The document discusses the taxation of non-resident Indians (NRIs), including definitions, applicable sections, and withholding tax regulations. It covers various provisions under the Indian Tax Act, such as sections related to income calculation, capital gains, and tax rates for NRIs, along with options available for tax assessments. Additionally, it addresses the concept of business connection and outlines the circumstances under which NRIs may be subject to taxation in India.

1. TAXATION OF NRI’S
- CA Prachi Parekh
Ghatkopar Study Circle
18TH January 2014

2. 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))


3. THE BASICS…


o

o
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.
Dependent Personnel Services
Article 16, 19 – Sec 9(1) Salary to Indian Govt.
employees
Liason Office
- Not considered a Permanent Establishment.

4. THE BASICS…

Section 9:
BUSINESS CONNECTION
We’ll dwell upon it later…

5. WITHHOLDING TAX & NRI’S



o



Section 194E:
On payments made to NR sportsmen / Entertainer /
Sports Institution (income referred to in sec
115BBA)
@ 20%
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

6. 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

7. 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.

8. 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.

9. 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.

10. 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

11. 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 reinvestment

12. 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

13. SECTION 115C: NOTE THESE DEFINITIONS

Non-Resident

Foreign Exchange Asset

Investment Income

Long Term Capital Gain

14. 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.

15. 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.


16. 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.



17. 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.

18. 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.

19. 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

20. 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%

21. 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


22. 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

23. 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

24. caprachiparekh@gmail.com