CA Umesh Sharma
Arjuna (Fictional Character): Krishna, The tours across the world of Modiji after becoming the Prime Minister of India has become the topic of discussion for everyone. He invited Non Resident Indians to make financial investment in India through “Make in India” scheme. But who are these Non Resident Indians (NRI), what is the definition of NRI in the Income Tax Act? If Indian citizens went to foreign and foreign residents came to India and if any Income arises to them then what are the provisions for it in the Income Tax Act?
Krishna (Fictional Character): Arjuna, very good correlation has made between Modiji’s touring and Resident and Non Residents tax chargeability. In these days Modiji has visited America, Nepal, Australia and many other countries and focused on major topics of foreign investment, Technology and Security which will help for development of India. The definition of Resident and Non Resident Indian is different in different laws. Let’s try to understand the Income tax act and its related provisions in simple manner
Arjuna: Krishna, what is the definition of Resident and Non resident Indian according to the Income Tax Act?
Krishna: Arjuna, as per the Income Tax Act, the Resident and Non Resident is defined on the basis of number of days of stay in India in one financial year i.e. from 1st April to 31st March. According to section 6 of the Income tax Act if any one of the following two conditions are satisfied then the person is considered as Indian resident:
1) If in a financial year, he stays in India for a period of 182 days or more OR
2) If in a financial year, he stays in India for a period of 60 days or more during previous year and 365 days or more during the 4 preceding years.
E.g. according to first condition if, an Indian citizen stays in America for a period of 190 days during previous year then he is a Non Resident Individual for that financial year and if a citizen of England stays in India for a period of 182 days or more, then he is treated as Indian Resident for that financial year. One should understand the difference between Citizenship and Residential status. Further the tax liability will arise depending on where income has been generated i.e. in India or in foreign country. Also Resident individuals fall in two categories Resident but Ordinary Resident and Resident but Not Ordinary Resident. However, we will discuss for sake of simplicity, about Resident but Ordinary Resident and Non Resident.
Arjuna: Krishna, what is mean by Indian Income and Foreign Income?
Krishna: Arjuna, according to section 5 of Income Tax Act A) Indian Income means 1) if income is received or is deemed to be received in India during the previous year and it accrues or is deemed to be accrued in India during the previous year e.g. salary received on Job served in India.2) If Income is received or is deemed to be received in India but it is accrued outside India during the previous year e.g. Indian Film star act outside India but receive income in India. 3) If income is received outside India during previous year but it accrued or is deemed to be accrued in India during previous year e.g. Rental income on Indian flat is received by a foreign resident. Also there are some other provisions/explanations also, one should consider them.
Foreign Income is one which is not received or deemed to be received in India and income is not accrued or deemed to be accruing in India. For e.g. Salary Income accrued and received from an American Company in America.
Arjuna: Krishna, what is the relation between Residential status, Income and incidence of tax?
Krishna: Arjuna, understand and read carefully, 1) Indian income will be taxable in India only. e.g if salary income is received in India, it will be taxable in India to resident or non-resident also. 2) If foreign income is received by Indian resident then it will be taxable in India e.g. if Resident Individual receives commission income from America, it is taxable in India. 3) If foreign income is received by Non Resident individual then it is not liable for tax in India e.g. if salary is received by Non Resident from an American company, it is not taxable in India. This means tax liability can be judged depending on where, when and to whom income is generated. Mistakes happen at this point only. Smart people take income from those countries where taxes are less or are free of tax but later on they may get trapped in the provisions of laws. Then the battle starts between two countries for levying tax. Thus a tax heaven country, Swiss banks, foreign black money, etc. concepts develops.
Arjuna: Krishna, What are the characteristics of Residential Status and Tax Liability?
Krishna: Arjuna, many Income tax provisions apply to Resident and Non Resident individual subject to some special provisions. Non Resident individual can avail deduction of Chapter VI except deductions of PPF and NSC. But provisions of TDS are different for Resident and Non Resident individual. Further deduction tax at source depends on the agreement with other countries relating to taxes i.e. “Double Taxation Avoidance Agreement”. If Non Resident individual is receiving income in India then PAN is necessary. In last few years foreign transactions of resident individual and non-resident’s Indian transaction have increased, that’s why Income Tax Department has increased the reporting requirement like information related to foreign assets has to be provided in Income Tax Return. Transaction related to Nonresident individual is also to be submitted in Tax Audit Report. There are various provisions in the Income Tax Act relating to International Transfer Pricing that are required to be followed, if applicable. The non-resident Indian has to follow various other laws like Customs, FEMA, FERA, RBI, Money Laundering etc.
Arjuna: What one should learn from Non Resident Indian and their financial Growth?
Krishna: Arjuna, Non Resident Indian is the Son or Daughter of Indian soil, but staying in foreign country. They are brilliant brains who didn’t get opportunities in India as per there capabilities. If they get opportunities, proper lifestyle and amenities in India then they may come back to India or will invest in India. They don’t desire complicated taxation. Today the Indian Government is trying to make acceptable surroundings in India through “Make in India” scheme. But the obstacle is of complicated Tax system. Let’s hope that the expected changes will happen and Non Resident Indian will invest in financial progress of India. Modiji appealed for “Make in India” i.e. Non Resident individual should invest in India but due to various taxes like Income Tax, Sales Tax, Excise, Customs, Service tax etc. Non Residents are worried about “Tax in India”. Hope this will change in coming times and Indian tax system may get simplified due to new Goods and service tax, Direct tax code, etc.
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