Non – resident Indian has been defined as an individual, being a citizen of India or a person of Indian origin, who is not a resident. a person is of Indian origin if he or either or his parents or any of his grand parents was born in undivided India. The Indian Income Tax has special provisions providing incentives in the form of reliefs and concessional tax rate and also simplifying the tax assessment procedure for NRIs and PIOs. These provisions play a major role in attracting investment by Non-Nationals living abroad.
Non-resident persons have been given a special status under the income tax law. besides the general provisions for computation of long-term capital gains and the tax liability thereon, contained in section 48 and section 112, Chapter XII-A (comprising of sections 115C to 115-I) contains special provisions relating to certain incomes of non-resident Indians (NRIs). Section 115AC makes provision for tax on income from bonds or shares purchased in foreign currency or capital gains arising from their transfer. Besides, the provisions of Section 115A have been extended to non-residents, besides foreign companies, regarding tax on dividends, interest on foreign currency debts and income from units of mutual funds.
In order to understand the wide concept of Taxation of NRIs we need to understand the difference between Resident, Non-Resident and Resident but not ordinarily resident.
Residents: As per section 6 of the IT Act, a person becomes resident in India if he satisfies any of the following conditions.
- Stays in India for 182 days or more or
- Stays in India for 60 days and 365 days in aggregate in preceding 4 years.
There are some exceptions granted for person of Indian origin, Non Resident Indian, Indian Citizen who leaves India for employment purpose or as crew of a ship or who comes to a visit to india. In all these cases, if they stay in India in a year for 182 days only then he becomes resident.
Non- Residents: Those who are not resident are called Non Resident.
Resident but not Ordinarily Resident (RONR):
Resident but not Ordinary Resident is defined under subsection 6 of Section 6 of the IT Act. A person is Non Ordinarily Resident if,
- He was Non-resident for 9 out of 10 previous years preceding the year when you want to know the status or
- during seven preceding previous years, he stays for 729 days or less.
Assessment of NRIs
A non-resident may be assessed to tax in India either directly or through agents. Persons in India who may be treated as agent or a non-resident are:-
- Employee or trustee of the non-resident:
- Any person who has nay business connection with the non-resident:
- Any person from or through whom the non-resident is in receipt of any income;
- Any person who has acquired a capital asset in India from the non-resident.
A broker in India who has independent dealings with a non-resident broker acting on behalf of a non-resident principal is, however, not treated as an agent of the non-resident principal is, however, not treated as an agent of the non-resident, if the transactions between the two brokers are carried on in the ordinary course of their business. Before any person is treated as an agent of non-resident. he is given an opportunity of being heard and any representation from him in the matter is considered.
Taxable income of NRIs
As mentioned in Chapter – II, a person who is non-resident is liable to tax on that income only which is earned by him in India. Income is earned in India if:
- It is directly or indirectly received in India or
- It accrues in India or the law construes it as having accrued in India
The following are some of the instances when the law construes and income to have accrued in India:
- Income from business arising through any business connection in India
- Income from property if such property is situated in India:
- Income from any asset or source if such asset or source is in India:
- Income from salaries if the services are rendered in India. In such cases salary for rest period or leave period will be regarded as earned in India if it forms part of service contract:
- Income from salaries payable by the Government to a Citizen of India even though the services are rendered outside India;
- Income from dividend paid by an Indian company even if the same is paid outside India;
- Income by way of interest payable by the government or by any other person in certain circumstances;
- Income by way of royalty if payable by the Government or by any other person in certain circumstances;
The following income, even though appearing to be arising in India, is construed as not arising in India:-
- If a non-resident running a news agency or publishing newspapers, magazines etc. earns income from activities confined to the collection of news and views in India for transmission outside India, such income is not considered to have arisen in India.
- In the case of a non-resident, no income shall be considered to have arisen in India if it arises from operations that are confined to the shooting of any cinematography film.
This applies to the following types of non-residents:
- Individual who is not a citizen of India; or
- Firms which does not have any partner who is a citizen of India or who is resident in India; or
- Companies which does not have any shareholder who is resident in India.
Exemptions and Concessions for NRIs
All receipts which give rise to income are taxable unless they are specifically exempted from tax under the Act. Such exempted income are enumerated in Section 10 of the Act. The same are summarized in the table click to see