Taxation of Non-Resident under Income-tax Act, 1961

Income Tax Department
Ministry of Finance, Government of India

Taxation of Non-Resident

Introduction

A non-resident is taxed in India only on income that is received, deemed received, accrued, or deemed accrued in India. Taxability is also influenced by Double Taxation Avoidance Agreements (DTAAs) between India and other countries.

Determination of Non-Resident Status

A person is classified as a non-resident under Section 6 of the Income-tax Act if he does not meet the criteria for residency based on his physical stay in India. The residential status of entities depends on the location of control, management, or effective place of business.

Taxable Income of Non-Residents

The following categories of income are taxable in India for non-residents:

• Salary: Taxable if services are rendered in India, regardless of the place of receipt. Certain exemptions apply under Section 10(6).
• House Property: Income from properties in India is taxable, even if received outside India.
• Business or Profession: Taxable if the business has a permanent establishment in India or if it has a business connection in India.
• Capital Gains: Taxable if the asset is located in India. Shares in a foreign entity deriving substantial value from Indian assets are also taxable. DTAA provisions may provide relief.
• Other Sources: Passive income like dividends, interest, royalties, and fees for technical services (FTS) is taxable in India if deemed to accrue or arise in India.

Computation of Total Income

Total income is determined as follows:

• Calculate income under five heads(Salary, House Property, Business/Profession, Capital Gains, Other Sources).
• Apply clubbing provisions if applicable.
• Set off and carry forward losses as per tax provisions.
• Apply deductions under Chapter VI-A to compute Gross Total Income.
• Determine total taxable income after deductions.

Tax Computation for Non-Residents

• Tax is levied at normal rates for regular income and special rates for specific incomes.
• Minimum Alternate Tax (MAT)applies to foreign companies with a permanent establishment in India. Certain incomes like dividends, royalties, and capital gains may be excluded if taxed at lower rates.
• Alternate Minimum Tax (AMT)applies to non-corporate assessees at 18.5% on adjusted total income.

Compliance Requirements for Non-Residents

• Permanent Account Number (PAN): PAN is required for all communications with the Income-tax Department and for specified financial transactions. However, a non-resident is not required to have a PAN in the following cases:
  • Income from investment in Category I or II AIFs located in IFSC (if TDS is deducted and foreign residency details are given).
  • Receipt of passive income like interest, dividend, royalty, FTS, or capital gains (if foreign residency details are furnished).
  • Opening a bank account with an IFSC banking unit (if no taxable income in India and Form 60 is submitted).
• Filing of Return: Non-residents are required to file income-tax return unless they have only specified incomes (e.g., under Section 115A) with tax already deducted.
• Tax Residency Certificate (TRC): Required to claim DTAA benefits.
• Tax Clearance Certificate: Non-residents may need this certificate before leaving India to confirm tax compliance.

Taxation of Dividend Income of Non-Residents

Dividend income received by a non-resident from an Indian company is always taxable in India. However, dividends from a foreign company are taxable in India only if received in India. Unlike regular income, dividends for non-residents are taxed on a gross basis at concessional rates.

Taxability of Dividend Income

• Dividend from an Indian Company: Always deemed to accrue in India and taxable in India, regardless of where it is received.
• Dividend from a Foreign Company: Not taxable in India unless received in India.
• DTAA Applicability: If a tax treaty between India and the recipient’s country provides a lower tax rate, DTAA provisions prevail.

Recognition of Dividend Income

• Final and Deemed Dividend: Taxable in the year it is declared, distributed, or paid.
• Interim Dividend: Taxable when unconditionally made available to the shareholder.

Taxation and Deductions

• Taxable under “Income from Other Sources”
• Non-residents cannot claim deductions for expenses related to earning dividend income.
• Chapter VI-A Deductions are not allowed for non-residents, except for units in an International Financial Services Centre (IFSC) under Section 80LA.

Applicable Tax Rates

Section	Assessee	Tax Rate
115A	Non-resident/Foreign company	10% (IFSC units), otherwise 20%
115AB	Offshore fund (Mutual Fund units)	10%
115AC	Non-resident (GDRs of Indian companies/PSUs)	10%
115AD	Foreign Portfolio Investors (FPIs)	20%
115E	Non-Resident Indians (NRIs)	20%

• If DTAA offers lower rates, DTAA rates override the above rates.

Minimum Alternate Tax (MAT) on Dividends

• MAT applies to foreign companies only if they have a Permanent Establishment (PE) in India and income is not taxable under the presumptive tax scheme.
• Dividend adjustments for MAT are made if the tax rate is lower than the MAT rate.

Exemptions from Tax on Dividend Income

• Income of European Economic Community (Section 10(23BBB)).
• Income from specified fund located in IFSCs (Section 10(23FBC)).
• Dividend from business trusts (REITs/InvITs) (Section 10(23FC)/10(23FD)).
• Dividends received by wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA), Sovereign Wealth Funds and Pension Funds (Section 10(23FE)).
• Dividend received by IFSC units engaged in aircraft or ship leasing business from another IFSC unit engaged in same business (Section 10(34B)).

TDS on Dividend Payments to Non-Residents

Tax is deducted at source (TDS) under the following provisions:

Section	Nature of Income
194LBA	Dividend received from SPV distributed by the business trust to the non-resident
194LBB	Dividend distributed by Category-I or Category-II AIFs
196A	Dividend distributed by mutual funds
196B	Dividend income of Offshore Fund in respect of units of mutual fund purchased in foreign currency
196C	Dividend on GDRs purchased in foreign currency
196D	Dividend income of FPIs from securities (other than mutual funds purchased in foreign currency)
195	Dividend in any other case

Return Filing Requirements

A non-resident must file an income tax return if his income is taxable in India. However, return filing is not required if:

• The non-resident individual, AOP, or BOI has total income (before specified exemptions/deductions) below the basic exemption limit.
• The non-resident or foreign company earns only specified income (like dividend, interest) under Sections 115A/ 115ACand TDS on such income is deducted at the rates not lower than the tax rates provided under such sections.
• An NRI opts for the special regime (Chapter XII-A) and earns only foreign exchange asset income, with TDS deducted.
• Income is only from investment in Category III AIF (specified fund under Section 10(4D)).

Taxation of Interest Income of Non-Residents

A non-resident is taxed in India on interest income that accrues, arises, or is deemed to accrue or arise in India. Interest received in India is also taxable. While interest is generally taxed at normal rates, certain categories of interest income are subject to concessional tax rates on a gross basis.

Taxability of Interest Income

• Interest from Indian Sources: Always taxable in India.
• Interest from Foreign Sources: Taxable in India only if received in India.
• DTAA Applicability: Provisions of the Double Taxation Avoidance Agreement (DTAA) apply if they are more beneficial.

The source of interest income is treated in India if it is payable by:

• The Government of India.
• A resident, unless the loan is for a business/profession or income source outside India.
• A non-resident, if the loan is for a business/profession in India.

Recognition of Interest Income

• Mercantile Accounting: Taxable on an accrual basis.
• Cash Accounting: Taxable on a receipt basis.

Taxation and Deductions

• Taxable under “Income from Other Sources” unless classified as business income.
• Deductions: Generally, expenses related to earning interest income are allowed. However, non-residents are taxed on a gross basis under Sections 115A, 115AC, and 115AD, with no deductions allowed.
• Chapter VI-A Deductions: Not allowed except for IFSC units under Section 80LA.

Applicable Tax Rates

Section	Assessee	Particulars	Tax Rate
Section 115A	Non-resident or Foreign Co.	Interest on monies borrowed or debt incurred by Government or Indian concern in foreign currency	20%
	Non-resident or Foreign Co.	Interest received from notified Infrastructure Debt Fund as referred to in Section 10(47)	5%
	Non-resident or Foreign Co.	Interest received from an Indian Co. or business trust in respect of: (a) Monies borrowed in foreign currency; (b) Long-term Infrastructure Bonds; or (c) Rupee Denominated Bonds. (If the borrowing is made or bonds are issued during the period specified under Section 194LC)	Interest payable in respect of long-term bond or rupee denominated bonds listed on a recognised stock exchange in IFSC- 4% if bonds are issued before 01-07-2023 and 9% if bonds are issued on or after 01-07-2023[1] ; In any other case 5%
	FPI or QFI	Interest on Rupee Denominated Bonds of an Indian Co. or Government Securities or Municipal Debt Securities as referred to in Section 194LD	5%
	Non-resident or Foreign Co.	Interest income distributed by business trust to its unit holders as referred to in Section 194LBA.	5%
Section 115AC	Non-resident	Interest on bonds of an Indian Company or Public Sector Company (PSU) purchased in foreign currency	10%
Section 115AD	FPI	Interest from securities	5%- Rupee Denominated Bonds of an Indian Company or Government Securities or Municipal Debt Securities; 20%- In any other case
Section 115E	Non-resident Indian	Interest on debentures or deposits of public company or Government security purchase in foreign currency	20%

Note: If DTAA provides a lower tax rate, it prevails.

Minimum Alternate Tax (MAT) on Interest Income

• Applicable to foreign companies with a Permanent Establishment (PE) in India.
• Adjustments to book profit for interest income apply only when taxed at a lower rate than MAT.

Exemptions from Tax on Interest Income

• Interest on certain securities (e.g., National Defence Loans) [Section 10(4)(i)].
• Interest on Non-Resident External (NRE) accounts [Section 10(4)(ii)].
• Interest on Rupee Denominated Bonds issued between 17-09-2018 and 31-03-2019 [Section 10(4C)].
• Interest from aircraft/ship leasing to IFSC units [Section 10(4F)].
• Interest on certain securities or deposits [Section 10(15)].
• Interest income of European Economic Community [Section 10(23BBB)]
• Income from the specified fund defined under Section 10(4D)[Section 10(23FBC)]
• Interest income of wholly owned subsidiary of ADIA or Sovereign wealth fund or pension fund from investment in Indian infrastructure entities [Section 10(23FE)]

TDS on Interest Payments to Non-Residents

Tax is deducted at source (TDS) under the following provisions:

• Section 195: General provision for tax deduction from interest payments to non-residents.
• Section 194LB: Interest from Infrastructure Debt Funds.
• Section 194LBA: Interest from Special Purpose Vehicles (SPVs) distributed by business trusts.
• Section 194LC: Interest on foreign currency loans, bonds, or Rupee Denominated Bonds.
• Section 194LD: Interest on Government/Municipal Debt Securities payable to FPIs.
• Section 196C: TDS on interest from Foreign Currency Convertible Bonds (FCCBs) issued by an Indian company or bonds of PSUs.
• Section 196D: Interest on securities held by FPIs.

Return Filing Requirements

A non-resident must file an income tax return if his income is taxable in India. However, return filing is not required if:

• The non-resident individual, AOP, or BOI has total income (before specified exemptions/deductions) below the basic exemption limit.
• The non-resident or foreign company earns only specified income (like dividend, interest) under Sections 115A/ 115ACand TDS on such income is deducted at the rates not lower than the tax rates provided under such sections.
• An NRI opts for the special regime (Chapter XII-A) and earns only foreign exchange asset income, with TDS deducted.
• Income is only from investment in Category III AIF (specified fund under Section 10(4D)).

Taxation of Royalty and Fees for Technical Services (FTS) for Non-Residents

The taxability of royalty or FTS income for a non-resident depends on factors such as the place of accrual, existence of a Permanent Establishment (PE) in India, the date of the agreement, and Double Taxation Avoidance Agreements (DTAAs). For agreements entered into on or after 01-04-2003, taxation is governed by Section 44DA, Section 56 or Section 115A.

Taxability of Royalty and FTS Income

• Royalty/FTS from the Government: Always deemed to accrue in India and taxable in India.
• Royalty/FTS from other persons: Taxable if used for a business/profession in India or for earning any income from any source in India.
• DTAA Applicability: Provisions of DTAA apply if they are more beneficial.

Recognition of Income

• Income by way of royalty or rendering of services is recognised in accordance with ICDS-IV.
• ICDS shall also apply for computation of incomes in the nature of royalty or fees for technical services which are taxable on a gross basis in the hands of a non-resident non-corporate assessee or a foreign company under Section 115A.[Circular No. 10/2017, dated 23-3-2017]
• Royalty Recognition: Recognised on an accrual basis unless another systematic method is more appropriate.
• Service Revenue Recognition: Follows the percentage of completion method (POCM), but for short-term contracts (≤90 days), it may be recognised upon completion.

Taxable Head of Income and Tax Rates

• When received from the Government or an Indian concern
  • If income is linked to PE in India, it is taxed as business income under Section 44DA at normal tax rates. Expenses are allowed except expenses not wholly/exclusively incurred for PE and payments to head office/other offices (except reimbursement).
  • If income is not linked to PE, it is taxed under the head ‘other sources’ at a rate of 20% under Section 115A. Expenses are not allowed to be deducted.
• When received from others
  • Tax at normal rates under standard provisions.
  • If from the oil/mineral business (e.g., services, hire of plant/machinery for extraction), the presumptive tax scheme under Section 44BB applies, and 10% of receipts are deemed as income.

(Note: 44BB not applicable if 44D / 44DA / 115A applies.)

Deductions and Exemptions

• Business Expenses: Allowed if income is connected to a PE.
• Chapter VI-A Deductions: Allowed.
• Exemptions:
  • Tax on royalty or FTS paid by the Government or an Indian concern on behalf of a foreign company (Section 10(6A)).
  • Royalty/FTS received under agreements with the Indian government for security-related projects (Section 10(6C)).
  • Royalty/FTS from National Technical Research Organisation (Section 10(6D))
  • Royalty/FTS from leasing aircraft/ships to IFSC units (Section 10(4F)).

Minimum Alternate Tax (MAT) on Royalty/FTS Income

• Applicable to foreign companies with a PE in India.
• Adjustments to book profit apply if income is taxed at a lower rate than MAT.

TDS on Royalty/FTS Payments to Non-Residents

• Tax shall be deducted under Section 195from royalty/FTS payments to non-residents.
• If tax is not deducted and deposited, the payer cannot claim the expense as a deduction.

Return Filing Requirements

A non-resident must file an income tax return if his income is taxable in India. However, return filing is not required if:

• The non-resident individual, AOP, or BOI has total income (before specified exemptions/deductions) below the basic exemption limit.
• TDS on royalty/FTS is deducted at a rate not lower than the tax rate provided under Section 115A.

Taxation of Capital Gains for Non-Residents

Introduction
Capital gains tax applies to income from the transfer of a capital asset. For non-residents, specific provisions govern aspects like period of holding, cost of acquisition, foreign currency fluctuations, and computation methods.

Taxability of Capital Gains

• Capital gains from an asset in India: Always taxable in India under Section 9(1)(i).
• Indirect Transfer: Gains from shares in a foreign entity that derive substantial value from Indian assets are also taxable in India.
• DTAA Applicability: The provisions of DTAA apply if they are more beneficial.

Computation of Capital Gains

Classification Based on Holding Period

• • Short-Term Capital Asset: Holding period ≤ 24 months (exceptions for certain securities: 12 months).
  • Long-Term Capital Asset: Holding period > 24 months/12 months.
  • Certain securities (e.g., market-linked debentures, specified mutual funds, unlisted bonds/debentures) are always treated as short-term gains. [Section 50AA]

Capital Gains Calculation

• • Sale Price – (Expenditure on Transfer + Cost of Acquisition + Cost of Improvement) = Capital Gains
  • No Indexation for Capital Assets Sold After 23-07-2024.

Special Provisions for Non-Residents

• • Securities held by Foreign Portfolio Investors (FPIs) are always capital assets.
  • Certain Transfers Exempt from Tax (e.g., transfer of GDRs, Rupee Denominated Bonds, Government Securities between non-residents).

Tax Rates on Capital Gains

Type of Capital Gain	Tax Rate
Short-Term Capital Gains (STCG)	Normal rates
STCG on equity shares, mutual funds, or business trust units (STT paid)	20%
STCG on securities held by FPIs	30%
Long-Term Capital Gains (LTCG)
LTCG on equity shares, mutual funds, or business trust units (STT paid)	12.5% (on capital gain exceeding Rs. 1.25 lakh)
LTCG from other capital assets	12.5%

• Foreign Currency Fluctuation Benefit: Allowed to non-residents on capital gains from shares/debentures of an Indian company except where shares/ debentures are unlisted or capital gain is taxable under Section 112A, Section 115AB, Section 115ACor Section 115AD.

Deductions and Exemptions

• Reinvestment Exemptions (Sections 54–54GB): Available to both residents and non-residents.
• Special NRI Deduction (Section 115F): LTCG from foreign exchange assets reinvested in shares or securities is tax-exempt.
• Deduction under Chapter VI-A: Not allowed except from short-term capital gain chargeable to tax at normal rates.
• Exemptions for Certain Investors and Funds:
  • Income from transfer of units of the specified fund defined under Section 10(4D) [Section 10(23FF)]
  • European Economic Community Investments [Section 10(23BBB)]
  • Capital Gains of wholly owned subsidiary of ADIA or Sovereign wealth fund or pension fund from investment in Indian infrastructure entities [Section 10(23FE)]
  • Investor’s income from foreign investment fund, which is relocated to IFSC [Section 10(23FF)]

Minimum Alternate Tax (MAT) on Capital Gains

• Applicable to foreign companies with a Permanent Establishment (PE) in India.
• Adjustments to book profit apply if capital gains are taxed at a lower rate than MAT.

TDS on Capital Gains for Non-Residents

• Sections 194LBB, 194LBC, 195, 196B, and 196Cgovern TDS for capital gains paid to non-residents.

Return Filing Requirements

A non-resident must file an income tax return if his income is taxable in India. However, return filing is not required if:

• The non-resident individual, AOP, or BOI has total income (before specified exemptions/deductions) below the basic exemption limit.
• An NRI opts for the special regime (Chapter XII-A) and earns LTCG from a foreign exchange asset, provided TDS is deducted.
• Eligible foreign investor earning only capital gains from capital assets referred to in Section 47(viiab).

Special Tax Rates on Specified Income of Non-Residents

Non-residents and foreign companies are taxed at special rates as per Section 115A on certain incomes, including dividends, interest, royalty, and fees for technical services (FTS), on a gross basis without deduction of expenses. If a non-resident earns only these specified incomes and tax is deducted at the prescribed rates, return filing is not required.

Applicability

• Non-resident: A non-resident is one who does not meet the residency conditions under Section 6, based on physical presence (for individuals) or control and management (for others).
• Foreign company: A foreign company is any company not incorporated in India. This provision applies to a foreign company even if it becomes resident in India because the place of effective management (POEM) is in India [Notification No. 29, dated 22-6-2018].

Special Tax Rates on Dividend Income

• General Rate: 20%(plus surcharge and cess).
• Dividend from IFSC Units: 10%(plus surcharge and cess).

TDS Provisions on Dividend

• Section 194LBA: Dividend from business trusts.
• Section 196A: Dividend from mutual funds.
• Section 195: Other dividend payments.

Special Tax Rates on Interest Income

Nature of Interest Income	Tax Rate
Interest on monies borrowed or debt incurred by Government or Indian concern in foreign currency	20%
Interest received from notified Infrastructure Debt Fund as referred to in Section 10(47)	5%
Interest received from an Indian Co. or business trust in respect of: (a) Monies borrowed in foreign currency; (b) Long-term Infrastructure Bonds; or (c) Rupee Denominated Bonds. (If the borrowing is made or bonds are issued during the period specified under Section 194LC)	Interest payable in respect of long-term bond or rupee denominated bonds listed on a recognised stock exchange in IFSC- 4% if bonds are issued before 01-07-2023 and 9% if bonds are issued on or after 01-07-2023[1] ; In any other case 5%
Interest on Rupee Denominated Bonds of an Indian Co. or Government Securities or Municipal Debt Securities as referred to in Section 194LD	5%
Interest income distributed by business trust to its unit holders as referred to in Section 194LBA.	5%

TDS Provisions:

• Section 194LB: Interest from Infrastructure Debt Funds.
• Section 194LBA: Interest from SPVs to business trust unit holders.
• Section 194LC: Interest on foreign currency loans and bonds.
• Section 194LD: Interest on Govt. & municipal securities for FPIs.
• Section 195: Other interest payments.

Special Tax Rates on Royalty & FTS

• General Rate: 20%
• PE Connection: If linked to a Permanent Establishment (PE), taxed at normal rates under Section 44DA.

Other Provisions

• Return Filing Exemption: Return filing is not required if only specified incomes are earned and tax is deducted at a rate not lower than the rates prescribed in this provision.
• MAT Adjustments: Income taxed at special rates is adjusted when computing Minimum Alternate Tax (MAT) liability for foreign companies. However, the adjustment is made only when such income is taxable at a rate lower than the MAT rate.
• Admissibility of expenses: Taxable on a gross basis. Thus, no deduction is allowed for expenses.
• Admissibility of Chapter VI-A deductions:
  • Dividend and interest: Not allowed except deduction u/s 80LA
  • Royalty and FTS: Allowed

Taxation of Offshore Funds on Income from Units of Mutual Funds

Offshore Funds earning income from units of mutual funds in India are subject to special tax rates. Long-term capital gains are taxed at 12.5%, while other income is taxed at 10%.

Applicability

Section 115AB applies to overseas financial organisations (also referred to as offshore funds) earning specified income from units of mutual funds purchased in foreign currency.

Meaning of Overseas Financial Organisation

An Overseas Financial Organisation is any fund or institution based outside India that invests in Indian mutual funds through proper SEBI-approved channels.

Tax Rates under Section 115AB

• Dividend Income: Taxable at 10% on a gross basis without allowing any deduction for any expenditure incurred to earn such income.
• Long-term Capital Gains: Taxable at 12.5% on gains from the transfer of mutual fund units purchased in foreign currency. No indexation benefit is allowed while calculating such gains.

Note: Gains from the transfer of units of specified mutual funds (mostly debt-oriented funds) are always treated as short-term capital gains, no matter the holding period. Such gains are taxed at normal rates, not the concessional rate under Section 115AB.

No deduction under Chapter VI-A

No deduction under Chapter VI-A is allowed from dividend or long-term capital gain taxable under this provision.

TDS

Incomes taxable under this provision are subject to TDS under Section 196B.

Return filing requirement

The offshore fund must file a return if its total income consists of dividend or capital gains income, even if TDS is deducted.

Taxation of Non-Residents on Income from GDRs, FCCBs, and FCEBs

Introduction

Non-residents earning income from Foreign Currency Convertible Bonds (FCCBs), Foreign Currency Exchangeable Bonds (FCEBs), Public Sector Undertaking (PSU) Bonds, and Global Depository Receipts (GDRs) are subject to concessional tax rates. Interest income is taxed at 10%, while long-term capital gains are taxed at 12.5%.

Applicability

• Non-Resident Individuals & Entities: Defined as per Section 6.
• Foreign Companies (Not Resident in India): If a foreign company’s Place of Effective Management (POEM) is in India, these provisions do not apply.

Tax Rates on Specified Income

Nature of Income	Tax Rate
Interest on FCCBs/FCEBs	10%
Interest on PSU Bonds (Purchased in Foreign Currency)	10%
Dividend from GDRs	10%
Long-Term Capital Gains on FCCBs, FCEBs, PSU Bonds, or GDRs	12.5%
Short-Term Capital Gains on FCCBs, FCEBs, PSU Bonds, or GDRs	Normal tax rates

• No Deduction for Expenses: Interest and dividend income is taxed on a gross basis, without deductions for expenses.
• No Deduction under Chapter VI-A: No deduction under Chapter VI-A is allowed from dividend or long-term capital gain taxable under this provision.
• TDS: Incomes taxable under this provision are subject to TDS under Section 196C.
• No Indexation or Foreign Exchange Benefit: Long-term capital gains are computed without indexation or foreign currency fluctuation benefits.
• Unlisted Bonds and Debentures Always Taxed as Short-Term Gains: As per Section 50AA, if the bonds or debentures are unlisted, capital gains are treated as short-term irrespective of period of holding.
• Return filing: A non-resident must file an income tax return if his income is taxable in India. However, return filing is not required if:
  • His income consists only of interest from FCCBs, FCEBs, PSU bonds, or dividends from GDRs, and TDS has been deducted from such income
  • Eligible foreign investor earning only capital gains from capital assets referred to in Section 47(viiab).

Taxation of Foreign Portfolio Investors (FPIs) and Specified Funds Under Section 115AD

Section 115AD provides special tax rates for Foreign Portfolio Investors (FPIs) and Specified Funds on income from securities (excluding mutual funds covered under Section 115AB) and capital gains from their transfer.

Applicability

• Foreign Portfolio Investors (FPIs)
• Specified Funds as defined under Section 10(4D).

Tax Rates Under Section 115AD

Tax on Interest & Dividend Income

Category	Income Type	Tax Rate
FPIs	Dividend & Interest Income	20%
FPIs (Investments in Rupee Bonds, Govt. Securities, Municipal Debt Securities – Section 194LD)	Interest Income	5%
Specified Funds	Dividend & Interest Income	10%

Tax on Capital Gains

Nature of Capital Gain	Tax Rate
Short-Term Capital Gains (STCG) on Specified Securities (STT Paid)	20%
STCG on Other Securities	30%
Long-Term Capital Gains (LTCG) on Specified Securities (STT Paid)	12.5% (on capital gain above Rs. 1.25 Lakh)
LTCG on other Securities	12.5%

• Specified Securities: Equity shares, equity-oriented mutual funds, and units of business trusts.
• No Indexation or Foreign Currency Benefit: Capital gains are computed without indexation or foreign exchange adjustments.
• Market-Linked Debentures & Unlisted Bonds: Always taxed as short-term capital gains (Section 50AA) irrespective of period of holding.
• Computation of income in case of specified fund: The concessional tax rate under Section 115ADapplies only to income linked to non-resident unit holders (not having a PE in India) in Category III AIFs, or to securities held by the investment division of an offshore banking unit. The tax is worked out proportionately as per Rule 21AJ or Rule 21AJAA.
• Non-admissibility of expenses: No deduction is allowed for expenses incurred in earning income from securities.
• Non-admissibility of deduction under Chapter VI-A:No deduction under Chapter VI-A is allowed from any income (including capital gains) arising from securities.
• Statement of income eligible for concessional taxation: A specified fund (Category III AIF) must file Form No. 10-IH, and an investment division of an offshore banking unit must file Form No. 10-IKto claim concessional tax rates.
• TDS requirement
  • Section 196B: TDS on income from units purchased in foreign currency (covered under Section 115AB).
  • Section 194LD: TDS on interest from Rupee Denominated Bonds, Government Securities, or Municipal Debt Securities.
  • Section 196D: TDS on other income from securities payable to FPIs or specified funds.
• Return filing requirement: Filing of return is mandatory even if TDS has been deducted.

Alternative Tax Regime for Non-Resident Indians (NRIs)

Chapter XII-A of the Income-tax Act provides an alternative tax regime for NRIs earning income from foreign exchange assets. NRIs can choose to be taxed under this regime or as per the normal provisions of the Act.

Eligibility

• Non-Resident Indian (NRI): An individual who is a citizen of India or Person of Indian Origin (PIO) and is a non-resident as per Section 6.

Incomes Covered

• Income derived from the foreign exchange asset or long-term capital gain arising from the transfer of such asset.
• Foreign Exchange Asset means shares, debentures, deposits with an Indian public company, and securities of the Central Government acquired in convertible foreign exchange.

Tax Rates

Tax on Dividend & Interest Income (Section 115E)

• Dividend & Interest from Foreign Exchange Assets: 20% (plus surcharge & cess).
• No Deduction Allowed: Tax is calculated on a gross basis, without deductions for expenses.

Tax on Long-Term Capital Gains (LTCG) (Section 115E)

• Tax Rate on LTCG: 12.5% No Indexation Benefit: However, foreign currency fluctuation benefit is available.

Exemption on Reinvestment of Capital Gains (Section 115F)

• Eligible Investments: LTCG is exempt if reinvested in shares, debentures, deposits of Indian public companies, or Central Govt. securities within 6 months (‘new asset’).
• Full Exemption: If entire sale consideration is reinvested.
• Proportionate Exemption: If partial reinvestment is made. The exemption shall be allowed proportionately as per the formula below:

Investment in new asset * Long-term capital gain/Net consideration

• Withdrawal of Exemption: If the reinvested asset is sold within 3 years, the exempted capital gain becomes taxable.

Other Provisions

• Opt-Out Option (Section 115-I): NRIs can choose not to follow this regime and pay tax as per normal provisions.
• No Chapter VI-A Deductions (Section 115D): Deductions under Sections 80Cto 80U are not available for income under this regime.
• Exemption from Return Filing (Section 115G): NRIs do not need to file a return if their total income consists only of income from foreign exchange asset or long-term capital gain from transfer of such asset and full TDS has been deducted.
• Continued Benefit for Returning NRIs (Section 115H): If an NRI becomes a resident, the regime continues for debentures, deposits, and Central Govt. securities until they are sold, provided a declaration is made in the return. It is to be noted that the scheme doesn’t apply to income from shares of Indian companies in this case.

Taxation of Foreign Sportsmen, Sports Associations, and Entertainers

Non-resident sportsmen, sports associations, and entertainers earning income from activities performed in India are taxed at 20% on a gross basis, without deductions for expenses. If tax is deducted at source, they are not required to file a return of income.

Applicability

• Foreign Sportsmen: Non-resident athletes competing in India.
• Foreign Sports Associations: Non-resident sports entities receiving payments for sports activities in India.
• Foreign Entertainers: Non-resident entertainer

Taxable Income Categories

For Foreign Sportsmen

• Participation Income: Earnings from playing in games or sports in India.
• Advertisement Income: Endorsements and sponsorships linked to India.
• Media Contributions: Payments for writing articles about Indian sports.

For Foreign Sports Associations

• Guaranteed Payments: Any amount received in relation to a sporting event held in India, regardless of participation.

For Foreign Entertainers

• Performance Fees: Income from performances in India.
• Exclusions: Earnings from shooting films or advertisements in India but broadcasted only outside India are not taxable.

Taxation and Compliance

Computation of Income

• Tax is levied on a gross basis—no deductions for expenses or Chapter VI-A benefits.

Tax Rates

• 20% (plus surcharge & cess)on all taxable income.

TDS & Return Filing Exemption

• TDS Deduction (Section 194E): Payors must deduct tax at source before making payments.
• No Return Filing Required: If tax is deducted at 20% under Section 194E, return filing is not necessary.

Tax Clearance Certificate for Persons Leaving India

A Tax Clearance Certificate (TCC) ensures that individuals leaving India have either paid their tax dues or made satisfactory arrangements for payment. The owner or charterer of any ship or aircraft must verify the certificate before allowing such persons to travel.

Who Needs a Tax Clearance Certificate?

1) Persons Not Domiciled in India

• Required if they have visited India for business, profession, or employment and have income from Indian sources.
• Not Required for foreign tourists or those visiting for non-business purposes.
• Contractors need not obtain a tax clearance certificate for tenders, contracts, or registrations. However, they must quote their PAN in relevant documents [ Circular No. 2/2004, Dated 10-2-2004].

Process:

1. Obtain an undertaking in Form 30Afrom the employer or payer confirming tax payment responsibility.

2. Submit it to the Chief Commissioner (CCIT) or Director-General (DGIT) for issuance of Form 30B(No Objection Certificate).

2) Persons Domiciled in India

• Generally Not Required, except in specific cases where the Assessing Officer, with approval from Principal CCIT/CCIT, believes that departure could harm tax collection.

Situations Where TCC May Be Required (CBDT Instruction No. 1/2004):

• If the person is involved in financial irregularities and required for an investigation.
• If the person has direct tax arrears exceeding Rs. 10 lakh, not stayed by any authority.

Process:

1. File an application in Form 31with the Assessing Officer.

2. If tax liabilities are cleared or arrangements made, the Assessing Officer issues Form 33(TCC).

• Instead of TCC, individuals domiciled in India usually submit Form 30C(containing PAN, purpose of travel, estimated duration of stay) before departure.

Responsibility of Airlines & Ships

Owners or charterers of ships or aircraft must verify the Tax Clearance Certificate before allowing travel. Failure to comply makes them personally liable for the passenger’s unpaid tax, recoverable as an arrear.

Income-tax Rules

Rule – 37BC

⁴⁹ [Relaxation from deduction of tax at higher rate under section 206AA.

37BC. (1) In the case of a non-resident, not being a company, or a foreign company (hereafter referred to as ‘the deductee’) and not having permanent account number the provisions of section 206AA shall not apply in respect of payments in the nature of interest, royalty, fees for technical services 50[, dividend] and payments on transfer of any capital asset, if the deductee furnishes the details and the documents specified in sub-rule (2) to the deductor.

(2) The deductee referred to in sub-rule (1), shall in respect of payments specified therein, furnish the following details and documents to the deductor, namely :—

(i) name, e-mail id, contact number;

(ii) address in the country or specified territory outside India of which the deductee is a resident;

(ii) a certificate of his being resident in any country or specified territory outside India from the Government of that country or specified territory if the law of that country or specified territory provides for issuance of such certificate;

(iv) Tax Identification Number of the deductee in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the deductee is identified by the Government of that country or the specified territory of which he claims to be a ]

⁵¹ [(3) The provisions of section 206AA shall not apply in respect of payments made to a person being a non-resident, not being a company, or a foreign company if the provisions of section 139A do not apply to such person on account of rule 114AAB.]

Notes:

⁴⁹ Inserted by the IT (Seventeenth ) Rules, 2016, w.e.f. 24-6-2016.

⁵⁰ Inserted by the IT (Seventeenth ) Rules, 2020, w.e.f. 1-10-2020.

⁵¹ Inserted by the IT (Nineteenth ) Rules, 2020, w.e.f. 10-8-2020.

Rule – 114AAB

⁶ [Class or classes of person to whom provisions of section 139A shall not apply.

114AAB. (1) The provisions of section 139A shall not apply to a non-resident, not being a company, or a foreign company, (hereinafter referred to as the non­resident) who has, during a previous year, made investment in a specified fund if the following conditions are fulfilled, namely:—

(i) the non-resident does not earn any income in India, other than the income from investment in the specified fund during the previous year;

(ii) any income-tax due on income of non-resident has been deducted at source and remitted to the Central Government by the specified fund at the rates specified in section 194LBB of the Act; and

(iii) the non-resident furnishes the following details and documents to the specified fund, namely:—

(a) name, e-mail id, contact number;

(b) address in the country or specified territory outside India of which he is a resident;

(c) a declaration that he is a resident of a country or specified territory outside India; and

(d) Tax Identification Number in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the non-resident is identified by the Government of that country or the specified territory of which he claims to be a resident.

(2) The specified fund shall furnish a quarterly statement for the quarter of the financial year, in which the details and documents referred to in clause (iii) of sub-rule (1) are received by it, in Form No. 49BA to the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) or the person authorised by him, electronically and upload the declaration referred to in sub-clause (c) of clause (iii) of sub-rule (1) within fifteen days from the end of the quarter of the financial year to which such statement relates in accordance with the procedures, formats and standards specified by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) under sub-rule (3).

[(2A) The provisions of section 139A shall not apply to a non-resident, being an eligible foreign investor, who has made transaction only in a capital asset referred to in clause (viiab) of section 47 which are listed on a recognised stock exchange located in any International Financial Services Centre and the consideration on transfer of such capital asset is paid or payable in foreign currency, if the following conditions are fulfilled, namely:—

(i) the eligible foreign investor does not earn any income in India, other than the income from transfer of a capital asset referred to in clause (viiab) of section 47;

(ii) the eligible foreign investor furnishes the following details and documents to the stock broker through which the transaction is made namely:—

(a) name, e-mail id, contact number;

(b) address in the country or specified territory outside India of which he is a resident;

(c) a declaration that he is a resident of a country or specified territory outside India; and

(d) Tax Identification Number in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the non-resident is identified by the Government of that country or the specified territory of which he claims to be a resident.

(2B) The stock broker shall furnish a quarterly statement for the quarter of the financial year, in which the details and documents referred to in sub-rule (2A) are received by it, in Form No. 49BA to the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) or the person authorised by him, electronically and upload the declaration referred to in sub-clause (c) of clause (ii) of sub-rule (2A) within fifteen days from the end of the quarter of the financial year to which such statement relates in accordance with the procedures, formats and standards specified by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) under sub-rule (3).]

(3) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall specify the procedures, formats and standards for the purposes of furnishing and verification of Form 49BA and shall be responsible for the day-to-day administration in relation to the furnishing and verification of quarterly statement [in accordance with the provisions of sub-rule (2) or sub-rule (2B)].

Explanation.—For the purposes of this rule—

⁹ [(a)”specified fund” means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019) and which is located in any International Financial Services Centre or a specified fund referred to in sub-clause (i) of clause (c) of Explanation to clause (4D) of section 10;]

(b) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);]

¹⁰ [(c) “eligible foreign investor” means a non-resident who operates in accordance with the Securities and Exchange Board of India, Circular IMD/HO/FPIC/CIR/P/2017/003, dated 4th January, 2017;

(d) “stock broker” means a person having trading rights in a recognised stock exchange located in any International Financial Services Centre and the member of such exchange.]

Notes:

⁶ Inserted by the IT (Nineteenth Amdt.) Rules, 2020, w.e.f. 10-8-2020.

⁷ Sub-rules (2A) and (2B) inserted by the IT (Fourteenth Amdt.) Rules, 2021, w.e.f. 4-5-2021.

⁸ Substituted for “in accordance with the provisions of sub-rule (2)” by the IT (Fourteenth Amdt.) Rules, 2021, w.e.f. 4-5-2021.

⁹ Substituted by the IT (Twelfth Amdt.) Rules, 2023, w.e.f. 17-7-2023

¹⁰ Inserted by the IT (Fourteenth Amdt.) Rules, 2021, w.e.f. 4-5-2021.

Tax Reference Tables

​International Businesses – Sections to be remembered

RELEVANT PROVISIONS OF INCOME-TAX ACT TO BE COMPLIED WITH BY NON-RESIDENTS PLANNING TO SET UP BUSINESS IN INDIA; AND RESIDENTS DEALING WITH NON-RESIDENTS

S. No.	Section	Particulars
1.	2	Definitions
2.	4	Charge of income-tax.
3.	5	Scope of total income.
4.	6	Residence in India.
5.	7	Income deemed to be received in India
6.	9	Income deemed to accrue or arise in India.
7.	9A	Certain activities not to constitute business connection in India
8.	10	Incomes not included in total income
9.	28	Profits and gains of business or profession
10.	40(a)(i)	Amounts not deductible in case of TDS default
11.	40(a)(iii)	Salary payable outside India or to a non-resident not deductible in case of TDS default
12.	44B	Special provision for computing profits and gains of shipping business in the case of non-residents
13.	44BB	Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils.
14.	44BBA	Special provision for computing profits and gains of the business of operation of aircraft in the case of non-residents.
15.	44BBB	Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects.
15A.	44BBC	Special provision for computing profit and gains of business of operation of cruise ships in case of non-residents
15B.	44BBD	Special provision for computing profits and gains of non residents engaged in business of providing services or technology for setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India.
16.	44C	Deduction of head office expenditure in the case of non-residents
17.	44D	Special provisions for computing income by way of royalties, etc., in the case of foreign companies.
18.	44DA	Special provision for computing income by way of royalties, etc., in case of non-residents.
19.	45	Capital gains
20.	47	Transactions not regarded as transfer
21.	48	Mode of computation
22.	49	Cost with reference to certain modes of acquisition
22A.	80EEB	Deduction in respect of purchase of electric vehicle
22B.	80-IAC	Special provision in respect of specified business
22C.	80LA	Deductions in respect of certain incomes of Offshore Banking Units and International Financial Services Centre.
23.	90	Agreement with foreign countries or specified territories
24.	90A	Adoption by Central Government of agreement between specified associations for double taxation relief.
25.	91	Countries with which no agreement exists.
26.	92	Computation of income from international transaction having regard to arm’s length price.
27.	92A	Meaning of associated enterprise.
28.	92B	Meaning of international transaction.
29.	92BA	Meaning of specified domestic transaction.
30.	92C	Computation of arm’s length price
31.	92CA	Reference to Transfer Pricing Officer.
32.	92CB	Power of Board to make safe harbour rules.
33.	92CC	Advance pricing agreement.
34.	92CD	Effect to advance pricing agreement.
34A.	92CE	Secondary adjustment
35.	92D	Maintenance and keeping of information and document by persons entering into an international transaction [or specified domestic transaction]
36.	92E	Report from an accountant to be furnished by persons entering into international transaction [or specified domestic transaction].
37.	92F	Definitions of certain terms relevant to computation of arm’s length price, etc.
38.	93	Avoidance of income-tax by transactions resulting in transfer of income to non-residents.
39.	94	Avoidance of tax by certain transactions in securities.
40.	94A	Special measures in respect of transactions with persons located in notified jurisdictional area.
40A.	94B	Limitation on interest deduction
41.	95	Applicability of General Anti-Avoidance Rule.
42.	96	Impermissible avoidance arrangement.
43.	97	Arrangement to lack commercial substance
44.	98	Consequences of impermissible avoidance arrangement.
45.	99	Treatment of connected person and accommodating party.
46.	100	Application of this Chapter.
47.	101	Framing of guidelines.
48.	102	Definitions.
49.	111A	Tax on short term capital gain in certain cases
50.	112	Tax on long term capital gains
50A	112A	Tax on long-term capital gains in certain cases
51.	115A	Tax on dividends, royalty and technical service fees in the case of foreign companies.
52.	115AB	Tax on income from units purchased in foreign currency or capital gains arising from their transfer
53.	115AC	Tax on income from bonds or Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.
54.	115ACA	Tax on income from Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer
55.	115AD	Tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer
56.	115BBA	Tax on non-resident sportsmen or sports associations.
57.	115BBD	Tax on certain dividends received from foreign companies
57A.	115BBJ	Tax on winning from online games
58.	115C	Definitions relating to chapter on ‘Special provisions relating to certain incomes of non-resident’
59.	115D	Special provision for computation of total income of non-residents.
60.	115E	Tax on investment income and long-term capital gains
61.	115F	Capital gains on transfer of foreign exchange assets not to be charged in certain cases.
62.	115G	Return of income not to be filed in certain cases.
63.	115H	Benefit under Chapter to be available in certain cases even after the assessee becomes resident.
64.	115-I	Chapter on ‘Special provisions relating to certain incomes of non-resident’ not to apply if the assessee so chooses.
65.	115JAA	Special provision relating to Minimum Alternate Tax (MAT) Credit
66.	115JB	Special provisions relating to payment of Minimum Alternate Tax (MAT) by certain companies
67.	115JC	Special provisions relating to payment of Alternate Minimum Tax (AMT) by certain persons other than a company
68.	115JD	Tax credit for Alternate Minimum Tax (AMT)
69.	115JE	Application of other provisions of Act to a person liable to pay Alternate Minimum Tax (AMT)
70.	115JEE	Application of provisions relating to Alternate Minimum Tax (AMT) to certain persons
71.	115JF	Interpretation of certain terms referred to in chapter relating to Alternate Minimum Tax (AMT)
72.	115JG	Conversion of an Indian branch of foreign company into subsidiary Indian company
72A	115JH	Special provisions relating to foreign company said to be resident in India
72B	115TCA	Tax on income from securitisation trusts
73.	115U	Special provisions relating to tax on income received from venture capital companies and venture capital funds
74.	115UA	Special provisions relating to Business Trust
75.	115UB	Special provisions relating to tax on income of investment funds and income received from such funds
76.	139	Return of income
77.	139A	Permanent account number
78.	140	Return by whom to be signed
79.	140A	Self-assessment
80.	160	Representative assessee
81.	161	Liability of representative assessee
82.	162	Right of representative assessee to recover taxes paid
83.	163	Who may be regarded as agent
84.	166	Direct assessment or recovery not barred
85.	167	Remedies against property in cases of representative assessee
86.	172	Shipping business of non-residents.
87.	173	Recovery of tax in respect of non-resident from his assets
88.	174	Assessment of persons leaving India.
89.	192	Payment of Salary
90.	192A	Payment of taxable accumulated balance of provident fund to an employee
91.	194B	Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort
91A.	194BA	Winning from online games
92.	194BB	Income by way of winnings from horse races
93.	194E	Payments to non-resident sportsmen or sports associations.
94.	194G	Commission, etc., on the sale of lottery tickets
94A.	194-IB	Payment of rent by certain individuals or Hindu undivided families.
94B.	194-IC	Payment under specified agreement
94C.	194K	Income in respect of units
95.	194LB	Payment of interest on infrastructure debt fund
96.	194LBA	Certain income distributed by a business trust to its unit holder
97.	194LBB	Income in respect of units of investment fund
97A	194LBC	Income in respect of investment in securitisation trust
98.	194LC	Payment of interest by an Indian Company or a business trust in respect of money borrowed in foreign currency under a loan agreement or by way of issue of long-term bonds (including long-term infrastructure bond)
99.	194LD	Payment of interest on rupee denominated bond of an Indian Company or Government securities to a Foreign Institutional Investor or a Qualified Foreign Investor
99A.	194M	Payment of certain sums by certain individuals or Hindu Undivided Families
99B.	194-O	Payment of certain sums by e-commerce operator to e-commerce participant
100.	195	Payment of any other sums to a non-resident or to a foreign company
101.	195A	Income payable “net of tax”
102.	196B	Income from units (including long-term capital gain on transfer of such units) to an offshore fund
103.	196C	Income from foreign currency bonds or shares of Indian company.
104.	196D	Income of Foreign Institutional Investors from securities.
105.	197	Certificate of deduction at lower rate
106.	199	Credit for tax deducted
107.	200	Duty of person deducting tax
108.	201	Consequences of failure to deduct or pay
109.	204	Meaning of person responsible for paying
110.	205	Bar against direct demand on assessee
111.	206AA	Requirement to furnish Permanent Account Number
112.	207	Liability for payment of advance tax
113.	208	Conditions of liability to pay advance tax
114.	209	Computation of advance tax
115.	210	Payment of advance tax by the assessee of his own accord or in pursuance of order of Assessing Officer
116.	211	Instalment of advance tax and due taxes
117.	218	When assessee deemed to be in default
118.	219	Credit for advance tax
119.	220	When tax payable and when assessee deemed in default
120.	221	Penalty payable when tax in default
121.	222	Certificate to tax recovery officer
122.	226	Other modes of recovery
123.	228A	Recovery of tax in pursuance of agreements with foreign countries.
124.	230	Tax clearance certificate
125.	234A	Interest for default in furnishing return of income
126.	234B	Interest for default in payment of advance tax
127.	234C	Interest for deferment of advance tax
128.	245N	Provisions relating to advance rulings- Definitions.
129.	245-O	Authority for Advance Rulings.
129A.	245-OB	Board for Advance Rulings.
130.	245P	Vacancies, etc., not to invalidate proceedings.
131.	245Q	Application for advance ruling.
132.	245R	Procedure on receipt of application.
133.	245RR	Appellate authority not to proceed in certain cases.
134.	245S	Applicability of advance ruling.
135.	245T	Advance ruling to be void in certain circumstances
136.	245U	Powers of the Authority.
137.	245V	Procedure of Authority
138.	271BA	Penalty for failure to furnish report under section 92E.
139.	271C	Penalty for failure to deduct tax at source
140.	271FAB	Penalty for failure to furnish statement or information or document by an eligible investment fund
141.	271G	Penalty for failure to furnish information or document under section 92D
142.	271GA	Penalty for failure to furnish information or document under section 285A
142A	271GB	Penalty for failure to furnish report or for furnishing inaccurate report in respect of international group as per section 286
142B	271GC	Penalty for failure to submit statement of having a liaison office under section 285
143.	271-I	Penalty for failure furnish information or furnish inaccurate information under Section 195
144.	285	Submission of statement by a non-resident having liaison office
145.	285A	Furnishing or information or documents by an Indian concern, through or in which the Indian assets are held by the foreign company or the entity, in certain cases
146	285BAA	Obligation to furnish information on transaction of crypto-asset.
147	286	Furnishing of report in respect of international group

Non-resident – Benefits allowable

Benefits available to Non- Residents [AY 2026-27]

1. Who is a Non-Resident?

Section 2(30) defines non-resident as a person who is not a resident. Section 6 lays down the test of residency for different taxpayers as under:

A. Individual

An individual is said to be non-resident in India if he is not a resident in India.

To determine the residential status of an individual, the first step is to ascertain whether he is resident or non-resident. If he turns to be a resident, then the next step is to ascertain whether he is resident and ordinarily resident or is a resident but not ordinarily resident.

Step 1 given below will ascertain whether the individual is resident or non-resident; and step 2 will ascertain whether he is ordinarily resident or not ordinarily resident. Step 2 is to be performed only if the individual turns to be a resident in India.

Step 1: Determining whether resident or non-resident

Under the Income-tax Law, an individual will be treated as a resident in India for a year if he satisfies any of the following conditions:

1) He is in India for a period of 182 days or more in that year; or

2) He is in India for a period of 60 days or more in the year and for a period of 365 days or more in immediately preceding 4 years.

However, in respect of an Indian citizen and a person of Indian origin who visits India during the year, the period of 60 days as mentioned in (2) above shall be substituted with 182 days. The similar concession is provided to the Indian citizen who leaves India in any previous year as a crew member or for the purpose of employment outside India.

The Finance Act, 2020, w.e.f., Assessment Year 2021-22 has amended the above exception to provide that the period of 60 days as mentioned in (2) above shall be substituted with 120 days, if an Indian citizen or a person of Indian origin whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. Income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).

Note: The Finance Act, 2020 has introduced new section 6(1A) to the Income-tax Act, 1961. The new provision provides that an Indian citizen shall be deemed to be resident in India only if his total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. For this provision, income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).

However, such individual shall be deemed to be Indian resident only when he is not liable to tax in any country or jurisdiction by reason of his domicile or residence or any other criteria of similar nature.

Thus, from Assessment Year 2021-22, an Indian Citizen earning total income in excess of Rs. 15 lakhs (other than from foreign sources) shall be deemed to be resident in India if he is not liable to pay tax in any country.

If an individual does not satisfy any of the above conditions then he will be treated as non-resident in India.

Step 2: Determining whether resident and ordinarily resident or resident but not ordinarily resident

A resident individual will be treated as resident but not ordinarily resident in India during the year if he satisfies the following conditions:

1) He is non-resident in India in 9 out of last 10 years immediately preceding the relevant year; or

2) His stay in India is for 729 days or less in last 7 years immediately preceding the relevant year.

However, w.e.f., Assessment Year 2021-22, the Finance Act, 2020 has inserted the following two more situations wherein a resident person is deemed to be ‘Not Ordinarily Resident’ in India:

a) An Indian Citizen or a person of Indian origin whose total income (other than income from foreign sources) exceeds Rs. 15 lakhs during the previous year and who has been in India for a period of 120 days or more but less than 182 days;

b) An Indian Citizen who is deemed to be resident in India as per new section 6(1A).

A resident individual satisfies one of the aforesaid conditions will be treated as resident but not ordinarily resident.

In short, following test will determine the residential status of an individual:

1. If the individual satisfies any one or both the conditions specified at step 1 and satisfies none of the conditions specified at step 2, then he will become resident and ordinarily resident in India.

2. If the individual satisfies any one or both the conditions specified at step 1 and satisfies any of the conditions specified at step 2, then he will become resident but not ordinarily resident in India.

3. If the individual satisfies none of the conditions specified at step one, then he will become non-resident.

Note:

“Liable to tax” in relation to a person and with reference to a country means that there is an income-tax liability on such person under the law of that country for the time being in force. It shall include a person who has subsequently been exempted from such liability under the law of that country.

B. Partnership firm

A partnership firm is treated as non-resident in India if control and management of its affairs are situated wholly outside India.

C. Company

An Indian company is always resident in India. A foreign company is treated as resident if, during the previous year, control and management of its affairs is situated wholly in India. In other words, a foreign company is treated as non-resident if control and management of its affairs is situated wholly or partly outside India.

With effect from Assessment Year 2017-18, a company is said to be resident in India in any previous year, if:

i. it is an Indian company; or

ii. its place of effective management, in that year, is in India.

For this purpose, the “place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.

2. Scope of Total Income

As per Section 5 of the Income-tax Act, 1961, unlike a resident person who is liable to pay tax on his global income, a non-resident shall be liable to tax in India in respect of following incomes only:

1. Income received or is deemed to be received in India in such year; or

2. Income accrues or arises or is deemed to accrue or arise to him in India during such year.

3. Indirect transfer of a capital asset situated in India

As per section 9(1)(i), any income accruing or arising, whether directly or indirectly, through transfer of a capital asset situated in India shall be deemed to accrue or arise in India.

The Finance Act, 2012 inserted Explanation 5 to section 9(1)(i) w.e.f. 01.04.1962 to clarify that an asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India, shall be deemed to be situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.

However, The Finance Act, 2017 inserted proviso to provide that Explanation 5 shall apply to an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in a Foreign Institutional Investor as referred to in clause (a) of the Explanation to section 115AD for an assessment year commencing on or after the 1st day of April, 2012 but before the 1st day of April, 2015.

A new Explanation 6 is inserted to section 9(1)(i) by the Finance Act, 2015 w.e.f 01.04.2016 to define the term “substantially”. It provides that share or interest in a company or entity registered or incorporated outside India shall be deemed to derive its value substantially from the assets located in India, if, on the specified date, the value of such assets:

i. exceeds Rs. 10 Crore; and

ii. represents at least 50% of the value of all the assets owned by the company or entity, as the case may be.

Further, a new Explanation 7 is inserted to provide that no income shall be deemed to accrue or arise to a non-resident from transfer, outside India, of any share of, or interest in, a company or an entity, registered or incorporated outside India, referred to in the Explanation 5:

i. if such company or entity directly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer, neither holds the right of management or control in relation to such company or entity, nor holds voting power or share capital or interest exceeding five per cent of the total voting power or total share capital or total interest, as the case may be, of such company or entity; or

ii. if such company or entity indirectly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer, neither holds the right of management or control in relation to such company or entity, nor holds any right in, or in relation to, such company or entity which would entitle him to the right of management or control in the company or entity that directly owns the assets situated in India, nor holds such percentage of voting power or share capital or interest in such company or entity which results in holding of (either individually or along with associated enterprises) a voting power or share capital or interest exceeding five per cent of the total voting power or total share capital or total interest, as the case may be, of the company or entity that directly owns the assets situated in India;

In a case where all the assets owned, directly or indirectly, by a company or, as the case may be, an entity referred to in the Explanation 5, are not located in India, the income of the non-resident transferor, from transfer outside India of a share of, or interest in, such company or entity, deemed to accrue or arise in India under this clause, shall be only such part of the income as is reasonably attributable to assets located in India and determined in such manner as may be prescribed.

4. Certain activities not to constitute business connection in India

The Finance Act, 2003 has inserted Explanation 2 to section 9(1)(i) w.e.f. 01.04.2004 to broadly explain the term ‘business connection’.

After substituting the clause (a) of Explanation 2 to 9(1)(i) by the Finance Act, 2018,the term ‘business connection’ shall include any business activity carried out through a person who, acting on behalf of the non-resident::

(a) has and habitually exercises in India, an authority to conclude contracts on behalf of non-resident or habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by that non-resident and the contracts are:

i. in the name of the non-resident; or

ii. for the transfer of the ownership of, or for the granting of the right to use, property owned by that non-resident or that non-resident has the right to use; or

iii. for the provision of services by the non-resident; or

(b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or

(c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident.

Further, after Explanation 2, the following Explanation has also been inserted, namely:––

‘Explanation 2A.––For the removal of doubts, it is hereby clarified that the significant economic presence of a non-resident in India shall constitute “business connection” in India and “significant economic presence” for this purpose, shall mean:

a. transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or

b. Systematic and continuous soliciting of business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means:

The transactions or activities shall constitute significant economic presence in India, whether or not the agreement for such transaction is entered in India or non-resident has a residence or place of business in India or renders services in India.

Further, the transactions or activities of a non-resident in India, which are confined to the purchase of goods in India for the purpose of export, shall not constitute a significant economic presence of such non-resident in India.

A new Section 9A is inserted by the Finance Act, 2015. It provides that in the case of an eligible investment fund, the fund management activity carried out through an eligible fund manager acting on behalf of such fund shall not constitute business connection in India of the said fund (subject to certain conditions).

It further provides that an eligible investment fund shall not be said to be resident in India for the purpose of section 6 merely because the eligible fund manager, undertaking fund management activities on its behalf, is situated in India.

(Refer Section 9A for meaning of ‘Eligible Investment Fund’, ‘Eligible Fund Manager’ and other conditions).

5. Exemption from applicability of section 206AA to non-residents

Section 206AA provides that where the taxpayer does not furnish its PAN to the person responsible for withholding of tax, tax shall be deducted at source at higher of the following rates:

(a) rate specified in the relevant provision of this Act;

(b) rate or rates in force; or

(c) 20%.

However, the provisions of section 206AA shall not apply to a non-resident, not being a company, or to a foreign company, in respect of—

(i) payment of interest on long-term bonds as referred to in section 194LC; and

(ii) any other payment subject to such conditions as may be prescribed.

As per Rule 37BC, if deductee is a non-resident or a foreign company, he is not required to furnish his PAN to the deductor if he is in receipt of following income:

1. Interest

2. Royalty

3. Fees for technical services

4. Dividend

5. Payments for transfer of any capital asset.

However, the deductee is required to furnish the following details and documents to the deductor:

1. Name, e-mail id and contact number

2. Address in the country of which he is a resident

3. Certificate of Residence from the Government of his home country, if the law of that country provides for issuance of such certificate

4. Tax Identification Number allotted in his home country and if such number is not available, then a unique number on the basis of which he can be identified by the Government of his home country.

6. Relaxation to first time resident foreign companies

Section 115JH provides relaxation to foreign companies from certain compliances if such company is held to be resident in India for the first time. It is provided that provisions relating to computation of income, treatment of unabsorbed depreciation, set off or carry forward of losses, advance tax, TDS or transfer pricing shall apply to said company subject to such modifications or exceptions, as may be prescribed by the Government.

7. Tax incentive to unit located in international financial services center

Rate of MAT and AMT shall be 9% in case of unit located in International Financial Services Center (‘IFSC’), provided such unit derives its income solely in convertible foreign exchange. A unit located in IFSC, deriving income solely in convertible foreign exchange, shall not be subject to dividend distribution tax on declaration of dividend out of its current income.

No Securities Transaction Tax (STT) and Commodities transaction tax would be levied on transactions undertaken on a recognised stock exchange located in IFSC if consideration is paid or payable in foreign currency.

7A. Exemption from condition of payment of STT by IFSC in case of capital gains taxable under Section 112A

As per Section 112A, the capital gains arising from transfer of long-term capital assets, being listed equity shares, units of equity oriented fund or unit of business trust, in excess of Rs. 1.25 lakhs shall be chargeable to tax at the rate of 12.5%.

The capital gains shall be taxable under Section 112A if securities transaction tax (STT) is paid on acquisition and transfer of listed equity shares. While as in the case of unit of equity oriented fund or unit of business trust, the STT is to be paid at the time of transfer of such capital asset. However, this condition of payment of STT shall not apply to transfer undertaken on a recognized stock exchange located in IFSC and the consideration for such transfer is received or receivable in foreign currency.

7B. Exemption from MAT in case foreign companies opt for presumptive taxation scheme

The Finance Act, 2018 inserts a new Explanation 4A to Section 115JB to provide exemption from applicability of MAT provisions in case of a foreign company, if its total income comprises solely of profits from business referred to in Sections 44B, 44BB, 44BBA or 44BBB and such income has been offered to tax at the rates specified in those sections.

8. Provisions for taxability of Non-residents

S.N.	Section	Particulars	Limit of exemption or deduction or Computation of income	Available to
A. Income not chargeable to tax
1.	10(4)(i)	Interest on bonds or securities notified before 01-06-2002 by the Central Government including premium on redemption of such bonds.	Interest amount	Non resident
2.	10(4)(ii)	Interest on money standing to the credit in a Non-resident (External) account in India.	Interest amount	Person resident outside India (under FEMA Act) and person who has been permitted to maintain said account by RBI
3.	10(4B)	Interest on notified savings certificates issued before 01-06-2002 by the Central Government and subscribed to in convertible foreign exchange.	Interest amount	Individual, being a citizen of India or a person of Indian Origin, who is a non resident.
3A.	10(4C)	Interest on Rupee Denominated Bonds (as referred to in Section 194LC) issued outside India during the period 17-09-2018 to 31-03-2019 by an Indian company/business trust	Interest amount	Non-resident person or foreign company
3B.	10(4D)	Income accrued or arisen or received by specified fund which is attributable to units held by a non-resident (not being a PE in India) or to the investment division of offshore banking unit. Such exemption is allowed in respect of the following incomes: (a) Income from transfer of a capital asset as referred to in Section 47(viiab) on a recognised stock exchange located in IFSC and consideration is paid or payable in ‘convertible foreign exchange’; (b) Income arising from transfer of securities (other than shares in a company resident in India); (c) Income from securities issued by a non-resident (not being a PE of a non-resident in India) and where such income otherwise does not accrue or arise in India; or (d) Income from a securitization trust which is chargeable under the head ‘Profits and gains from business or profession’ to the extent such income accrued or arisen to or is received, is attributable to units held by non-resident (not being the permanent establishment of NR); or is attributable to the investment division of offshore banking unit.	Capital Gain/PGBP	Specified Fund
3C.	10(4E)	Transfer of non-deliverable forward contracts or offshore derivative instruments or over the counter derivative or income distributed on the offshore derivative instruments or over-the-counter derivatives entered into with an offshore banking unit of IFSC as referred in section 80LA(1A) or any Foreign Portfolio Investor being a unit of an IFSC and fulfils prescribed conditions	Entire income	Non-resident
3D.	10(4F)	Income on account of leasing of aircraft or a ship in a previous year, paid by a unit of an IFSC unit as referred to in section 80LA(1A), if unit has commenced operations on or before the 31st March 2030	Royalty or interest income	Non-resident
3E.	10(4G)	Income by way of portfolio of securities or financial products or funds which is managed or administered by a portfolio manager on behalf of a non-resident in an account maintained with an Offshore Banking unit in an IFSC as referred in section 80LA(1A). The CBDT may also notify specified activity carried out by specified person that will fall under scope of this section.	Income from portfolio services	Non-resident
3F.	10(4H)	Income earned by a non-resident or Unit of an IFSC as referred to in section 80LA(1A). The exemption shall be allowed subject to the following conditions: (a) Non-resident or Unit of an IFSC must be engaged primarily in the business of leasing of an aircraft or ship; (b) Income should be in the nature of capital gains arising from the transfer of equity shares of a domestic company; (c) Domestic company must be a Unit of an IFSC as referred to in section 80LA(1A); (d) Domestic company must be engaged primarily in the business of leasing of an aircraft; (e) Domestic company must commence its operations on or before 31-03-2030; (f) Equity shares of the domestic company must be transferred within 10 years of commencing of its operations. However, if the domestic company commenced its operations after 01-04-2024, the 10-year time limit shall be counted from 01-04-2024. For the above purposes “aircraft” means an aircraft, helicopter, an engine or part of an aircraft or a helicopter or any part thereof and “ship” means a ship or an ocean vessel, an engine of a ship or ocean vessel, or any part thereof.	Income from Capital Gains (transfer of equity shares of a domestic company) or PGBP (engaged in the business of leasing an aircraft)	Non-Resident or a Unit of IFSC
4.	10(6)(ii)	Remuneration received by Foreign Diplomats/Consulate and their staff (Subject to conditions)	Remuneration	Individual (not being a citizen of India)
5.	10(6)(vi)	Remuneration received by non-Indian citizen as employee of a foreign enterprise for services rendered by him during his stay in India, if: a) Foreign enterprise is not engaged in any trade or business in India b) His stay in India does not exceed in aggregate a period of 90 days in such previous year c) Such remuneration is not liable to be deducted from the income of employer chargeable under this Act	Remuneration	Individual – Salaried Employee (not being a citizen of India)
6.	10(6)(viii)	Salary received by a non-resident, for services rendered in connection with his employment on a foreign ship if his total stay in India does not exceed 90 days in the previous year.	Salary	Non-resident Individual – Salaried Employee (not being a citizen of India)
7.	10(6)(xi)	Remuneration received by an Individual, who is not a citizen of India, as an employee of the Government of a foreign state during his stay in India in connection with his training in any Government Office/Statutory Undertaking, etc.	Remuneration	Individual-Salaried Employee (not being a citizen of India)
88.	10(6A)	Tax paid by Government or Indian concern on royalty or FTS from Government or Indian concern under agreement made before 1-6-2002 which either relates to a matter included in the industrial policy of the Government and is in accordance with that policy or is approved by Central Government	Tax liability of foreign company borne by taxpayer	Foreign Company
99.	10(6B)	Tax paid by Government or Indian concern under terms of agreement entered into before 1-6-2002 by Central Government with Government of foreign State or international organization on income derived from Government or Indian concern, other than income by way of salary, royalty or fees for technical services	Tax liability of non-resident borne by taxpayer	Non-resident
110.	10(6BB)	Tax paid by Indian company, engaged in the business of operation of aircraft, who has acquired an aircraft or its engine on lease, under an approved (by Central Government) agreement entered into between 31-3-1997 and 1-4-1999, or after 31-3-2007, on lease rental/income	Tax liability so borne by Indian Company	Government of foreign State or foreign enterprise
111.	10(6C)	Income by way of royalty or fees for technical services rendered in India or abroad in projects connected with security of India pursuant to agreement with Central Government	Royalty and fee for technical services	Notified foreign company
111A	10(6D)	Income by way of royalty or FTS for services rendered in or outside India to the National Technical Research Organization.	Entire Income	Non-resident or Foreign Company
112.	10(15)(iid)	Interest on notified bonds (notified prior to 01-06-2002) purchased in foreign exchange (subject to certain conditions)	Interest Amount	Individual, being a: a) NRI or nominee or survivor of NRI; b) Individual to whom bonds have been gifted by NRI.
	10(15)(iii)	Interest on securities	Interest amount	Issue Department of Central Bank of Ceylon
	10(15)(iiia)	Interest on deposits made with scheduled bank with approval of RBI	Interest amount	BBank incorporate abroad
	10(15)(iiib)	Interest payable to Nordic Investment Bank on a loan advanced to a project approved by the Central Government.	Interest amount	Nordic Investment Bank
	10(15)(iiic)	Interest payable to the European Investment Bank on loan granted by it in pursuance of framework agreement dated 25-11-1993 for financial corporation between Central Government and that Bank	Interest amount	European Investment Bank
	10(15)(iv)(b)	Interest received from industrial undertaking in Indian on money lent to it under a loan agreement entered into before 01-06-2001	Interest amount	AApproved foreign financial institution
	10(15)(iv)(fa)	Interest payable by scheduled bank on deposits in foreign currency where acceptance of such deposit by the bank is duly approved by RBI.	Interest amount	a) Non-resident bb) Individual or HUF being a resident but not ordinary resident
	10(15)(viii)	Interest on deposit made on or after 01.04.2005 in an offshore Banking Unit referred to in Section 2(u) of the Special Economic Zones Act, 2005.	Interest amount	Person who is a non-resident or not ordinarily resident.
	10(15)(ix)	A Any interest payable in respect of money borrowed by a unit located in IFSC on or after September 1, 2019.	Interest amount	Non-resident
12A.	10(15B)	Income from the lease rental received from cruise ships operating in India	Lease rental income	Foreign Company
113.	10(23BBB)	Income of European Economic Community from interest, dividends or capital gains from investment of funds under specified scheme	Specified interest, dividends or capital gains	European Economic Community
14.	10(23BBC)	Income of SAARC Fund for Regional Projects set up by Colombo Declaration issued on 21-12-1991	Entire income	SAARC Fund for Regional Projects
14A.	10(23FBC)	Income from specified fund or transfer of unit in specified fund Note: Specified fund means fund as referred to in Section 10(4D)	Entire income	UUnit holder
14B.	10(23FE)	Income of a specified person Note: ‘Specified person’ means: a) Wholly owned subsidiary of Abu Dhabi Investment Authority, which is resident of UAE and makes investment, directly or indirectly, out of the fund owned by the Government of the Abu Dhabi. b) Sovereign wealth fund and pension fund which satisfies prescribed conditions.	Dividend, interest, any sum referred to in clause (xii) of section 56(2), or long-term capital gains (whether or not such capital gains are deemed as short-term capital gains under section 50AA) arising from an investment made in India	Specified person
14C.	10(23FF)	Income on transfer of shares of a company resident in India, by the resultant fund or specified fund if prescribed conditions are satisfied	Capital gain	NNon-resident
16D	10(34B)	Dividend income earned by an IFSC unit primarily engaged in aircraft or ship leasing business. However, the exemption is subject to the condition that the company paying the dividend should also be an IFSC unit and engaged in the aircraft or ship leasing business.	Dividend Income	IFSC engaged in the business of leasing aircrafts.
15.	10(48)	Any income received in India in Indian currency by a foreign company on account of sale of crude oil or any other goods or rendering of services as may be notified by the Central Government, to any person in India under an approved and notified agreement or arrangement (Subject to certain conditions)	Specified Income	Foreign Company
116.	10(48A)	Any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India (subject to certain conditions)	Entire income	FForeign company
16A.	10(48B)	Any income arising to a foreign company on account of sale of leftover stock of crude oil from the facility in India after expiry of the agreement referred to in 10(48A) or on termination of the said agreement (Subject to certain conditions)	Entire Income	Foreign Company
17.	10(50)	AAny income which is chargeable to equalization levy under Chapter VIII of the Finance Act, 2016. Note: the provisions of this clause shall not apply w.e.f. AY 2026-27.	Entire income	Non-resident
B. Income under the head Profit and gains from business or profession
11.	44B read with 172	Income from shipping business shall be computed on presumptive basis (Subject to certain conditions).	7.5% of specified sum shall be deemed to be the presumptive income	Non-resident engaged in shipping business
22.	44BB	Income of a non-resident engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils shall be computed on presumptive basis (Subject to certain conditions).	10% of specified sum shall be deemed to be the presumptive income	Non-resident engaged in activities connected with exploration of mineral oils
33.	44BBA	Income of a non-resident engaged in the business of operation of aircraft shall be computed on presumptive basis (Subject to certain conditions).	5% of specified sum shall be deemed to be the presumptive income	Non-resident engaged in the business of operating of aircraft
44.	44BBB	Income of a foreign company engaged in the business of civil construction or the business of erection of plant or Machinery or testing or commissioning there of, in connection with a turnkey power projects shall be computed on presumptive basis (Subject to certain conditions).	10% of specified sum shall be deemed to be the presumptive income	F Foreign Company
4A.	44BBC	Presumptive taxation scheme for the business of operation of cruise ships by non-residents	20% of the specified amounts shall be deemed to be the presumptive income.	Non-resident
4B.	44BBD	Presumptive tax scheme for non-residents providing services or technology to a resident company in India to set up an electronics manufacturing facility or manufacture/produce electronic goods.	25% of the total amount paid or payable to the non-resident for such services or technology would be deemed presumptive income	Non-resident
55.	44C	Deduction for Head office Expenditure (Subject to certain conditions and limits)	Deduction for head-office expenditure shall be limited to lower of following: a) 5%xness or profession of taxpayer in India * In case where adjusted total income of assessee is a loss, adjusted total income shall be substituted by average adjusted total income ** Adjusted total income or average adjusted total income shall be computed after prescribed adjustments i.e. unabsorbed depreciations, carry forward losses, etc.	Non-resident
66.	44DA	Deduction of expenditure from royalty and FTS received under an agreement made after 31-03-2003 which is effectively connected to the PE of non-resident in India (Subject to certain conditions)	Expenditure incurred wholly and exclusively for the business of PE or fixed place of profession in India shall be allowed as deduction.	Non-resident (not being a company) or Foreign Company
C. Income under the head Capital Gains
1.	47(via)	Transfer of a capital asset being shares in an Indian company by the amalgamating foreign company to the amalgamated foreign company (in scheme of amalgamation) shall not be treated as ‘transfer’ (Subject to certain conditions).	No capital gains shall arise in the hands of foreign amalgamating company due to transfer of capital assets.	Foreign amalgamating company
22.	47(viab)	Transfer of share of a foreign company (which derives, directly or indirectly, its value substantially from the share or shares of an Indian company) held by a foreign company to another foreign company under a scheme of amalgamation shall not be regarded as transfer (Subject to certain conditions)	No capital gains shall arise in the hands of foreign amalgamating company	F Foreign amalgamating company
2A.	47(viiab)	Transfer of bonds or GDRs as referred to in Sec. 115AC(1) or Rupee Denominated Bond of Indian Co. or Derivative or any other specified security by a non-resident on a recognized stock exchange located in any IFSC and where the consideration is paid in foreign currency	No capital gains shall arise in the hands of non-resident	Non-resident
33.	47(vic)	Transfer of a capital asset being shares in an Indian company by the demerged foreign company to the resulting foreign company (in scheme of demerger) shall not be treated as ‘transfer’ (Subject to certain conditions).	No capital gains shall arise in the hands of foreign demerged company due to transfer of capital assets.	Foreign demerged company
44.	47(vicc)	Transfer of share of a foreign company (which derives, directly or indirectly, its value substantially from the share or shares of an Indian company) held by a demerged foreign company to resulting foreign company pursuant to demerger shall not be regarded as transfer (Subject to certain conditions)	No capital gains shall arise in the hands of foreign demerged company	Foreign demerged company
55.	47(viia)	Transfer of capital asset being bonds or GDR [referred to in section 115AC(1)] outside India by one non-resident to another non-resident shall not be treated as ‘transfer’.	No capital gains shall arise in the hands of non-resident transferor	Non-resident
5A	47(viiaa)	Transfer of capital asset being rupee denominated bond of an Indian company issued outside India by one non-resident to another non-resident shall not be treated as ‘transfer’.	No capital gains shall arise in the hands of non-resident transferor	Non-resident
5B	47(viiac)	Transfer of a capital asset by the original fund to the resultant Fund, in relocation, shall not be considered as a transfer for capital gain tax purpose Note: Refer Explanation to section 47(viiad) for meaning of original fund, relocation & resultant fund.	Amount of capital gain	Non-resident
5C	47(viiad)	Transfer of capital asset being share or unit or interest (in relocation) held by shareholder or unit holder in original fund, in consideration for share or unit or interest in resultant fund Note: Refer Explanation to section 47(viiad) for meaning of original fund, relocation & resultant fund.	Amount of capital gain	Non-resident
6.	47(viib)	Transfer of a capital asset, being a Government security carrying a periodic payment of interest, made outside Indian (through an intermediary dealing in settlement of securities) by a non-resident to another non-resident shall not be treated as ‘transfer’ (Subject to certain conditions).	No capital gains shall arise in the hands of non-resident transfer	Non-resident
7.	First Proviso to 48	Computation of capital gains when shares or debentures in an Indian Company are transferred which were acquired in foreign currency (Subject to certain conditions)	Capital gain shall be computed in same foreign currency (utilized for acquiring shares or debentures) which shall be reconverted into Indian currency	Non-resident
8.	115F	Long-term capital gain arising from transfer of specified foreign exchange assets shall be exempt from tax if net consideration is invested within six months after date of transfer in any specified asset or deposited in notified saving certificates (Subject to certain conditions).	Amount of exemption shall be computed in following manner: Amount invested in new asset X Capital gains / Net Sales consideration	Non-resident Indian
D. Other Provisions
1.	90	A non-resident can apply either provisions of the Act or the relevant DTAA (India has entered into with counterpart foreign country), whichever is more beneficial.	Beneficial provisions of DTAA or the Income-tax Act	Non-resident
2.	95	Provisions of GAAR shall be applicable in respect of any assessment year beginning on or after April 1, 2018.	–	–
3.	192	If net taxable income (being income from employment) is less than maximum amount which is not chargeable to tax (Rs. 2,50,000) no tax shall be deducted at source.	No deduction of tax at source from salaries	Non-resident – Individual
4.	245N, 245Q	A non-resident applicant can apply before Authority for Advance Ruling for determination of tax liability that may arise out of a business carried out in India (Subject to certain conditions) Note: The Finance Act, 2021 has provided that the Authority for Advance Rulings shall cease to operate with effect from such date, as may be notified by the Central Government in the Official Gazette.	Non-resident can file application for Advance Ruling	Non-resident
4A.	245-OB	The Central Government to constitute one or more Board for Advance Rulings for giving advance rulings on and after the notified date.	Non-resident can file application for Advance Ruling	Non-resident
5.	115G	A non-resident Indian shall not be required to file his return of income if his total income consists only following incomes and tax has been deducted therefrom: a) Income from investment in foreign exchange assets b) Long-term capital gains arising from transfer of foreign exchange assets.	Exemption from filing of return of income	Non-resident Indian

* For detailed conditions refer Income Tax Act, 1961 Notes:

a) “Foreign Exchange Asset” means any “specified asset” which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange [Section 115C(b)].

b) In view of Section 115(f), “Specified asset” means any of the following assets, namely:

i. Shares in an Indian company;

ii. Debentures issued by an Indian company which is not a private company;

iii. Deposits with an Indian company which is not a private company;

iv. Any security of the Central Government;

v. Other notified assets

c) ‘Non-resident Indian’ means an individual, being citizen of India or a person of Indian origin who is not a “resident” [Section 115(e)].

9. Special Rates of Taxes for Non-Resident

S.N.	Section	Particulars	Rates
1.	112(1)(c)	Long Term Capital Gains	12.50%
2.	112(1)(c)	Long term capital gains arising from transfer of a capital asset, being unlisted securities or shares of a company not being a company in which public are substantially interested.	12.50%
3.	112(1)(c)	Concessional rate of tax if long term capital gains arising from transfer of listed securities or units or zero coupon bonds is calculated without taking into consideration the benefit of indexation.	12.5%
4.	111A	Concessional rate of tax if short term capital gains arising from transfer of equity shares or units of an equity oriented fund, or a unit of business trust is chargeable to securities transaction tax. With effect from assessment year 2016-17 the concessional tax rate shall also apply to any income arising from transfer of any units of a business trust which were acquired in consideration of a transfer referred to in section 47(xvii) and in respect of which security transaction tax has been paid.	20%
5.	112A	Long-term capital gains arising from transfer of capital assets, being listed equity shares, units of equity oriented fund or unit of business trust. The capital gains shall be computed without applying the first and second proviso to Section 48.	12.50%
5A.	115AD	Income in respect of securities received by foreign institutional investor as specified by the Government or by a specified Fund: Short term capital gain covered by section 111A Any other short-term capital gain Long-term capital gain Long-term capital gain (referred to in section 112A) in excess of Rs. 1.25 lakh Interest referred to in section 194LD Other income in the case of FII Other income in the case of specified Fund	20% 30% 12.5% 12.5% 5% 20% 10%
6.	115A(1)(a)(i)	Dividends	20%
6A.	115A(1)(a)(i)	Dividend from a unit located in IFSC (as referred to in section 80LA(1A)	10%
7.	115A(1)(a)(ii)	Interest received from Government or an Indian concern on monies borrowed or debt incurred in foreign currency	20%
8.	115A(1)(a)(iia)	Interest from notified Infrastructure Debt Fund as referred to in section 10(47)	5%
9.	115A(1)(a)(iiaa)	Interest of the nature and extent referred to in Section 194LC	5% or 4% or 9%
10.	115A(1)(a)(iiab)	Interest of the nature and extent referred to in Section 194LD	5%
11.	115A(1)(a)(iiac)	Distributed income being interest referred to in Section 194LBA	5% or 10% or 30%
12	115A(1)(a)(iii)	Income in respect of units purchased of a Mutual Funds in foreign currency [specified under section 10(23D) or of UTI]	20%
13.	115A(1)(b)	Income by way of Royalty or FTS (other than income referred to in Section 44DA) received in pursuance of an agreement made at any time after 31-03-1976.	20%
14.	115AB	Income of an overseas financial organization on transfer of units purchased in foreign currency being long-term capital gains	12.5%
14A.	115AB	Income of an overseas financial organisation in respect of units purchased in foreign currency	10%
14B.	115AC	Income from bonds or GDRs of a public sector company sold by the Government and purchased in foreign currency	10%
15.	115AC	Income from long-term capital gains arising from transfer of bonds or GDRs	12.5%
16.	115AD(1)(b)	Short term capital gains earned by specified fund or FIIs as referred to in Section 111A	15%
16A.	115AD(1)(b)	Short term capital gains earned by specified fund or FIIs as referred to in Section 111A	15%
17.	115AD(1)(b)	Any other short term capital gain earned by specified fund or FIIs (other than as referred to in Section 111A)	30%
18.	115AD(1)(b)	Long term capital gains earned by specified fund or FIIs	12.5%
19.	115AD(1)(a)	Interest referred to in section 194LD earned by specified fund or FIIs	5%
20.	115AD(1)(a)	Other income earned by specified fund or FIIs	20% for FIIs & 10% for specified fund
21.	115BBA(1)(a)/(b)	Income of a non-resident foreign citizen sportsman for participation in any game in India or received by way of advertisement or for contribution of articles relating to any game or sport in India or income of a non-resident sport association by way of guarantee money	20%
22.	115BBA(1)(c)	Income of non-resident foreign citizen (being an entertainer) for performance in India	20%
23.	115E	Income from specified asset purchased in foreign currency	20%
24.	115E	Long-term capital gains arising from transfer of specified asset purchased in foreign currency	10%
25.	115E	Income from long-term capital gains of an asset other than a specified asset	20%

7. Applicability of Minimum Alternative Tax (MAT) on foreign companies

In respect of a foreign company, capital gains arising from transfer of securities, interest, royalty and fees for technical services accruing or arising to such foreign company shall be excluded from book profit for the purpose of charging MAT if income-tax payable by foreign company on such income is at rate less than 15%. Further, expenditure, if any, debited to the profit loss account, in respect of such income shall also be added back to the book profit for the purpose of computation of MAT.

However, provisions of section 115JB shall not be applicable with effect from April 1, 2001 to a foreign company, if—

(i) the assessee is a resident of a country or a specified territory with which India has an Double Taxation Avoidance Agreement (‘DTAA) or the Central Government has adopted any agreement under sub-section (1) of section 90A and the assessee does not have a permanent establishment in India; or

(ii) the assessee is a resident of a country with which India does not have an DTAA and the assessee is not required to seek registration under any law for the time being in force relating to companies.

Tutorials

Provisions of Income-tax Law and FEMA useful for non-residents

In this part you can gain knowledge about various provisions of Income-tax Law and Foreign Exchange Management Act, 1999 (FEMA) which are useful to a non-resident.

The first part deals with provisions of Income-tax Law and the second part deals with the provisions of FEMA.

Different classes of residential status prescribed under the Income -tax Law for an individual

For the purpose of Income-tax Law, an individual may have any one of the following residential status:

(1) Resident and ordinarily resident in India

(2) Resident but not ordinarily resident in India

(3) Non-resident

Every year the residential status of the taxpayer is to be determined by applying the provisions of the Income-tax Law designed in this regard (discussed later) and, hence, it may so happen that in one year the individual would be a resident and ordinarily resident and in the next year he may become non-resident or resident but not ordinarily resident and again in the next year his status may change or may remain same.

Different classes of residential status prescribed under the Income -tax Law for a Hindu Undivided Family (HUF)

For the purpose of Income-tax Law, an HUF may have any one of the following residential status:

(1) Resident and ordinarily resident in India

(2) Resident but not ordinarily resident in India

(3) Non-resident

Every year the residential status of the taxpayer is to be determined by applying the provisions of the Income-tax Law designed in this regard (discussed later) and, hence, it may so happen that in one year the HUF would be a resident and ordinarily resident and in the next year it may become non-resident or resident but not ordinarily resident and again in the next year its status may change or may remain same.

Different classes of residential status prescribed under the Income -tax Law for a person other than an individual or a HUF

For the purpose of Income-tax Law, a person other than an individual or a HUF, i.e., company, partnership firm, etc., may have any one of the following residential status:

(1) Resident

(2) Non-resident

Every year the residential status of the taxpayer is to be determined by applying the provisions of the Income-tax Law designed in this regard (discussed later) and, hence, it may so happen that in one year the taxpayer would be a resident and in the next year the taxpayer may become non-resident and again in the next year the status may change or may remain same.

Determination of the residential status of an Individual

To determine the residential status of an individual, the first step is to ascertain whether he is resident or non-resident. If he turns to be a resident, then the next step is to ascertain whether he is resident and ordinarily resident or is a resident but not ordinarily resident.

Step 1 given below will ascertain whether the individual is resident or non-resident; and Step 2 will ascertain whether he is ordinarily resident or not ordinarily resident. Step 2 is to be performed only if the individual turns to be a resident in India.

Step 1: Determining whether resident or non-resident

Under the Income-tax Law, an individual will be treated as a resident in India for a year if he satisfies any of the following conditions (i.e. may satisfy any one or may satisfy both the conditions):

1) He is in India for a period of 182 days or more in that year; or

2) He is in India for a period of 60 days or more in the year and for a period of 365 days or more in immediately preceding 4 years.

However, in respect of an Indian citizen or a person of Indian origin who visits India during the year, the period of 60 days as mentioned in (2) above shall be substituted with 182 days. The similar concession is provided to the Indian citizen who leaves India in any previous year as a crew member of an Indian ship or for the purpose of employment outside India.

The Finance Act, 2020, w.e.f., Assessment Year 2021-22 has amended the above exception to provide that the period of 60 days as mentioned in (2) above shall be substituted with 120 days, if an Indian citizen or a person of Indian origin who visit India and whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. Income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).

Note: The Finance Act, 2020 has introduced new section 6(1A) to the Income-tax Act, 1961. The new provision provides that an Indian citizen shall be deemed to be resident in India only if his total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. For this provision, income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).

However, such individual shall be deemed to be Indian resident only when he is not liable to tax in any country or jurisdiction by reason of his domicile or residence or any other criteria of similar nature.

Thus, from Assessment Year 2021-22, an Indian Citizen earning total income in excess of Rs. 15 lakhs (other than from foreign sources) shall be deemed to be resident in India if he is not liable to pay tax in any country.

“Liable to tax” in relation to a person and with reference to a country means that there is an income-tax liability on such person under the law of that country for the time being in force. It shall include a person who has subsequently been exempted from such liability under the law of that country.

If an individual does not satisfy any of the above conditions then he will be treated as non-resident in India.

Step 2: Determining whether resident and ordinarily resident or resident but not ordinarily resident

A resident individual will be treated as resident but not ordinarily resident in India during the year if he satisfies the following conditions:

1) He is non-resident in India in 9 out of last 10 years immediately preceding the relevant year; or

2) His stay in India is for 729 days or less in last 7 years immediately preceding the relevant year.

However, w.e.f., Assessment Year 2021-22, the Finance Act, 2020 has inserted the following two more situations wherein a resident person is deemed to be ‘Not Ordinarily Resident’ in India:

a) An Indian Citizen or a person of Indian origin whose total income (other than income from foreign sources) exceeds Rs. 15 lakhs during the previous year and who has been in India for a period of 120 days or more but less than 182 days;

b) An Indian Citizen who is deemed to be resident in India as per new Section 6(1A).

A resident individual who does not satisfy any of the aforesaid conditions in step 2 will be treated as resident and ordinarily resident.

In short, following test will determine the residential status of an individual:

1. If the individual satisfies any one or both the conditions specified at step 1 and satisfies any of the conditions specified at step 2, then he will become resident but not ordinarily resident in India.

2. If the individual satisfies any one or both the conditions specified at step 1 and does not satisfies any of the condition specified at step 2, then he will become resident and ordinarily resident in India.

3. If the individual satisfies none of the conditions specified at step one, then he will become non-resident.

Determination of the residential status of a HUF

To determine the residential status of a HUF, the first step is to ascertain whether the HUF is resident or a non-resident. If the HUF turns to be a resident, then the next step is to ascertain whether it is resident and ordinarily resident or is resident but not ordinarily resident. Step 1 given below will ascertain whether the HUF is resident or non-resident and Step 2 will ascertain whether the HUF is ordinarily resident or not ordinarily resident. Step 2 is to be performed only if the HUF turns to be a resident in India.

Step 1: Determining whether resident or non-resident

For the purpose of Income-tax Law, an HUF will be treated as resident in India, if the control and management of the affairs of the HUF is located (partly or wholly) in India.

Step 2: Determining whether resident and ordinarily resident or resident but not ordinarily resident

A resident HUF will be treated as resident and ordinarily resident in India during the year if its manager (i.e. karta or manager) satisfies both the following conditions:

(1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.

(2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.

A resident HUF whose manager (i.e. karta or manager) does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as resident but not ordinarily resident.

In short, following test will determine the residential status of a HUF :

1. If the control and management of the affairs of the HUF is located (partly or wholly) in India and the manager (i.e. karta or manager) satisfies both the conditions specified at step 2, then the HUF will become resident and ordinarily resident in India.

2. If the control and management of the affairs of the HUF is located (partly or wholly) in India and the manager (i.e. karta or manager) satisfies none or only one condition specified at step 2, then the HUF will become resident but not ordinarily resident in India.

3. If the control and management of the affairs of the HUF is located wholly outside India, then the HUF will become non-resident.

Determination of the residential status of a company

A company incorporated in India will always be considered as resident of India.

A company other than an Indian company (i.e., a foreign company) is said to be resident in India during a year, if its place of effective management, in that year, is in India.

Place of effective management (POEM) means a place where key management and commercial decision that are necessary for conduct of the business of an entity as a whole are in substance made.

The concept of POEM is effective from Assessment Year 2017-18. Therefore, the CBDT has recently issued the final guidelines for determination of POEM of a foreign company.

The final guidelines on POEM contain some unique features. One of the unique features is test of Active Business Outside India (ABOI). The guidelines prescribe that a company shall be said to engaged in ‘active business outside India’ if passive income is not more than 50% of its total income. Further, there are certain additional cumulative conditions to be satisfied regarding location of total assets, employees and payroll expenses.

The place of effective management in case of a company engaged in active business outside India shall be presumed to be outside India if the majority meetings of the board of directors of the company are held outside India.

In cases of companies other than those that are engaged in active business outside India, the determination of POEM would be a two stage process, namely:—

(i) First stage would be identification or ascertaining the person or persons who actually make the key management and commercial decision for conduct of the company’s business as a whole.

(ii) Second stage would be determination of place where these decisions are in fact being made.

However, it has been provided that the POEM guidelines shall not apply to a company having turnover or gross receipts of INR 50 crores or less in a financial year vide CIRCULAR NO.8, DATED 23-2-2017.

(To know more about POEM guidelines, read CIRCULAR NO.6, DATED 24-1-2017.)

Determination of the residential status of person other than an individual, HUF and company

Every person other than an individual, HUF and company is said to be resident in India during the year, if the control and management of its affairs for that year is located wholly or partly in India.

Incomes which are charged to tax in India

The following chart highlights the tax incidence in case of different persons:

Nature of income	Residential status
	ROR (*)	RNOR (*)	NR (*)
Income which accrues or arises in India	Taxed	Taxed	Taxed
Income which is deemed to accrue or arise in India	Taxed	Taxed	Taxed
Income which is received in India	Taxed	Taxed	Taxed
Income which is deemed to be received in India	Taxed	Taxed	Taxed
Income accruing outside India from a business controlled from India or from a profession set up in India	Taxed	Taxed	Not taxed
Income other than above (i.e., income which has no relation with India)	Taxed	Not taxed	Not taxed

(*) ROR means resident and ordinarily resident.

RNOR means resident but not ordinarily resident.

NR means non-resident.

Incomes which are deemed to be received in India

Following incomes are treated as incomes deemed to be received in India:

1. Interest credited to recognised provident fund account of an employee in excess of 9.5% per annum.

2. Employer’s contribution to recognised provident fund in excess of 12%.

3. Transferred balance in case of reorganisation of unrecognised provident fund.

4. Contribution by the Central Government or other employer to the account of the employee in case of notified pension scheme referred to in section 80CCD.

Incomes which are deemed to accrue or arise in India

Following incomes are treated as incomes deemed to accrue or arise in India:

1. Capital gain arising on transfer of property situated in India.

2. Income from business connection (to be discussed in later part) in India (*).

3. Income from salary in respect of services rendered in India.

4. Salary received by an Indian national from Government of India in respect of service rendered outside India. However, allowances and perquisites are exempt in this case.

5. Income from any property, asset or other source of income located in India.

6. Dividend paid by an Indian company.

7. Interest received from Government of India.

8. Interest received from a resident is treated as income deemed to accrue or arise in India in all cases, except where such interest is earned in respect of funds borrowed by the resident and is used for carrying on business/profession outside India or is in respect of funds borrowed by the resident and is used for earning income from any source outside India.

9. Interest received from a non-resident is treated as income deemed to accrue or arise in India if such interest is earned in respect of funds borrowed by the non- resident for carrying on any business/profession in India.

10. Royalty/fees for technical services received from Government of India.

11. Royalty/fees for technical services received from resident is treated as income deemed to accrue or arise in India in all cases, except where such royalty/fees relates to business/profession/other source of income carried on by the payer outside India.

12. Royalty/fees for technical services received from non-resident is treated as income deemed to accrue or arise in India if such royalty/fees is received for business/profession/other source of income carried on by the payer in India.

13. With effect from September 1, 2019, Section 201has been amended to extend the benefit to a deductor even in respect of failure to deduct tax from sum paid to non- resident.

In case of non-resident, being a person engaged in business of banking any interest payable by the permanent establishment in India of such non-resident to the head- office or any permanent establishment or any other part of such non-resident outside India shall be deemed to accrue or arise in India.

Meaning of business connection

Business connection shall include following business activities carried out by a person acting on behalf of a non-resident:

1. If a person has and habitually exercises in India, an authority to conclude contracts on behalf of non-resident or habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by that non-resident and the contracts are:

a) in the name of the non-resident; or

b) for the transfer of the ownership of, or for the granting of the right to use, property owned by that non-resident or that non-resident has the right to use; or

c) for the provision of services by the non-resident

2. If such person has no authority to conclude contracts but he habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or

3. If such person habitually secures orders in India mainly or wholly for the non- resident or for other non-residents under the same management.

No business connection shall be deemed to have been established, if the business is carried on through an independent broker, general commission agent or other agent (i.e., a broker or commission agent who is not working mainly or wholly for such non-resident or other non-residents under same management), provided such person is working in his ordinary course of business.

Only so much of income which accrues or arises due to such business connection is deemed to be income accruing or arising from India and not the entire income of the non- resident.

Further, the significant economic presence of a non-resident in India shall constitute “business connection” in India. The “significant economic presence” shall mean:

a) transaction in respect of any goods, services or property carried out by a non- resident in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or

b) Systematic and continuous soliciting of business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means:

Only so much of income as is attributable to the transactions or activities referred to in clause (a) or clause (b) shall be deemed to accrue or arise in India.

The transactions or activities shall constitute significant economic presence in India, whether or not the agreement is entered in India or non-resident has a residence or place of business in India or renders services in India.

Note: The transaction or activities which are confined to the purchase of goods in India for the purpose of export shall not constitute significant economic presence in India [Effective from AY 2026-27]

Other provisions of Income-Tax Act applicable to a Non-resident

Refer chart and Table on ‘Non-Resident Benefits Allowable’.

Provisions of FEMA useful for non-residents Objectives of FEMA

FEMA stands for Foreign Exchange Management Act, 1999. In this part you can gain knowledge about important provisions of FEMA 1999.

The main objective of FEMA is to facilitate external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. FEMA deals with provisions relating to procedures, formalities, dealings, etc. of foreign exchange transactions in India. The transactions relating to foreign exchange have been classified under FEMA into two main categories, viz., (1) Capital Account Transaction, (2) Current Account Transaction.

Meaning of capital account transaction

As defined in Section 2(e) of the FEMA, 1999 “Capital Account Transaction” means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes transactions referred to in sub-section (3) of section 6¹.

Capital account transactions are governed by Section 6 of the FEMA, 1999 read with Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000

Meaning of current account transaction

As defined in Section 2(j) of the FEMA, 1999 “Current Account Transactions” means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes,—

(i) payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business,

(ii) payments due as interest on loans and as net income from investments,

(iii) remittances for living expenses of parents, spouse and children residing abroad, and

(iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children

Current account transactions are governed by section 5 of the Foreign Exchange Management Act, 1999 read with Foreign Exchange Management (Current Account Transaction) Rules, 2000

Major provisions covered in FEMA, 1999

The major provisions of FEMA, 1999 relate to following matters :

1. Dealing in foreign exchange, etc.

2. Holding of foreign exchange, etc.

3. Current account transactions

4. Capital account transactions

5. Acquisition and transfer of Immovable property in India

6. Acquisition and transfer of Immovable property outside India

7. Export of goods and services

8. Realization and repatriation of foreign exchange

9. Exemption from realization and repatriation in certain cases.

10. Provisions relating to authorised persons. i.e. authorised by RBI to deal with foreign exchange or in foreign securities

11. Power of RBI to inspect authorized person

12. Contravention and penalties

13. Adjudication and appeal

14. Directorate of enforcement

15. Miscellaneous provisions

For more details on FEMA refer the FAQ section at www.rbi.org.in

MCQ on provisions of Income-tax Law and FEMA useful for non- residents

Q1. For the purpose of Income-tax Law, an individual can have any one of the following residential status:

(1) Resident and ordinarily resident in India

(2) Resident but not ordinarily resident in India

(a) True (b) False

Correct answer : (b)

ustification of correct answer :

For the purpose of Income-tax Law, an individual can have any one of the following residential status:

(1) Resident and ordinarily resident in India

(2) Resident but not ordinarily resident in India

(3) Non-resident

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q2. Under the Income-tax Law, the residential status of a person is to be determined only once in his life time.

(a) True (b) False

Correct answer : (b)

Justification of correct answer :

For the purpose of Income-tax Law, an individual can have any one of the following residential status:

(1) Resident and ordinarily resident in India

(2) Resident but not ordinarily resident in India

(3) Non-resident

Every year the residential status of the taxpayer is to be determined by applying the provisions of the Income-tax Law designed in this regard and, hence, it may so happen that in one year the individual would be a resident and ordinarily resident and in the next year he may become non-resident or resident but not ordinarily resident and again in the next year his status may change or may remain same.

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q3. An individual will be said to be resident in India during a year if, if he satisfies both of the following conditions.

(1) He is in India for a period of 182 days or more in that year; and

(2) He is in India for a period of 60 days or more in the year and for a period of 365 days or more in immediately preceding 4 years .

(a) True (b) False

Correct answer : (b)

Justification of correct answer :

Under the Income-tax Law, an individual will be treated as a resident in India for a year if he satisfies any of the following conditions (i.e. may satisfy any one or may satisfy both the conditions):

(1) He is in India for a period of 182 days or more in that year; or

(2) He is in India for a period of 60 days or more in the year and for a period of 365 days or more in immediately preceding 4 years .

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q4. A resident individual will be treated as resident and ordinarily resident in India during the year if he satisfies any one of the following conditions:

(1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.

(2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.

(a) True (b) False

Correct answer : (b)

Justification of correct answer :

A resident individual will be treated as resident and ordinarily resident in India during the year if he satisfies both the following conditions:

(1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.

(2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q5. For the purpose of Income-tax Law, a HUF will be treated as resident in India, if the control and management of the affairs of the HUF is located _______ in India.

(a) Partly (b) Wholly

(c) Exclusively (d) Partly or wholly

Correct answer : (d)

Justification of correct answer :

For the purpose of Income-tax Law, a HUF will be treated as resident in India, if the control and management of the affairs of the HUF is located (partly or wholly) in India.

Thus, option (d) is the correct option.

Q6. A resident HUF will be treated as resident and ordinarily resident in India during the year if its manager (i.e. karta or manager) satisfies both the following conditions :

(1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.

(2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.

(a) True (b) False

Correct answer : (a)

Justification of correct answer :

For the purpose of Income-tax Law, a HUF will be treated as resident in India, if the control and management of the affairs of the HUF is located (partly or wholly) in India.

A resident HUF will be treated as resident and ordinarily resident in India during the year if its manager (i.e., karta or manager) satisfies both the following conditions:

(1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.

(2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.

Thus, the statement given in the question is true and hence, option (a) is the correct option.

Q7. An Indian company is always resident in India.

(a) True (b) False

Correct answer : (a)

Justification of correct answer :

A company is said to be resident in India if it is an Indian company or its place of effective management, in that year, is in India.

Thus, the statement given in the question is true and hence, option (a) is the correct option.

Q8. The transactions relating to foreign exchange have been classified under FEMA into two main categories, viz., (1) Receipt Transaction, (2) Payment Transaction.

(a) True (b) False

Correct answer : (b)

Justification of correct answer :

The transactions relating to foreign exchange have been classified under FEMA into two main categories, viz., (1) Current Account Transaction, (2) Capital Account Transaction.

Thus, the statement given in the question is false and hence, option (b) is the correct option.

Note:

¹ Earlier, section 6(3) of the Foreign Exchange Management Act, 1999, contained a list of capital account transactions which the RBI could have prohibited, restricted or regulated. However, the section 6(3) got deleted with effect from October 15, 2019.