International Tax is best regarded as the body of legal provisions of different countries that covers the tax aspects of cross – border transactions. It is concerned with Direct Taxes and Indirect Taxes – Kevin Holmes
International taxation in a simple language means the study of Taxation beyond the National Level. Though we all are very much aware about our Indian Taxation Laws but as time is demanding something more so, there is a need to study the taxation at another level.
Here, my main motive of writing this article is to make CA students feel comfortable with the international taxation laws as it is not a new thing but an old thing which is going to be present in a new shape in the form of syllabus. I am using a word old thing because India is not new in the scope of International Taxation as Already, our country is having taxpayers in the form of big MNC’s, big business tycoons who are regularly doing international transactions and the main thing is that some of them are situated outside India but due to Indian taxability criteria, their income is assessed by Indian taxation department. The CA students who are pursuing their articleship from the big companies may already get aware of this concept but still that students covers only approx. 10% of total CA students who are in their articleship period. So, there is a strong need to convey the importance, means & methods, policies of international taxation to them.
Let us start with this topic:
International taxation is the study or determination of tax on a person or business subject to the tax laws of different countries or the international aspects of an individual country’s tax laws as the case may be.
For detailed study of this topic we have to understand the tax provisions already prevailing in India:
1) Indian income tax provisions related to Non Residents:
Residential status of a person describes the taxability of that person in a county but in the case of Non-resident only that Income which is received or deemed to have been received in India by or on his behalf and income that accrues or arises or is deemed to accrue or arising in India is Taxable in India.
Section 9 of the Income Tax Act, 1961 also envisages certain deeming provisions.
As per the deeming provisions following Incomes will be deemed to accrue or arise in India, even though they may actually accrue or arise out of India :-
2) NRI Tax Exemption
NRI’s are taxed as per income tax slabs applicable to resident Indians below the age of 60 years irrespective of the age criteria of non resident indian. Simply means that if the NRI is above the age of 60 years still he will be taxed a per tax rate applicable to resident indian who is below the age of 60 years.
But, in the following two cases NRIs need not to file tax return:
Besides the above benefits, NRI’s are also granted with some tax free incomes which are notified by Income Tax department as follows:
** Note – w.e.f. 1st April,2002 banks cannot accept fresh nor renew NRNR deposits. Upon maturity Interest on NRNR deposits and principal amount can be transferred to Non Resident (External) [ NRE] account at the option of account holder.
TAX DEDUCT AT SOURCE (TDS) provisions related to NRI’s:
3) TDS provisions
Finance Act, 2008 inserted a new sub section (6) to section 195 effective from April 1, 2008, which requires the person responsible for making payment to a non-resident to furnish information relating to such payments in forms to be prescribed.
The Central Board of Direct Taxes (“CBDT”) has now, by notification No 30/2009 dated March 25, 2009, prescribed a new rule 37BB in the Income Tax Rules, 1962 (“the rules”) prescribing Form 15CA and Form 15CB to be filed in relation to remittances to non-residents under section 195(6) of the Income Tax Act, 1961 (“the Act”). This new rule is effective from July 1, 2009 and shall apply to all remittances being made after July 1, 2009.
The process that will have to be followed, before any remittance can be made, is as under:
Step 1 : Obtain a certificate from a Chartered Accountant in Form No 15CB
Step 2 : Furnish the information in Form No15CA
Step 3 : Electronically upload Form 15CA on the designated website
Step 4 : Take Print out of Form 15CA and file a signed copy
Step 5 : Remit money to the Non Resident
There is a very common doubt which generally strike the minds of students that is Double Taxation of money. Generally people thinks that if a NRI is paying a tax in the country in which he is a non resident then the country of his residence will also demands tax from that person for that income. But if this happens this will leads to double taxation. The thinking of students or other people is absolutely right as the law interprets the same but Law is always a step ahead from our minds. Law already found a way so as to avoid double taxation of income in case of NRI’s and that amazing thing is DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA)
4) What is DTAA?
DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) is an agreement signed between two countries/nations for resolving the issues of taxability of income and increased transparency to avoid tax evasion.
5) Why DTAA?
Every country has its own taxation structure according to which they determines the taxability of people residing there and also taxability of the people who does not belongs to their country but with some means they are related to their nation in their form of assessee or deemed assessee.
So, for recoverability of tax from the income generated in other nations by NRI’s DTAA was formed and secondly, to ensure that this taxability of income does not lead to double taxation of Same income in both the countries.
6) Objectives of DTAA:
Presently, India has the DTAA with more than 85 countries.
This states that if a NRI is a resident in any of those 85 countries and he/she is paying taxes on income earned then he will be eligible for a tax benefit in either of the following two ways:
7) Computation Of Income Of NRI’s (Section 115D):
Section 115D deals with the Special provision for computation of total income of non- residents, this section states that:
(1) No deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the investment income of a non- resident Indian.
(2) Where in the case of an assessee, being a non- resident Indian,-
(a) the gross total income consists only of investment income or income by way of long- term capital gains or both, no deduction shall be allowed to the assessee under Chapter VIA and nothing contained in the provisions of the second proviso to section 48 shall apply to income chargeable under the head “Capital gains”
(b) the gross total income includes any income referred to in clause (a), the gross total income shall be reduced by the amount of such income and the deductions under Chapter VIA shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.
8) Tax on investment income and long-term capital gains (Section 115E)
Where the total income of an assessee, being a non-resident Indian, includes—
(a) any income from investment or income from long-term capital gains of an asset other than a specified asset;
(b) income by way of long-term capital gains,
The tax payable by him shall be the aggregate of—
9) Capital gains on transfer of foreign exchange assets not to be charged in certain cases (section 115F):
Where, in the case of an assessee being a non-resident Indian, any long-term capital gains arise from the transfer of a foreign exchange asset and the assessee has, within a period of six months after the date of such transfer, invested the whole or any part of the net consideration in any specified asset, or in any savings certificates referred to in clause (4B) of section 10, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—
(a) If the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;
(b) If the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the new asset bears to the net consideration shall not be charged under section 45.
Foreign Exchange Asset:
Section 115C defined “foreign exchange asset” to be any specified asset, which was acquired by the assessee using convertible foreign exchange and the said specified asset as per sub-section (f) of the same Section included shares with an Indian company.
Specified assets are:
10) Benefit available in certain cases even after the assessee becomes resident (Section 115H):
Where a person, who is a non-resident Indian in any previous year, becomes assessable as resident in India in respect of the total income of any subsequent year, he may furnish to the Assessing Officer a declaration in writing along with his return of income under section 139 for the assessment year for which he is so assessable. Some conditions are required to be fulfilled for availing this benefit.
11) International taxation: A different law???
This can be a doubt in the mind of anybody who wants to study all aspects of international taxation. So, let me clarify this:
The emerging globalisation is proved as a boost to Indian economy and accordingly it puts a challenge against Indian Taxation Authorities so as to ensure the collectability of dues pertaining to international transactions. But while observing the other side of this picture it seems that this is not a difficult task as Indian chartered Accountants are competent enough to deal with critical taxation issues. Here, taxation department should take an initiative to delegate the work to Chartered Accountants so that the correct picture of transactions can be ascertained and the tax evasion can be prevented.
(For any queries in the above mentioned article, the author can be contacted at firstname.lastname@example.org.)
The above article represents the views of the author, it does not in any way represents any advice to any professional for determining the facts in any taxation or law case.