ foreign companies
being any sum chargeable to tax under Income Tax Act
@ rates in force Rates specified in part II of First Schedule of
Finance Act / DTAA rates, whichever is beneficial
NON DEDUCTION OF TDS & DISALLOWANCE:
Disallowance u/s 40(a)(i) Any sum payable outside India, or in India to
NR / Foreign Company Payable between Apr- Feb: TDS to be
deducted & paid by end of Previous Year Payable in March: TDS to be deducted & paid
upto due date u/s 200 (30th April)
Subsequently paid : Allowed in the year of payment
PROCEDURE FOR REFUND OF TDS TO DEDUCTOR
Contract with NR cancelled after credit to his account / partial remittance
No further remittance & remitted amount is refunded by NR (net of tax)
As NR would not claim refund of TDS, deductor can do the same (Circular 7/2007 dated 23.10.2007)
Circular also to apply in cases where TDS has been wrongly made at higher rate.
NET OF TAX PAYMENTS: SECTION 195A
Grossing up to be done in cases where the payer agrees to bear the amount of Tax
Since tax borne by Payer represents income of the payee.
Provisions of this section are subject to other provisions of the Act. Eg. 10(6A)- tax payable by payer on royalty / technical fees exempt in hands of payee.
KARTOOTON KA KARNAMA: SECTION 285
NR having liason office in India
Set up as per RBI / FEMA Guidelines
To deliver statement of activities done during P.Y
Within 60 days from end of P.Y
With Jurisdictional A.O.
SOME RELATED SECTIONS TO BE NOTED:
Section 44D: Provision for calculating income by way of Royalties etc. in case of Foreign Companies’
Section 44DA: Provision for calculating income by way of Royalties etc. in case of Non- Residents
Presumptive Tax Sections related to Non-Residents 44B / 44BB / 44BBA /44BBB
Head Office Expenditure: Section 44C
SECTION 48:
First Proviso, applicable to NR (not covered by section 115AC & 115AD @ time of Sale of CA)
Asset could be Short Term / Long Term
Capital Gain : computed in foreign currency
Provision applicable on CG arising from re-investment
CHAPTER XII-A: NON RESIDENTS’ KA KHAAS
Taxability of Non-residents to be governed by this Chapter
Provisions applicable only to NR’s, and only in respect of specified incomes
Income of NR not covered by this Chapter will be taxed as per Normal Rates of Tax
Worth Noting that these provisions are OPTIONAL
SECTION 115C: NOTE THESE DEFINITIONS
Non-Resident
Foreign Exchange Asset
Investment Income
Long Term Capital Gain
SECTION 115D: COMPUTATION Investment Income & LTCG
- No Deduction allowed in respect of expenses incurred
- No Chapter VI-A deductions allowed
- Basic Exemption Limit not allowed to be adjusted
- In respect of LTCG: expenses on transfer will be allowed, but benefit of indexation not allowed.
SECTION 115E: RATES OF TAX Investment Income : 20%
LTCG : 10%
Surcharge & Education Cess as applicable.
If income of NR includes any other income, other than the two above,
It will be charged to tax at normal rates of tax as applicable to residents.
SECTION 115F: EXEMPTION ON LTCG Net Sale proceeds on transfer of Forex Asset,
to be utilized within 6 months from date of transfer:
Purchase of another Forex Asset
NSC Certificates
Exemption to be withdrawn if the newly acquired asset is transferred / converted into money within 3 years from the date of acquisition
LTCG taxable as LTCG in year of violation.
SECTION 115G: ROI KI ZARURAT NAHI…
Except Investment Income & LTCG, NR has no other taxable income
Tax on such income has been correctly deducted at source.
SECTION 115I: OPTION AVAILABLE TO NR For NR Assessee, by default, provisions of
this Chapter are applicable
If normal provisions are found to be more beneficial, assessee can opt for the same
This can be done by filing return of income for the relevant A.Y.
Option can be changed on year to year basis.
SECTION 115H: NON RESIDENT BAN GAYA RESIDENT??
Once assessee becomes resident, by default normal provisions shall apply.
Special provisions of this chapter can be availed if beneficial
Option available only till the assessee holds such forex asset, except shares of Indian Company
ROI to be filed for availing these provisions along with an application addressed to AO
CHAPTER XII: SPECIAL RATES OF TAX
Refer Chart in the Notes:
Section 115A: Royalty / FTS (Other than those in section 44DA(1) – 25%
w.e.f AY 2014-15- Amended to make the rate of tax
uniform, earlier the rate depended on time of agreement. Section 115AD: FII: Interest on Certain Bonds
& Govt. Securities: Rate of Tax @ 5%
POINTS TO BE NOTED: SPECIAL RATES OF TAX
Thin line of Difference: Overseas Financial Organisation or Offshore Funds & Foreign Institutional Investor (FII)
Purpose: Investment
FII- Entry pursuant to SEBI Approval
OFO: Entry is on collaboration with public financial institution / public sector company / mutual fund post SEBI approval
SECTION 9: BUSINESS CONNECTION
NR – income accrued / deemed to accrue through Business Connection In India
Business Connection: Not exhaustively defined
Element of continuity & not length of time Business of NR – Activity done within Indian
territory Part of / Main Business / activity incidental to
main business Also covers activity through a dependent
agent
SECTION 9: BUSINESS CONNECTION Not established if Non resident carries on
Business through an Independent Nature
Illustrative instances: maintaining branch office / agency / receivership/ forming local subsidiary company to sell products of parent NR
Business Connection includes