It is very important to
understand the residential status of a person under The Income Tax
Act,1961, because taxability of a particular income arising outside India
depends on his residential status.
It is to be noted that definition of the term "Resident" under Income
Tax Act and under Foreign Exchange Management Act (FEMA) is different.
Under Income Tax Act, period of physical stay of a person in India is
important to decide the residential status whereas under FEMA , intention
of the person to stay for uncertain period in India is
important.
Residential status under Income Tax Act
Taxability of income
Resident
(Ordinarily)
Worldwide
income taxable
Resident
(Not Ordinarily)
World income
is taxable only if derived from business controlled from India or
profession setup in India. Passive world income like dividend,
interest, capital gain etc. is not taxable.
Non Resident
Only Indian income is
taxable.
*Residential status has to be
determined in respect of each financial year i.e. from 1st April to 31st
March.
2. Practical
Considerations:
When an Indian goes abroad either for employment or for doing
business he should take care of the following:
Financial year is from April 1st to 31st March. Number of days of
stay in India for deciding residential status is counted qua this
period.
Day of arrival into India and day of departure from India is to be
counted as one day each in India.
Dates stamped on passport are normally considered as proof of
dates of departure from and arrival to India and hence to keep
photocopies of passport & ensure that date stamped on passport is
legible.
Keep track of number of days in India from year to year and check
the same before making the next trip to India.
Certain income of non-residents as well as resident but not ordinary
resident, such as
interest on NRE account, FCNR A/c, RFC A/c is tax free.
There are also some more types of income, which are tax free in the
hands of non-resident.
2. Separate Tax Regime for NRIs:
A separate set of provisions is enacted in The Income Tax Act,1961
especially for income of Non Resident Indians.
As per these provisions, tax at concessional rates is charged on
specific incomes.
NRIs can even opt not to file return of income in India if certain
conditions are fulfilled. The concessional tax treatment continues even
after NRI becomes resident subject to fulfilling certain conditions.
3. Capital Gain On Shares &
Debentures Of Indian Company:
[Section 48 and Section 112] First proviso to Section 48 provides
for mode of computation of capital gain and section 112 deals with rates
of tax on capital gain.
According
to first proviso to section 48 read with section 112-
In case of a Non Residents, capital gain from transfer of shares and
debentures of an Indian company shall be computed by converting the cost
of acquisition, expenses incurred in connection with the transfer and
full value of consideration, in the same foreign currency as was
initially utilized for purchase.
Benefits of indexation of cost is not available to Non Residents.
In case of Non residents, long term capital gain is taxed at a flat
rate of 20% plus surcharge if any.
Non Residents have an option to deduct actual cost of acquisition
and not the indexed cost from the sale consideration and pay tax @ 10%
plus surcharge on long term capital gain in respect of a security listed
on recognized stock exchange in India or Units of UTI or a Mutual Fund.
1. Obligation On Resident Of
India To Deduct Tax At Source While Paying Any Sum To Non Resident:
Whenever, a resident of India makes any payment to non-resident,
which is chargeable to tax in the hands of the non-resident, he shall
deduct tax at source from that payment and remit only net amount. The
tax so deducted shall be deposited with Government treasury. Generally,
following types of payments to Non residents are covered under the TDS
provisions:
Payment of interest, payment of royalty, payment of fees, Rent
etc.
Payment towards purchase of immovable property from Non resident.
If the sum so payable is not chargeable to tax in India say any
income which is exempt u/s 10 of the Income Tax Act or tax free as per
Double tax avoidance agreement then resident can remit amount without
deducting any tax at source.
Even Individuals and HUFS are also liable to deduct tax from these
payments to Non - resident.
Chartered Accountant's Certificate For Remiitance Of Any Amount To
Non Resident.
If a resident wishes to remit any amount to a non-resident which is
chargeable to tax in India, then a Chartered Accountant's (CA)
certificate is required to be given to the Authorized Dealer wherein the
CA will certify the correctness of the tax deducted or if not deducted
the justification for the same. As an alternative, such resident can
also obtain certificate from Assessing Officer under section 195(2) of
the Income Tax Act. Remittance outside India will not be permitted
without such certificates either from a chartered accountant or
assessing officer.
Credit Of Taxes Paid/ Deducted To
A Person When Liable To Tax In More Than One Country. Whenever, a
person resident in India earns any income outside India, that foreign
income may be subject to tax in that foreign country as well as in India.
Similarly, whenever a non resident person earns any income in India,
that income may be subject to tax in India as well as in foreign country.
Hence in both the situations, there will be double taxation of the
same income. To avoid the hardship caused thereby, one shall take help
of Double Tax Avoidance Agreement if any, that India has signed with
another country and can claim credit of taxes paid in one country while
filing return of income in the country of residence.
2. Double Tax Avoidance
Agreements
To avoid double taxation of the same income, Indian Government has
entered into Double Tax Avoidance Treaty with various countries.
Whenever any resident earns any income outside India or a
non-resident earns any income in India, he shall refer to the relevant
Tax Treaty.
It is possible that under the relevant treaty such income is not
taxable at all or is taxable at concessional rate.
So far India has signed treaties with almost 65 countries.
Gifts to/from Non Resident: Can an Indian Resident accept or make gift to a Non
resident?
A.1
Acceptance of Gift There is no restriction on acceptance of
gift from non-resident. However, if such gift is in foreign
exchange, then such exchange must be surrendered to the Authorised
Dealer within 7 days of receipt. One may deposit the said exchange
in Resident Foreign Currency (Domestic) account.i.e (RFCA/c)
Making Gift in Foreign Exchange Gift upto US $
5000 per annum per remitter/donor is allowed and can be made without
prior approval of the RBI. Gift exceeding this amount will require
prior approval of RBI.
Making Gift in Indian Rupees Gift in Indian Rupees to a Non
resident is not allowed by virtue of Section 3(b) which restricts
giving of any payment to non-residents. RBI permission is required
in such case.
Q.2
Borrowing in Rupees from Non-Residents What are the
provisions for borrowing from non-residents in respect of resident
individuals, firms and proprietary concerns?
A.2
A person resident in India such as an individual, proprietary
concern, firm, HUF but excluding a company incorporated in India,
may borrow in rupees on non-repatriation basis from a non-resident
Indian or a person of Indian origin resident outside India, subject
to the following conditions:
the amount of loan shall be received by way of inward
remittance from outside India or out of Non-resident External (NRE)/Non-resident Ordinary
(NRO)/Foreign Currency Non-resident (FCNR) account of the lender maintained with an authorised dealer
or an authorised bank in India;
the period of loan shall not exceed three years;
the rate of interest on the loan shall not exceed two
percentage points over the Bank rate prevailing on the date of
availment of loan;
the amount borrowed shall not be allowed to be repatriated
outside India.
Restrictions on the end use of such borrowed funds Such
borrowed funds can be used only for own business purpose other than
in the business of Chitfund or as a Nidhi company or in agricultural
or plantation activities or real estate business or trading in TDR.
The funds so borrowed can not be used
as capital investment or otherwise in any company or
partnership firm or proprietary concern or any entity whether
incorporated or not or
for relending.
Q.3
Borrowing in foreign exchange from Non-Resident: Can an
Indian resident Individual borrow from a non-resident in foreign
exchange?
A.3
Yes, a resident individual can borrow in foreign exchange upto $
2,50,000 from close relatives subject to following conditions:
The loan is interest free;
The minimum maturity period of the loan is one year;
Mode of receipt of loan should be either by way of inward
remittance, or out NRE/FCNR account of non resident lender;
Under the amended rules there is no restriction on the end use
of borrowed funds.
Q.4
Borrowing in foreign exchange from Non-Resident: Can a Non Resident borrow from a Indian Resident Individual
either in foreign exchange or in Indian Rupees ?
A.4
No, A Non- resident cannot borrow money without prior approval
of RBI, either in foreign currency or in Indian rupees.
Q.5
Opening Bank Accounts Abroad: Mr. Ashish, a resident Indian,
is on a world tour. He plans to stay in USA for two months. He feels
it is risky to carry foreign exchange from one state to another. He
wants to open a bank account and deposit the foreign currency and
traveller's cheque he has brought from India. Can he do so?
A.5
Mr.Ashish can open and maintain a foreign currency account with
a bank outside India during his overseas stay. However, on his
return to India, the balance in that account should be repatriated
to India immediately
Q.6
Gift by NRI in rupees from NRO A/c to another NRI: Mr.
Parthiv, an NRI wants to gift Rupees One crore from his NRO account
to his friend Mr. Kunal who is also NRI. Can he do so? Will your
answer be different if Mr. Parthiv gifts this amount to his own
brother Keyur, who is also, NRI instead of his friend Mr.Kunal?
A.6
A close reading of permissible debits and credit from NRO
accounts reveals restrictions of such gifts. In any case, Section 3
Prohibits any "person" (whether resident in India or not) from
making payment to the credit of a person resident outside India. It
is therefore advisable to obtain prior approval of the RBI for such
gifts whether to a friend or a brother.
Q.7
Housing Loan From Banks: Mr. Sachin, an Indian citizen
residing in UK, wants to purchase a residential bungalow in Mumbai
for Rs 1 crore and plans to take loan of Rs.50 lakhs from HDFC and
the balance to invest out of NRO funds. (i) Will Mr. Sachin be
allowed to borrow from HDFC ? (ii) What, if instead of ready
purchase he goes for self-construction? (iii) Can he sell the
same to Mr. Jigar, a UK citizen, who is non-resident, for Rs.2.0
crores once the bungalow is ready.
A.7
(i) HDFC can grant housing loan to Mr. Sachin for acquisition of
residental accommodation in India, subject to certain conditions
(Refer Regulation 8 of FEMA 4/2000-RB) (ii) There being no
mention about permission for 'constructing' of a house property, it
is safe to seek clarification fron RBI in this behalf. (iii) Mr.
Sachin cannot sell the property to Mr. Jigar who is a non-resident
foreign citizen, without prior approval from RBI.
Q.8
Penalties: What are possible consequences of violation of the provisions
under FEMA?
A.8
A penalty upto thrice the sum involved in such contravention
where such amount is quantifiable, or upto two lakh rupees where the
amount is not quantifiable.
If such contravention is a
continuing one, further penalty, which may extend to five thousand
rupees for every day after the first day during which the
contravention continues.
In addition to the penalty for contravention, the Adjudicating
Authority may direct that the any currency, security or any other
money or property in respect of which the contravention has taken
place shall be confiscated to the Central Government
Failure to pay the penalty within 90 days of issue of notice will
entail Imprisonment of the person committing the
offence.
Q.9
Whether Rebate u/s 88B for Senior Citizen & u/s 88C for female
assessee are available to NRI's?
A.9
No.
Both the said benefits are available to Resident only
Government of India has announced a scheme for issuance of a Person of
Indian Origin ('PIO Card', for Person of Indian Origin being Resident
outside India aiming at their participation in the development of the
country in simpler, easier, flexible and trouble free ways.
I.
Eligibility
Any
person who at any time held an Indian passport; or
He/she or either of his/her
parents or grandparents or great grandparents was born in and
permanently resident in India as defined in the Government of India
Act, 1935.
Who is a spouse of a citizen of
India or a person of Indian origin as mentioned above.
II.
Benefits to a PIO Card holder
No Separate tourist visa,
student visa or employment visa is required for visiting India.
Will be exempt from the
requirement of registration if stay on any single visit in India does
not exceed 6 months.In
the event of continuous stay exceed 6 months; registration will be
required within 30 days of the expiry of 6 months with the concerned
Foreigners Regional Registration Officer/Foreigners Registration
Officer.
Parity with Non-Resident Indians
in respect of facilities available to the latter in economic,
financial, educational fields etc.
III. Validity of the
PIO Card
A PIO Card shall be valid for a period of 20 Years from the date of issue
subject to the validity of the passport of the applicant. The PIO
Card will be valid only when accompanied with a valid passport.
IV. Detailed
procedure for availing the said benefit is laid down under the scheme.
RELAXED BAGGAGE RULE
Baggage
rules are being liberalized:
1. Free baggage allowance raised from
Rs. 12000/- to Rs. 25000/- , Customs duty on such baggage also reduced
from 50% to 40% with immediate effect.
2. Duty on 6 items (namely VCD/VCR,
washing machines, personal computers, laptop computers, refrigerators of
capacity upto 300 L, and cooking range) under Transfer of Residence
is being made duty free.
3. Duty on 17 items under Transfer of
Residence is being reduced from 30% to 15%.
4. Import of cinematographic films,
exposed but not developed, imported as part of baggage, is being made duty
free.
5. Quantity of alcoholic liquor/wines
allowed duty free under baggage is being increased from 1 litre to 2
litres.
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