TAX PLANNING FOR NON RESIDENT

Submitted By: Group 6 Sudhanshu Kaushik (80) Sudhanshu Singh (81) Sanjay Machama (71) Prashant Bhargava(102) Subhash Bisht (79)

Definition of a Non-Resident Indian (NRI)

Definition of a Non-Resident Indian (NRI) An Indian Citizen who stays abroad for employment/carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. (Persons posted in U.N. Organizations and Officials deputed abroad by Central/State Governments and Public Sector undertakings on temporary assignments are also treated as nonresidents). Non Resident foreign citizens of Indian Origin are treated on par with non-resident Indian Citizens (NRIs) for the purpose of certain facilities. Main categories of NRIs
The following are the main three categories of NRIs: Indian citizens who stay abroad for employment or for carrying on a business or Vocation or any other purpose in circumstances indicating an indefinite period of stay abroad. Indian citizens working abroad on assignment with foreign government agencies like United Nations Organization (UNO), including its affiliates, International Monetary Fund (IMF), World Bank etc. Officials of Central and State Government and Public Sector undertaking deputed abroad on temporary assignments or posted to their offices, including Indian diplomat missions, abroad.

Tax laws that affect NRIs

The tax laws that affect NRIs and their investments, business and income in India are given below
The Income Tax Act, 1961: It deals with the levy, assessment, collection of tax, appeal etc. It is supplemented by the Income tax rule, 1962. The Wealth Tax Act, 1957: It regulates the levy and collection of wealth-tax of individuals, HUF and companies. It is also supplemented by the Wealth Tax Rules, 1957. Finance Act: Every year, the Parliament passes a Finance Act, which lays down the rates of Income-tax and Wealth-tax for a particular financial year or the assessment year. Amendments to the various direct tax laws are also passed through the Finance Act and sometimes, through a Direct Tax Law Amendment Act. Circulars: The Central Board of Direct Taxes, New Delhi is the apex administrative body for the different tax laws. It often issues circulars, interpreting the provisions of the law, which give relief and grant tax concessions. These circulars are binding on the different tax authorities. Notifications: The Government of India issues notifications, which are published in the Official Gazette e.g. granting special exemption etc.

Who is Non Resident

1. Resident as per I.T. Act: Individual:
(i) Physical presence 182 days in a F.Y. or (ii) Physical presence 365 days in four preceding F.Y. and 60 days in the F.Y. or (iii) If a crew of Indian ship, or a NRI who comes on leave, or Indian citizen leaves India for the purpose of employment outside India physical presence 182 days irrespective of presence in preceding four years.

Any person who does not satisfy these norms is termed as a 'non-resident'.

TAXABILITY OF NON RESIDENT UNDER INCOME TAX ACT 1961

Section 5:- Scope of income of a NR
` (i) Received or deemed to be received in India and/or (ii) Accrues or arises or is deemed to accrue or arise in India.

Special Provisions Applicable to Nonresident Indians

With a view to attract investment by Non-resident Indians (NRIs) and Indian Nationals living abroad, certain reliefs, exemptions and incentives have been provided in the scheme of income taxation. Chapter XIIA of the Income Tax Act contains special provisions relating to taxation of non-resident Indians.
11.1 Joint holdings of non-resident Indians Non-residents of Indian nationality/origin may invest in shares either singly or jointly with their close relatives resident in India. The Reserve Bank of India permits such joint holdings with repatriation benefits, providedthe investment is made by sending remittances from abroad or out of funds held in the Overseas Investor's Non-resident (External) Account or FCNR account; the first holder of shares is the non-resident Indian who actually made the investment out of his funds; and the resident holder is closely related to the non resident investor.

Remittance/repatriation of capital/dividend will be allowed to the non-resident investor, i.e. the first holder. In the event of the joint resident holder inheriting shares, he/she will not be entitled to any remittance/repatriation facilities. The special tax incentives provided in the Act to nonresidents of Indian origin are available only to them and not to the resident Indians.

Special Provisions Applicable to Nonresident Indians

11.2 Special Exemptions in respect of Investment income of Non-Resident Indians Following investment income arising to Non-resident Indians (NRIs) are totally exempt : The entire income accruing or arising to a NRI investing in the units of the Unit Trust of India is free of income tax provided the units purchased by them are out of the amount remitted from abroad or from their Non-resident (External) Account, Income arising from investment in notified savings certificates obtained by NRIs is exempt from tax provided the certificates are subscribed to in convertible foreign exchange remitted from a foreign country in accordance with Foreign Exchange Regulation Act. For this purpose National Saving Certificate VI and VII issues are notified. Income from NRI Bonds 1988 and NRI Bonds (Second Series) purchased by NRIs in foreign exchange is exempt from tax. This exemption continues to be available to a Non-resident Indian even after he becomes resident and is available also to the nominee or survivor of the NRI and to the donee who gets a gift of such bonds from the NRI.

Special Provisions Applicable to Nonresident Indians

11.3 Concessional Tax Treatment of certain incomes of non-resident Indians

The income other than dividend and long term capital gains derived from any 'Foreign Exchange Asset1 by NRI is charged to tax at the flat rate of 20%. Long term capital gains arising on transfer of such assets are charged at the flat rate of 10%. The term 'Foreign Exchange Asset1 means any of the following assets acquired, purchased or subscribed to in convertible foreign exchange in accordance with Foreign Exchange Regulation Act : Shares in Indian company Debentures issued by a public limited company Deposits in a Public Ltd. Co. Securities of the Central Government Any other notified asset.

Special Provisions Applicable to Nonresident Indians

11.3.1 In computing the total income of such persons from any foreign exchange asset, no deduction is allowed in respect of any expenditure or allowance under any provision of the Act. Further, where a NRI has income only from foreign exchange asset or income by way of long term capital gains arising in transfer of a foreign exchange asset, or both, and the tax deductible at source from such income has been deducted, he is not required to file the return of income as otherwise required under the Act. 11.3.2 It may further be noted that the special provisions mentioned as above, will continue to apply in relation to the investment income from 'foreign exchange assets' (other than shares of an Indian Comapany) even after the NRI becomes resident in India. If the NRI becoming a resident wishes to be assessed under these provisions, he is required to file a declaration in writing along with the return of income. These special provisions will apply in relation to such income until the transfer or conversion of such assets into money. 11.3.3 Non-resident Indian may also elect not to be governed by these provisions for any assessment year by furnishing to the assessing officer the return of income for that assessment year and declaring therein that these provisions shall not apply to him for that assessment year. If he does so, then his total income and tax will be computed in accordance with the normal provisions of the Act.

Special Provisions Applicable to Nonresident Indians

11.3.4 Any long term capital gain arising to a NRI from the transfer of a foreign exchange asset, the net consideration of which is invested or deposited within a period of 6 months from the date of transfer in any specified asset mentioned at (a) to (e) of para 11.3 or in the National Saving Certificate VI or VII issue is dealt with as follows: if the cost of the new asset is not less than the net consideration in respect of the original foreign exchange asset, the whole of the capital gain will not be liable to tax; if the cost of the new asset is less than the net consideration in respect of the original foreign exchange asset, proportionate amount of capital gain will be exempted from tax. The proportionate amount will be- Capital gain x (Cost of new assets / Net consideration of Transfer)

11.4 Simplified procedure of remittances

With a view to simplify the procedure for tax deduction at source and to avoid delay and inconvenience in the case of nonresident Indians wishing to remit the sale proceeds of foreign exchange assets, it has been provided that the non-resident Indians can remit such proceeds abroad or credit the same to their Non-resident (External) Account without having to obtain 'No Objection Certificate1 from the Income-tax authorities provided tax @ 10% on the long term capital gains relating to such assets is deducted by the authorised dealer, i.e. the bank concerned.

Special Provisions For Computing Profits And Gains In Case Of Non-Residents Engaged In Certain Business
This section applies toSec 44B non-resident engaged operation ships. Sec 44BB Sec 44BBA non-resident non-resident engaged engaged in in providing operation of service/ facilities aircraft. or supplying plant/ machinery for extraction or production of mineral oils (including petroleum and natural gas) 10% of gross 5 % of gross receipts receipts Sec 44BBB foreign company engaged in civil construction or erection, testing or commissioning of plant or machinery in connection with an approved turnkey power project

Deemed Income 7 % of gross receipts

10 % of gross receipts

Relevant Points for NRIs

Relevant Points for NRIs
Income tax is payable by any tax payer on the total income as computed and approved by the assessing officer under the provision of the Income-tax Act. Only Indian income is liable to Income-tax in India in the case of Non-resident Person. There is no Income-tax in India on a foreign income merely because it is remitted to India during that year. In the case of a person who is resident but not ordinarily resident in India, no income-tax is payable by him in the income which accrues or arises to him outside India, unless it is derived from a business controlled or a profession set up, in India.