SUBMITTED BY:-

Incomes taxable in case of non-residents

In case the assessee is a non-resident in India, he is liable to pay tax on the following incomes: (a) Incomes received or deemed to be received in India. (b) Incomes which accrue or arise in India or are deemed to accrue or arise in India.

Meaning of 'Non-resident'
According to section 2(30), Non-Resident means a person who is not a resident in India. However in the following cases, it also includes a person who is not ordinarily resident in India: (a) Section 92-relating to computation of income from international transactions having regard to arm's length price. (b) Section 93-avoidance of income tax by transactions resulting in transfer of income to non-residents. (c) Section 168-Executors.

Types of Non-resident in India

Under Income Tax Act, non-resident in India can be of two types: (a) Non resident Indian: According to section 115C(e), non-resident Indian means an individual, being a citizen of India or a person of Indian origin who is not a resident.
y 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 y non-resident Indians can only be individuals.

(b) Any other non-resident person i.e. Foreign Nationals or foreign companies or Overseas financial organizations or foreign institutional investors, etc.
4

Taxation of Non-residents
A) Incomes which are exempt from income-tax In case of non-resident Indian/non-resident in India (a) Interest on notified securities or bonds held by a non-resident including income by way of redemption of such bonds or interest on Non-Resident (External) Account in any bank in India in accordance with the rules laid down for that purpose, in case of an individual. [Section 10(4)]. (b) Interest on notified Savings Certificates issued before 1-6-2002 which was purchased in convertible foreign exchange and held by a non-resident who is a Indian Citizen or a person of Indian origin. [Section 10(4B)]. (c) Tax payable on royalty or fees for technical service on behalf of foreign company in pursuance of an agreement entered into before 1-6-2002 [Section 10(6A)].
5

(d) Tax payable on certain income (not being salary, royalty or fee for technical service) of and on behalf of a non-resident or a foreign company by the Government or the Indian concern in pursuance of an agreement entered into before 1-6-2002. [Section 10(6B)]. (e) Tax payable on income from leasing of aircraft, etc. under an agreement entered into after 31-3-1997 but before 1-4-1999 or entered into after 31-32007 [Section 10(6BB)]. (f) Income of foreign companies providing technical services in projects connected with security of India. [Section 10(6C)]. (g) Remuneration or fee received by non-resident/non-citizen/citizen but not ordinarily resident 'consultants'^ for rending technical consultancy in India under approved program including remuneration of their employees, and income of their family members which accrue or arise outside India. [Sections 10(8A), (8B) and (9)]. 6

(h) Interest on notified bonds. [Section IO(15)(//W)]. (i) Interest to Foreign Banks on any deposits made by it with the approval of the RBI, with any scheduled bank. [Section 10(15)(//7o)]. (j) Interest payable by Government/Financial Institutions, etc. on money borrowed by it or debts owed by it before 1-6-2001 to sources outside India. [Section 10(15)(/v)]. (k) Any payment made by-an Indian company to acquire an aircraft on lease from foreign Government or enterprise under an agreement entered into before 1-4-2007. [Section 10(15 A)]. 7

(B) Incomes which are taxable

A Non-resident person, other a company, having total income exceeding the maximum exemption limit is liable to pay tax at the same rate as in the case of a resident assessee except in the following cast"!'. 1. Income from certain specified assets/sources falling under sections 115A, 115AB, 115AC, 115AD, 115BBA covered under Chapter XII of the Income-tax Act. 2. Certain Incomes of Non-resident Indians covered under Chapter XIIA of Income-tax Act, the non-resident Indian has been given an option to pay tax either under Chapter XIIA at certain special flat rates or as per the other provisions of the Act. It may be mentioned that the non-residents, including foreign companies, are also liable to surcharge, on income-tax as well as education cess. 8

Determination of income in case of nonresidents [Rule 10]

In any case in which the Assessing Officer is of opinion that the actual amount of the income accruing or arising to any non-resident person whether directly or indirectly, through or from any business connection in India or through or from any property in India or through or from any asset or source of income in India or through or from any money lent at interest and brought into India in cash or in kind cannot be definitely ascertained, the amount of such income for the purposes of assessment to income-tax may be calculated: (i) At such percentage of the turnover so accruing or arising as the Assessing Officer may consider to be reasonable, or (ii) On any amount which bears the same proportion to the total profits and gains of the business of such person (such profits and gains being computed in accordance with the provisions of the Act.) as the receipts so accruing or arising bear to the total receipts of the business, or (iii) In such other manner as the Assessing Officer may deem suitable.
9

Tax on dividends, interest, royalty and technical service fees in the case of foreign companies (Section 115A)
Tax on dividends/interest income of non-resident including a foreign company [Section 115A(l)(a)] Special provisions regarding rate of tax: Where the total income of a nonresident or of a foreign company, includes any income by way of: (i) Dividends, or (ii) Interest received from Government or an Indian concern on monies borrowed or debt incurred by Government or the Indian concern in foreign currency; or (iii) Income received in respect of units, purchased In foreign currency, of a Mutual Fund specified under section 10(23D) or of the Unit Trust of India. However, this income shall again be exempt w.e.f. assessment year 2004-05 as per section 10(34).
10

The income tax on the total income of such person shall be chargeable at the following rates:
(a) On the dividend income (other than dividend referred to in section 115-O) 20% (b) On the interest income covered under clause (ii) above 20% (c) On the income from units referred to in clause (iii) above. Exempt (d) On the balance income included in the total income Special rates/Normal rates as the case may be 11

Tax on income by way of royally/fee for technical services received by a non-resident/foreign company [Section 115A(l)(b)
Special provisions regarding rate of tax: Where the total income of a nonresident or a foreign company includes any income by way of royalty or fees for technical services other than income referred to in section 44DA(1) received from Government or an Indian concern in pursuance of an agreement made by the non-resident/foreign company with Government or the Indian concern, the income tax on total income of such non-resident/foreign company shall be chargeable at the following rates: (a) On the income by way of royalty and fee for technical services received in pursuance of an agreement made after 31-3-1976 but before 1 -6-1997 30% (b) On the income by way of royalty and fee for technical services received in pursuance of an agreement made after 31-5-1997 but before 1-6-2005 20% (c) On the income by way of royalty and fee for technical services received in pursuance of an agreement made after 31 -5-2005 10% (e) On the income covered under section 115A(l)(tf) covered at the rates given under para 10.5A above in that para i.e. 20% (f) On the balance income included in total income Special/normal rates as the case may12be

Consequential provisions due to special rate of tax u/s 115A(l)(a) and (b)
1. No deduction of any expense or allowance: Since special rate of tax are applicable in case of income by way of dividend other than dividend referred to in section 115-O, interest, royalty and fee for technical services, no deduction in respect of any expenditure or allowance shall be allowed to the assessee 2. No deduction under Chapter VIA from such income except in case of income by way of royalty and fee for technical services 3. No return of income necessary in some cases: As per section 115A(5), no return is required to be submitted in this case under section 139(1) if the following conditions are satisfied: (a)The total income of the assessee consist only of such dividend and interest mentioned in clause (a) of in this section, and (b)The tax deductible at source has been deducted from such income. However if there is a income from royalty or fee for technical services, the return of income in that case is required to be submitted under section 139(1). 13

4. Set off in carry forward and set off of losses allowed from incomes mentioned under section 11SA but unabsorbed depreciation not allowed'. However, the unabsorbed depreciation of any business of the current year or any earlier year brought forward to this year cannot be set off against the above incomes as it is covered u/s 32 which falls within sections 28 to 44C.

14

No special provision regarding capital gain on the transfer of above income earning capital assets under section 115A:
y In case any capital asset, on which income mentioned above

is earned, is transferred during the previous year by the non-resident, there are no special provisions given under section 11SA which are applicable for taxing such capital gain. Hence, in such a case the regular provisions of taxing such capital gain shall apply.

y It may also be noted that where the total income of a non-

resident individual is less than the maximum exemption limit, there is no provision of shifting the long term capital gain to other income for claiming full exemption of Rs 1,60,000, as it is not allowed in case of non-residents. 15

Tax on income from units purchased in foreign currency and capital gains arising from their transfer [Section 115AB]
y This section is applicable only in case of Overseas Financial organisation,

known as Off Shore Funds.

y Special provisions regarding rate of tax [Section 115AB(I): Where the

income of the above assessee, includes: (a) income received in respect of units purchased in foreign currency (exempt w.e.f. assessment year 2004-05); or (b) income by way of long-term capital gains arising from the transfer of units purchased in foreign currency: the tax on its total income shall be chargeable as under: (i) on the income from units mentioned in clause (a) above 10% (but exempt w.e.f. A.Y. 2004-05) (ii) on the income by way of long-term capital gains referred in clause (b) above 10% (iii) on the balance income included in total income Special / Normal rates as the case may be.
16

Consequential provisions due to special rate of tax under section 115AB(1) [Section 115AB(2)]
(1) Second proviso to section 48 not applicable:

Where the Gross Total Income includes income by way of Long Term Capital Gain mentioned under clause (b), above, the second proviso to section 48 regarding indexation of cost of acquisition & improvement shall not be applicable for such Long Term Capital Gain. The First Proviso to section 48 regarding conversion of sale consideration and cost, etc. in foreign currency for computation of Capital Gain otherwise is not applicable as the same is applicable only for shares and debentures of an Indian company. (2) No deduction under section Chapter VIA from such income: No deduction under Chapter VIA (80C to SOU) is allowed from the long-term capital gain. But where the Gross total income of the Overseas Financial Organization consist of other incomes also, then the deduction under Chapter VIA will be available in respect of other incomes. The normal provisions of the Income-tax Act will apply to the other incomes. It may, however, be mentioned that deduction under Chapter VIA is not allowed from short-term capital gain on shares referred to in section 111 A.
17

Consequential provisions due to special rate of tax under section 115AB(1) [Section 115AB(2)]
(3) No exemption from filing of return: There is no exemption for filing return of income even if the total income of such offshore funds consists of only such income and income from long-term gain on transfer of such units. (4) Carry forward and set off of loss allowed but unabsorbed depreciation not allowed: The provisions of Chapter VI regarding set off of current year loss and set off of brought forward losses shall be applicable in this case. Thus if there are current years losses from other heads of income, these can be set off from long-term capital gain from such units. Further if there are brought forward long-term capital losses, these can be set off from long-term capital gain.
18

Tax on income from bonds or global depository receipts purchased in foreign] currency or capital gains arming from their transfer [Section 115AC]
Special provisions regarding rate of tax: Where the total income of an assessee being a non-resident, includes (a) income by way of interest on bonds purchased in foreign currency of (i) an Indian company issued in accordance with such scheme as the Central Government may. by notification in the Official Gazette, specify in this behalf; or (ii) a public sector company sold by the Government; (b) income by way of long-term capital gains arising from the transfer of bonds referred to in clause (a) or, Global Depository Receipts purchased by him in foreign currency, the income-tax on the total income shall be chargeable as under: (i) on the income by way of interest in respect of bonds referred to in clause (a) above 10% (ii) on the income by way of long-term capital gains referred to in clause (b), above 10%. (iii) on the balance income included in total income Special/normal rate as the case maybe
19

Consequential provisions due to special rates of tax under section H5AC(1) [Sections 115AC(2)/(3)/(4)/(5)]
(1) No deduction of any expenses or allowance: Where the gross total

income of the non-resident consists only of income by way of interest in respect of bonds referred to in clause (a) above, no deduction under sections 28 to 44C or section 57(iii) shall be allowed from such interest income.

(2) Both provisos to section 48 shall not apply: Where the Gross Total

Income includes income by way of Long Term Capital Gain mentioned under clause (b) above, neither proviso 1, nor proviso 2 to section 48 shall apply for the computation of such Long Term Capital Gain. In other words, if there is a short-term capital gain proviso 1 to section 48 relating to conversion of sales consideration and cost in foreign currency shall apply.

(3) No deduction under Chapter VIA: No deduction under Chapter VIA

(sections 80C to 80U) shall be allowed from such income by way of interest. Deduction under Chapter VIA is otherwise not available from 20 long-term capital gain included in Gross Total Income.

Consequential provisions due to special rates of tax under section H5AC(1) [Sections 115AC(2)/(3)/(4)/(5)]
(4) No return of income necessary in a particular case: No return is required to be submitted under section 139(1) if the following conditions are satisfied: (a) The total income of the assessee consist only of income by way of interest, and (b) The tax deductible at source has been deducted from such income. However, if there is income by way of long-term capital gain from the transfer of such bonds and GDR's, the return of income is required to be submitted under section 139(1). (5) Carry forward and sc' off of losses allowed but set off of unabsorbed depreciation not allowed'. Although no expenditure/deduction mentioned in points 1 and 2 above are allowed but the provisions of Chapter VI regarding set off, carry forward and set off of losses are applicable and such losses can be set off against the above incomes subject to the provisions of Chapter VI. However, the unabsorbed depreciation cannot be set off against the above income as it is covered under section 32.
21

Consequential provisions due to special rates of tax under section H5AC(1) [Sections 115AC(2)/(3)/(4)/(5)]
(6) Transfer of bonds/GDRs by a non-resident to another nonresident outside India is not a transfer. It may also be observed as per section 47(vii a) relating to transactions not regarded as transfer, any transfer of bonds/GDRs mentioned above made outside India by a non-resident to another non-resident shall be not regarded as transfer for capital gain purposes. (7) Where the assessee acquired Global Depository Receipts or bonds in an amalgamated or resulting company by virtue of his holding Global Depository Receipts or bonds in the amalgamating or de-merged company, as the case may be, in accordance with the provisions of sub-section (1), the provisions of that sub-section shall apply to such Global Depository Receipts or bonds.
22

Special provisions regarding rate of tax: Where the total income of the above assessee includes:
a) Income received in respect of securities (other than units of mutual funds covered under

section 10(23D) or of Unit Trust of India); or b) Income by way of short-term or long-term capital gains arising from the transfer of such securities. The income-tax on the total income shall be chargeable as under: (i) On the income in respect of securities referred to in clause (a), above , 20% (ii) On the income by way of short-term capital gains referred to in clause (b) above, 30% (iii) On the income by way of long term capital gains referred to in clause (A), above , 10%. (iv) On the balance income included in total income Special/normal rate as the case may be

23

Consequential provisions due to special rate of tax under section 115AD

1. No deduction under Chapter IV or Chapter VIA: Where the gross total income of the assessee includes income in respect of securities mentioned in clause (a) above, neither deduction under section 28 to 44C nor under section 57C, nor under Chapter VIA (80C to 8OU) shall be allowed from such income. 2. Both provisos 1 and 2 to section 48 not applicable: For computing long term and short-term capital gain on the transfer of securities mentioned above, both the proviso 1 and 2 to section 48 shall not be applicable. 3. No exemption of filing any return: There is no exemption for filing return of income for incomes mentioned under this Section. 4. Chapter VI applicable: The provisions of Chapter VI relating to set off, carry forward and set off of losses shall however, be applicable in this case also but unabsorbed depreciation shall not be allowed to be set off against the income referred to in section 115AD.
24

Tax on Non-Resident sportsman or sports associations (Section 115BBA)

Sub-section (1)(a) of this section is applicable to a sportsman (including an athlete) who is not a citizen of India and is a non-resident: Special provisions regarding the rate of tax: Where the total income of the above sportsman includes income received or receivable by way of; (i) Participation in India in any game (other than a game the winnings wherefrom are taxable under section(115BB) or sport; or (ii) Advertisement; or (iii) Contribution of articles relating to any game or sport in India in newspaper, magazines or journals; such income shall be chargeable to tax @ 10% and the balance income included in the total income at the normal rate. Section (1)(b) of this section is applicable to non-residents sports association or institution Special provisions regarding rates of tax: Where the total income of the non-resident sports association/institution includes any amount guaranteed to be paid or payable to such association or institution in relation to any game or sport played in India, the tax shall be payable on such income @ 10% and on the balance income at normal rates. 25

Special provisions Relating to certain incomes of non-resident Indian as per Chapter XIIA of Income-tax Act [115C to 115-I]
The provisions of Chapter XIIA (Sections 115C to 115-1) are applicable only for the benefit of Non-Resident Indian. Tax on investment income and Long-term Capital Gains [Section 115E] Special provisions regarding rate of tax: Where the total income of the non-resident Indian includes: (a) Any investment income; or (b) Income by way of long-term capital gains from a foreign exchange specified asset, the tax on the total income shall be chargeable as under: (i) On the income in respect of investment income referred to in clause (a) above 20%. (ii) On the income by way of long-term capital gains on specified asset referred to in clause (b) above 10%. (iii) On the balance total income included in the total incomeAmount of income tax which would have been payable on total income exclusive of income referred to clauses(a) and (b) above. 26

Investment income [Section 115C(c)]

For the purpose of above, "investment income" means any income derived from a foreign exchange asset.

What is the foreign exchange asset [Section 115C(6)]

Foreign exchange asset means any specified asset as given below which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange.

What is a specified asset [Section 115C(f )]

Specified asset means any of the following assets, namely: (i) In an Indian company; (ii) Debentures issued by an Indian company which is not a private company as defined in the Companies Act, 1956; (iii) Deposits with an Indian company which is not a private company as defined in the Companies Act, 1956; (iv) Any security of the Central Government as defined in clause (2) of section 2 of the Public Debt Act, 1956; (v) Such other assets as the Central Government may notify.
27

Capital gains on transfer of foreign exchange assets not to be charged in certain cases (Section 115F)
y Where an assessee, who is a non-resident Indian, transfers any long-term foreign exchange asset, he can claim an exemption in respect of the long-term capital gains if the following condition is satisfied.

He has invested within a period of six months after the date of such transfer, the whole or any part of the net consideration in any of the specified assets, i.e.: (a) Shares of an Indian company; (b) Debentures of a Indian public limited company; (c) Deposit with an Indian public limited company; (d) Central Government securities; (e) Such other assets as may be specified.
28

Quantum of deduction (1) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gains shall be exempt; (2) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gains the same proportion as the cost of acquisition of the new asset bears to the net consideration, shall be exempt. In other words, it may be calculated as under: Long-term Capital Gain* (Amount invested/Net Consideration)

Withdrawal of exemption The exemption granted under section 115F will be withdrawn under the following circumstances. Where the new asset is transferred or converted into money within a period of three years from the date of its acquisition, the exemption granted, on the basis of cost of the new asset, shall be deemed to be income chargeable under the head Capital gains of the previous vear in which the new asset is transferred or converted into money and shall be taxed as long-term capital gains.
29

Return of income not to be filed in certain cases [Section 115G]

y It shall not be necessary for non-resident Indian to furnish

return of his income u/s 139(1) if; (a) his total income in respect of which he is assessable under this Act during the previous year consisted only of investment income or income by way of long-term capital gains from foreign exchange specified asset or both; and (b) the tax deductible at source has been deducted from such income.

30

Benefit under this chapter to be available in certain cases even after the assessee becomes resident (Section 115H)
y Where a non-resident Indian becomes assessable as resident

in India in any previous year, he, may if he so opts, continue to be governed by the provisions of this chapter in respect of the investment income of all the above foreign exchange assets except shares of an Indian company until the transfer or conversion (other than by transfer) into money of such assets.

y If he decides to make such option, he will furnish to the

Assessing Officer a declaration of the same in writing along with his return of income under section 139 for the assessment year for which he is so assessable.
31

Special provisions for computing profits and gains of shipping business in the case of nonresidents (Section 44B)
y A sum equal to 7.5% of (a) the amounts paid or payable whether in or out of India to the assessee or to any person on his behalf, on account of carriage of passengers, livestock, mail or goods shipped at any port in India, and
(b) any amount received or deemed to be received in India by or on behalf of the assessee, on account of carriage of passengers, livestock, mail or goods shipped at any port outside India,

shall be deemed to be the profits of such business. The carriage amount will also include amount paid or payable or received or deemed to be received by way of handling charge or any other amount of similar nature.
32

Special provisions for computing profits and gains of business of operation of aircraft in the case of nonresidents [Section 44BBA]
y Notwithstanding anything to the contrary contained in section 28 to 43A, the income of a non-resident engaged in the business of operation of an aircraft shall be computed at a flat rate of 5% of:

(a) the amount paid or payable whether in India or out of India to the assessee or to any person on his behalf on account of carriage of passengers, live-stock, mail or goods from any place in India, and (b) the amount received or deemed to be received in India, on account of carriage of, such items from a place outside India. 33

Special provisions for computing profits and gains of foreign companies engaged in the business of civil construction, etc. in certain turnkey power projects (Section 44BBB)
y Notwithstanding anything to the contrary contained in

section 28 to 44AA, in the case of an assessee, following provision would apply : A sum equal to 10% of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".
34

y The assessee can declare income under section 44BBB to be lower than 10% (Section 44BBB(2)|: Such assessee may claim lower profits and gains than the aforesaid amount of 10% if the following two conditions are satisfied:

(a) The assessee keeps and maintains such books of account as are required u/s 44AA(2), and (b) The assessee gets the accounts audited and furnishes a report of such audit as required u/s 44AB. However, in this case, the Assessing Officer shall proceed to make assessment of the total income/loss of the assessee only under scrutiny assessment as per section 143(3).
35

36