NRI TAXATION
BC SHETTY & CO. Chartered Accountants
Scope Of Today’s Discussions

Non-resident
individuals

Persons of
Indian origin

Citizen of India

Provisions relating to...
WHO IS AN NRI ?
Non-resident Indian (NRI)
Under the Income Tax Act
Non-Resident Indian ( Sec 115(C) (e)
• An individual
• Being a citizen ...
DETERMINING RESIDENTIAL STATUS
Residential status under the IT Act & FEMA
Relevance
Under Income Tax Act
Under the DTAA
Under FEMA

• Definitions under t...
Residential Status under the IT Act
Relevant Criteria

Stay in India in a
tax year

Purpose of
coming to India

Intention ...
SCOPE OF INCOME CHARGEABLE TO TAX
SCOPE OF INCOME TAXABLE-NRI
Nature of Income

Whether Taxable for an NR

Income earned in India – accrued or arising Taxab...
Incomes Of NRI that are taxed in India

•

SALARY
The income received or deemed to be received in India on his behalf, and...
Salaries
Income taxable in India where the same is
‒ Is received in India or deemed to be received in India
‒ Accrues or a...
Income from House Property
Where the NRI owns a house property in India, the same is subject to tax in India.
Regular comp...
Capital gains
Income arising from the transfer of a capital asset is chargeable to tax under capital gains in the
year of ...
Special provisions applicable to Non-resident Indians
Chapter XIIA
Investment income ( Section 115E)
• Investment income i...
Special provisions applicable to Non-resident Indians
Chapter XIIA
Foreign Exchange asset
• ―foreign exchange asset‖ means...
Avoidance of double taxation
Section 90 & 91

DTAA Exists – Section 90

DTAA does not exist –
Section 91

47

• Where ther...
Tax Residency Certificate (TRC)
Section 90 amended by Finance Act, 2012; non-resident assessees would not be entitled
to c...
NRI- SPECIFIC CHALLENGES
Some Challenges
Tax residency certificates
– Regulations for issue by the overseas country.
– Mismatch in financial years
...
CONTACT US

•

Mr. Sathya Hegde
- BBM, FCA, CPA
- Partner
BC SHETTY & CO.
________________________________________________...
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NRI taxation

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B C Shetty & Co., Chartered Accountants are a dominant force when it comes to dealing with International Taxation.
Here we have a small demo of what we do in this regard.

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NRI taxation

  1. 1. NRI TAXATION BC SHETTY & CO. Chartered Accountants
  2. 2. Scope Of Today’s Discussions Non-resident individuals Persons of Indian 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
  3. 3. WHO IS AN NRI ?
  4. 4. Non-resident Indian (NRI) Under the Income Tax Act Non-Resident Indian ( Sec 115(C) (e) • An individual • Being a citizen of India or a person of Indian origin (PIO) • who is not a ―Resident Person of Indian Origin • A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand parents, was born in undivided India. Indian Citizen • Holder of Indian passport 5
  5. 5. DETERMINING RESIDENTIAL STATUS
  6. 6. Residential status under the IT Act & FEMA Relevance Under Income Tax Act Under the DTAA Under 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. Relevance of Residential status as per IT Act / DTAA • Determining scope of income taxable • Availability of special tax rate, concessions on income and long term capital gain etc • For treaty reliefs, residential status under the Treaty is important Relevance of residential status as per FEMA Supporting documents 7 • Permissibility of transactions under FEMA, • Designation of Bank accounts • Availability of tax exemption for NRE /Foreign Currency Non-Repatriable account deposits accounts • Passport copies with relevant date stamps • Documents to indicate purpose of travel (e.g. for the purpose of employment, business visit etc).
  7. 7. Residential Status under the IT Act Relevant Criteria Stay in India in a tax year Purpose of coming to India Intention of leaving India Length of stay in India in the previous 10 tax years Citizenship
  8. 8. SCOPE OF INCOME CHARGEABLE TO TAX
  9. 9. SCOPE OF INCOME TAXABLE-NRI Nature of Income Whether Taxable for an NR Income earned in India – accrued or arising Taxable in India Income deemed to accrue or arise in India T axable Income earned outside India, but received in India Taxable Income accrued or arising outside India, and received outside India Not taxable 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
  10. 10. Incomes Of NRI that are taxed in India • 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
  11. 11. Salaries Income taxable in India where the same is ‒ Is received in India or deemed to be received in India ‒ Accrues 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 GOI • Remuneration for employment on a foreign ship where the total stay in India does not exceed 90 days in the previous year 27
  12. 12. 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 Form 26AS 35
  13. 13. 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 Gains Short term capital gain (STCG) – Categories Basic Chapter VIA exemption limit deduction Not available* A. STCG arising from specified securities traded on a recognized stock exchange in India and on which Securities Transaction Tax is paid (Sec 111A) B. Others Available Applicable tax rate Not available 15 % plus applicable cess Available At rates in force *The assessee can structure a mail to the Intnl. Tax Officer for a lower tax rate.
  14. 14. Special provisions applicable to Non-resident Indians Chapter XIIA Investment income ( Section 115E) • 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) Long term capital gains • 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. Applicable • To investment income from specified assets and other long term capital gains. • Applicable to foreign exchange assets ©2013 Deloitte Touche Tohmatsu India Private Limited
  15. 15. Special provisions applicable to Non-resident Indians Chapter XIIA Foreign Exchange asset • ―foreign exchange asset‖ means any specified asset which the assessee has acquired or purchased 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 Capital gains from Foreign exchange asset – Sec 115F • 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. 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.
  16. 16. Avoidance of double taxation Section 90 & 91 DTAA Exists – Section 90 DTAA does not exist – Section 91 47 • 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. • In respect of countries where India has not entered into agreements (non-DTAA country) a credit for taxes on doubly taxed income shall be available. Such relief shall be available to residents in India. Such credit shall be limited to the quantum of taxes paid in the overseas jurisdiction or the taxes payable in India on such income, whichever is lower
  17. 17. Tax Residency Certificate (TRC) Section 90 amended by Finance Act, 2012; non-resident assessees would not be entitled to claim relief under a double taxation avoidance agreement unless such assessee obtains 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 per the tax treaty TRC a challenge in claiming treaty benefit 51
  18. 18. NRI- SPECIFIC CHALLENGES
  19. 19. Some Challenges Tax residency certificates – Regulations for issue by the overseas country. – Mismatch in financial years – No clarity on when the document is to be produced. Departure formalities – Tax clearance certificates – Conversion 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 access to treaty, double taxation results Wealth tax on net assets in India
  20. 20. 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.
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