BC SHETTY & CO. Chartered Accountants
Scope Of Today’s Discussions
Citizen of India
Provisions relating to Non-residents are relevant for NRIs.
Certain concessions are available to citizens of India, certain others to PIO
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.
• Holder of Indian passport
Residential status under the IT Act & FEMA
Under Income Tax Act
Under the DTAA
• 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.
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
residential status as
• 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).
Residential Status under the IT Act
Stay in India in a
coming to India
Length of stay in
India in the
previous 10 tax
SCOPE OF INCOME TAXABLE-NRI
Nature of Income
Whether Taxable for an NR
Income earned in India – accrued or arising Taxable
Income deemed to accrue or arise in India
Income earned outside India, but
received in India
Income accrued or arising outside
India, and received outside India
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
Incomes Of NRI that are taxed in India
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.
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.
When there is a capital gain arising in India (Asset’s location is India), then the Taxability will
arise in India.
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
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
‒ Rental property eligible for deductions in respect to Municipal tax, repairs (30%) and
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
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
exemption limit deduction
A. STCG arising from
traded on a
exchange in India and on
Transaction Tax is paid
Applicable tax rate
15 % plus
At rates in force
*The assessee can structure a mail to the Intnl. Tax Officer for a lower tax rate.
Special provisions applicable to Non-resident Indians
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
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.
Avoidance of double taxation
Section 90 & 91
DTAA Exists – Section 90
DTAA does not exist –
• 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
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
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
Tax residency certificates
– Regulations for issue by the overseas country.
– Mismatch in financial years
– No clarity on when the document is to be produced.
– 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
Mr. Sathya Hegde
- BBM, FCA, CPA
BC SHETTY & CO.
# 137, B/w 4th and 5th Main,
MES College Road,15th cross, Malleshwaram,
Bangalore – 560003