Taxability of NRIs in the light of India-Singapore DTAA

Article explain Determination of Residential Status of An Indian Citizen or Person of Indian Origin, Definition of Indian Citizen in accordance with Indian Citizenship Act, 1955 and Laws Relating to Double Taxation Avoidance Agreement (DTAA) between India and Singapore.

Investments In India By A Singapore Based (Entity or) Individual And Vice Versa

A. DETERMINATION OF RESIDENTIAL STATUS OF AN INDIAN CITIZEN OR PERSON OF INDIAN ORIGIN

1. According to Section 6(1)(a) of the Income Tax Act, 1961 a person is said to be a resident of India if he is in India for a period of 182 days or more during the previous year; or

2. According to Section 6(1)(c) he has been in the country for at least 365 days or more during the 4 years preceding the relevant previous year and for a period of 60 days or more during the relevant previous year, he would be regarded as a resident. In other words, from the above if any person stays for 364 days in the 4 preceding years other than the relevant previous year and 59 days in the relevant previous year that is 423 days in 5 preceding years including the relevant previous year then the individual would be considered as non-resident in India. However, if a person who is an Indian citizen visits India, then he can stay in the country for 119 days without losing his non-resident status whatever be his income. However, if he stays in India between 120 days and 181 days and his Indian income exceeds 15 lac rupees then he would be an RNOR and his foreign income would be out of the tax net but his Indian income would be taxable

3. For the purposes of Section 6(3)(i) a company is said to be resident in India in the previous year if it is an Indian company or as per Section 6(3)(ii) the place of its effective management is situated in India in the relevant previous year.

4. The place of effective management is defined as the place where the key managerial and commercial decisions in the conduct of the decision is substantially made.

5. Also, in accordance with the provisions of Section 6(4) every company is said to be a resident in India in any and every case except where the management and control of the company is situated wholly outside India.

6. Again, as per Section 6(5) if a person is resident in India for any source of income than he would be deemed to be resident in India for all sources of income in India.

7. According to Section 6(1A), a person who is a citizen of India having income exceeding 15 lac rupees, other than income from foreign sources, would be deemed to be a resident of the country or in other words RNOR, if his income is not taxable in any other country or domicile. However, his income from foreign sources is not taxable.

8. Also, for the purpose of Section 6 of the Income Tax Act, 1961, the expression “income from foreign sources” means income which does not accrue or arise in India other than income arising from business set up in India.

9. Now as per Section 6(6) a person would be deemed to be Resident but Not Ordinarily Resident (RNOR) in a previous year if

As per Section 6(6)(a) he is a non-resident in 9 out of 10 previous years or has been in India for less than 730 days in the preceding 7 years with respect to the relevant previous year respectively; or

As per Section 6(6)(c) a citizen of India, a person of Indian origin having Indian income more than 15 lac rupees stays in India for more than 120 days but less than 182 days; or

As per Section 6(6)(d) a person as defined in Section 6(1A) of the Income Tax Act, 1961.

10.Thus, from the above it is clear that as per Section 6(6)(d) read together with Section 6(6)(c) and with Section 6(1A), a citizen of India who is a stateless person (worldwide) or has no domicile, would be deemed resident of India and if his stay in the country is beyond 120 days but less than 182 days and their Indian income is more than 15 lac rupees then such a person would be regarded as RNOR and his Indian income would be taxable as they would be regarded as residents of India for the purpose of taxation. However, they would not be taxed on their foreign income. However, in such a case if his income is less than 15 lac rupees then he would be considered as Non-Resident Indian (NRI). Again, in the same case if he stays for less than 120 days in India and his income is more than 15 lac rupees then also as per condition of Section 6(1)(c) he would be considered as an NRI and not an RNOR.

11.A citizen of India and person of Indian origin, who visits India whether he has income less or more than 15 lac rupees, can stay for less than 120 days in the previous year with respect to Section 6(1)(c) without losing his non-resident status but his Indian income will be taxable.

Most Important Point

12.Therefore, as per Section 6(1)(c) and clause(b) of Explanation 1 of Section 6(1) of the Income Tax Act 1961, a person of Indian origin or an Indian citizen on a visit to the country would be regarded as a non-resident if he stays in India for less than 120 days in the previous financial year and does not stay for more than 365 days in the 4 preceding financial years. Thus, a person can stay in India in India for a maximum of 483 days in 5 years including the current financial year including the current date and if his income is less than 15 lac rupees then he would not lose his non-resident status (Non-Resident and not NRI). In case such a person who has not surrendered his Indian citizenship or holds an Indian passport or is a Person of Indian Origin and has income exceeding 15 lac rupees during the financial year then such a person would be considered as an RNOR according to the provisions of Section 6(6)(c) read with Explanation 1 to Section 6(1) and accordingly his Indian income would be subject to taxation in India but his foreign income (income from foreign sources) would be exempt from tax. This in short covers up everything on non-resident status for short span of time preceding 5 years. Other clauses are there for larger spans of time under Section 6(6)(a) and Section 6(6)(b) (and also for HUF and AOP).

B. Definition of Indian Citizen in accordance with of the Indian Citizenship Act, 1955

The definition of the word “citizen” would be as per the Indian Citizenship Act,1955

We are including that portion of the definition of the word citizen as is relevant for the limited purpose of the scope of this note which is determination of taxability of individuals who are earning an income abroad whether as salary or from any other source. However, the term citizen has been defined under various heads which is discussed under the following heads:

• Citizen by birth
• Citizen by descent
• Citizen by registration
• Citizen by naturalization
• Citizen by incorporation of territory
• Overseas Citizen of India

a) Citizen by Birth

As per Section 3(1)(a) every person would be a citizen by birth if he is born in India on or after January 26, 1950 but before July 1, 1987; or

As per Section 3(1)(b) if he is born after July 1,1987 but before the Citizen Amendment Act, 2003 and either of his parents are citizens of India at the time of his birth

b) Citizen by Descent

As per Section 4 (1)(a) a person would be considered as a citizen of India if he is born on or after January 26, 1950 but before December 10, 1992 if his father is a citizen of India at his birth; or

As per Section 4(1)(b) if a person is born on or after December 10, 1992 and either of his parents are citizens of India at the time of his birth;

It should be noted that if he is born before December 10, 1992 and his father has been a citizen of India also by virtue of descent then he would not be considered as a citizen unless his birth has been registered with the Indian Consul within 1 year of such birth. But if he is born after December 10, 1992 then his birth should be registered with the Consul within expiry of 1 year or the commencement of the Act, whichever is later;

As per Section 4(1A) of the act if a minor becomes a citizen by virtue of this Section and is also a citizen of another country then he would cease to be the citizen of India unless he renounces the nationality of that other country within 6 months of attaining majority, that is, 18 years of age.

c) Citizen by Registration

A person would be deemed to be a citizen under Section 5 of this act under conditions imposed by the Central Government if he submits an application for registration in this behalf, is not an illegal immigrant into the country and belongs to any one of the following categories;

As per Section 5(1)(a) he is a person of Indian origin and ordinarily resident in India for 7 years preceding the year of application for registration. In accordance with Explanation 1 a person is regarded as ordinarily resident in the country if he is a resident in the country throughout the period of 12 months immediately preceding the date of application and a resident in the country for 8 years immediately preceding the 12 months for a period not less than 6 years. Also, for the purposes of this section a person would be deemed to be of Indian origin if he or either of his parents is born in undivided India; or

He is a person of Indian origin and ordinarily resident in any country outside undivided India;

A person who is married to a citizen of India and has been ordinarily resident in India for 7 years before making the application;

Minor children of persons who are citizens of India;

He is a person of full age and capacity who or either of his parents were citizens of independent India and has residing in India for a period of 1 year before making an application for registration;

He is registered as an OCI for 5 years and has been residing in the country for 1 year immediately before making the application for registration.

d) Citizen by Naturalization

Not required for our purpose

e) Citizen by Incorporation of Territory

Not required for our purpose

f) Overseas Citizens of India (OCI)

According to Section 7A(1)(a)(i) the Government of India can, on an application made to it, register any person who is of full age and capacity as an OCI, who is a citizen of another country but was a resident of India at the time of commencement or any time after the commencement of Constitution of India.

According to Section 7A(1)(a)(ii) a person who is a citizen of another country but was eligible to become the citizen of the country at the time of commencement of the Constitution; or

According to Section 7A(1)(a)(iii) a person who is a child or a grandchild of such a citizen.

According to Section 7A(1)(b) a person who is a minor child of such a citizen mentioned in clause (a).

Special Rights given to OCIs

They are given a lifelong multiple entry visa into the country for any purpose and they are to be treated at parity with the NRIs in all fields including economical financial and educational fields.

C. LAWS RELATING TO DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND SINGAPORE

The two Contracting States (Contracting State) are India and Singapore with respect to one another in the DTAA between them.

For the purposes of DTAA a person is defined as an individual, company, body of persons and any other entity which is a taxable unit coming within the fold of the taxable laws of either of the Contracting States.

If any term has not been defined within the eyes of law in the DTAA within the states then its meaning would be construed within the laws of the state to which the Agreement applies. Now we understand the various articles of this DTAA to determine the taxability of a person within the two Contracting States.

1. ARTICLE 4 – RESIDENT

For understanding the DTAA we would have to understand the term “resident” of the Contracting State. A person would be deemed to be the resident of that Contracting State where he has a permanent residence. If the person has a permanent residence in both the states then he would be considered as the resident of that state to which he has closer personal and economic ties or vital interests. If the state of vital interests cannot be determined and he does not have a permanent residence in either of the Contracting State then he would be deemed as the resident of the state in which he has a habitual abode. If the habitual abode, in both the Contracting States, cannot be determined then nationality would be the determining factor. However, in case a person other than an individual is resident of both the Contracting State then he would be deemed to be the resident of the place where the place of effective management and control is located.

2. ARTICLE 5 – PERMANENT ESTABLISHMENT (PE)

The PE can be a place of management, a branch, an office, a factory, a workshop etc. After determination of the resident status of a person one needs to determine the establishment of “Permanent Establishment” (PE) as per Article 5 of the DTAA. The determination of PE is the most important concept of International Taxation because the existence of PE in the state is the factor which determines the exposure to domestic taxability in the country of source of the Contracting States. The only way to completely avoid a PE is by restricting the business activities within the jurisdiction of the company wherein it is based. Also read with Section 9 of the Income Tax Act, 1961 business income of a foreign company or other non-resident person is chargeable to tax to the extent it accrues or arises through a business connection in in India or from any asset or source of income located in India and to the extent it is attributable to the business operations. This suffices our purpose.

A PE is not created when a company is established for the purpose of opening a bank account.

3. ARTICLE 6 – IMMOVABLE PROPERTY

Income derived by the resident of a Contracting State from an immovable property situated in that other Contracting State would be taxed in that other state. The term immovable property would have the meaning as construed in the Contracting State in which the property is situated. This would apply to the income by way of direct use or letting or any other use of the Immovable property including lease, rent etc.

4. ARTICLE 7 – BUSINESS PROFITS

The profits of an enterprise of a Contracting State would be taxed only in that state unless the enterprise carries on business in that other Contracting State through a PE situated there. However, the profits of the enterprise situated in that other Contracting State would be taxed only to the extent profits are attributable to that PE whether directly or indirectly While determining the profits of the PE, all expenses incurred for the purpose of carrying out that business including executive and general administrative expenses would be allowed. This in simple words is sufficient for our purpose.

5. ARTICLE 10 – DIVIDENDS

Dividends paid by the company of one Contracting State to a resident of the other Contracting State may be taxed in that other Contracting State. However, the dividend so paid may also be taxed according to the laws of the state in which the company is resident. For example, dividend paid by a company resident in India to a Singapore company, may be taxed in Singapore (but there is no tax on dividends in Singapore). However, such dividends paid by the Indian company may also be taxed in India according to Indian Tax Laws, and the tax rate would not exceed 10% if the recipient i.e., the Singapore company is the beneficial owner and as the beneficial owner holds at least 25% of the shares of the company paying the dividends (Indian company), by the Indian tax authorities. In such case the provisions of the Act or the DTAA whichever is more favorable may be adopted by the assessee. However, this does not apply in case if a beneficial owner of dividends, i.e., the Singapore company being a resident in India carries on business in the other Contracting State, Singapore, of which the company paying dividends i.e., an Indian company is a resident through a PE situated therein or performs in that other Contracting State i.e., Singapore – independent personal services from a fixed base situated therein and the holding in respect of which the dividends are paid is effectively connected with such PE. In such case Article 7 relating to Business profits or Article 14 would apply (both not relevant for our purpose). In all other cases, the tax would not exceed 15% that is if the beneficial holding is less than 25% then the maximum tax would be 15% on dividends. Therefore, there would be no tax on dividends to a resident of India in Singapore from its Singapore resident company as there is no tax on dividends in Singapore. However, there may be tax in India. “Thus, for our purpose dividends are taxable in the hands of Indian residents on dividends received in India from Singapore companies at the rate of 10% if there is a beneficial ownership. In all other cases the taxation rate is 15%.” Dividends would be deemed to arise in India if they are paid by a company which is a resident of India and dividends would be deemed to arise in Singapore if it is paid by a company which is resident in Singapore or if it is paid by a company which is a resident of Malaysia out of the profits arising to the Malaysian company in Singapore and qualifying as dividends in Singapore.

6. ARTICLE 11 – INTEREST

Interest arising in one Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State. For example, Interest arising in Singapore to an Indian resident may also be taxed in India. Such interest arising in the Contracting State may also be taxed there, according to the laws of that State but if the beneficial owner of interest is a resident of the other Contracting State, the tax so charged would not exceed 10% of the gross amount of interest if such interest is paid on a loan granted by a bank carrying out bona fide banking business or by any other financial institution to a resident of India. “Thus, an Indian company resident in Singapore would be taxed on the interest income arising in Singapore. However, if the beneficial owner of the interest is a banking company resident of India, the tax so charged would not exceed 10% of the gross interest.”

“In all other cases interest arising in India to a beneficial owner of interest which is a company resident in Singapore would be taxed at a rate not exceeding 15%. of the gross amount of interest.”

7. ARTICLE 13 – CAPITAL GAINS

Capital Gains derived from the alienation, transfer, sale, gift or other disposition of immovable property, referred to in Article 6, by a resident of a Contracting State of a property situated in that other Contracting State may be taxed in that other Contracting State. As per paragraph 1 – “A Non-Resident (NR) holding an immovable property in India may be taxed in India at the rate of taxation applicable for such non-resident persons.”

As per paragraph 4A – Capital gains from alienation of shares of a company resident in the Contracting State acquired before April 1, 2017 would be taxed only in that Contracting State in which the alienator is a resident. “Thus, capital gains arising to a NR from shares of a company resident in India, acquired before April 1, 2017, would be taxed only in the state in which the alienator is resident, in this case Singapore. Also, capital gains arising to resident of India from shares of a Singapore company, acquired before April 1. 2017, would be taxable only in the state in which the alienator is resident i.e., India.”

As per paragraph 4B – In case of shares acquired on or after April 1, 2017 the capital gains arising on alienation of shares of a company resident in a Contracting State may be taxed in that Contracting State. However, as per paragraph 4C, in case of capital gains arising from shares acquired after April 1, 2017 but before April 1, 2019 capital gains may be taxed in the state of the company whose shares are being alienated at a rate not exceeding 50% of the rate at which they are taxed in that Contracting State. “Thus, in case an NR or resident of Singapore has acquired shares of a company resident of India on or after April 1,2017 but before March 31, 2019 he would be taxed in India at half the rate of taxation applicable on capital gains prevalent in India during that period.”

“Thus, it is important to understand, that at present capital gains arising to a non-resident Indian, residing in Singapore would be taxed at the rate of tax on capital gains applicable to such persons in India and no incentives are allowed on such investments based on the DTAA.”

“Gains arising from alienation of any other property other than immovable property and shares would be taxed in the Contracting State in which the alienator is a resident.

8. ARTICLE 15 – DEPENDENT PERSONAL SERVICES

Salary, wages or other similar remuneration derived by a resident of a Contracting State would be taxable only in that Contracting State unless the same is derived from the exercise of employment in the other Contracting State. If the employment is exercised in that other Contracting State, then such remuneration so derived may be taxable in that other state.

Notwithstanding the above, the remuneration derived by the resident of a Contracting State on exercise of employment in the other Contracting State would be taxable in the first mentioned Contracting State if;

The recipient is present in the other state for a period not exceeding 183 days in the relevant fiscal year; and

The remuneration is paid by or on behalf of an employer who is not a resident of the other state; and

The remuneration is not borne by the PE or the fixed base of the employer in the other Contracting State.

“Therefore, from the above it is clear that if an Indian resident is employed in Singapore and derives a salary, remuneration or any similar other income then, the income would be taxable in India if he is not present in Singapore for more than 183 days and the income is paid by or on behalf of an employer who is not a resident of Singapore and the income is not borne by the PE or a fixed base which the Indian employer has in Singapore.”

9. ARTICLE 24 – LIMITATION OF RELIEF

This article provides that income from sources in a Contracting State would be exempt from tax, or taxed at a reduced rate in that Contracting State and under the laws in force in the other Contracting State the said income is subject to tax by reference to the amount thereof which is remitted or received in that other Contracting State and not by reference to the full amount thereof, then the exemption or reduction of tax to be allowed under the tax treaty in the first-mentioned Contracting State would apply to so much of the income as is remitted to or received in the other Contracting State.

Therefore, if a Singapore resident company derives capital gains from shares or debt instruments or derivatives of an Indian company the Article 24 is applicable on the fulfilment of two conditions (i) income derived from the source state (i.e., India) is either exempt from tax or is taxed at a reduced rate in the source state (India) and (ii) the amount remitted / received from out of such income in the resident state (i.e., Singapore) was taxable to the extent of such remittance / receipts. If both the conditions are met then the exemption is allowed or the reduced rate of tax is levied on the amount so remitted. “Therefore, under this clause India has a right to tax capital gains arising to a Singapore resident in India at a reduced rate if the reduced rate of taxation is allowed on such capital gains and the capital gains remitted to Singapore are taxable in Singapore during the transition period. However, this Article applies only to shares. All other instruments and shares acquired before April 1,2017 are outside the purview of this Article.”

10. ARTICLE 24A – SHELL COMPANY

As per paragraph 1 of Article 24A – “a shell or a conduit company” – a resident of a Contracting State if its affairs are arranged with the primary intent to take advantage of the benefits of paragraph 4A or paragraph 4C of Article 13 of this Agreement, would not be entitled to the benefits of the said paragraphs of Article 13 of this agreement.

As per paragraphs 2 and 3, A shell or conduit company may be defined as any resident company having negligible or nil business operations or with no real and continuous business activities in the Contracting State and having annual expenditure or operations less than S$ 200,000 in Singapore and Rs. 5,000,000 in India.”

There are other conditions but this would suffice for our purpose in general

11.ARTICLE 25 – AVOIDANCE OF DOUBLE TAXATION OR AVAILING FOREIGN TAX CREDIT

The laws governing the taxation of income in either of the Contracting States would continue except where express provision with respect to the contrary is made in this Agreement.

Where a resident of India derives income which according to the provisions of this Agreement may be taxed in Singapore, India would allow a deduction of Singapore tax paid in respect of the income to that resident, whether directly or by way of deduction. The rest is not applicable for us.

D. NRI TAXATION

1. RESIDENTIAL STATUS

To determine the taxability of an individual the important points to be considered are his “residential status, the source of income and the state of receipt of income.” Thus, in NRI Taxation the first and foremost concern is the determination of the residential status of the individual. We have earlier discussed the residential status and the taxability of an individual in this note. But to sum it up we can state that, “a person is a non-resident if he stays in India for less than 182 days in a year. However, citizens of India or persons of Indian origin, on a visit to India having income exceeding 15 lac rupees, can stay in India between 120 and 181 days and be regarded as resident but not ordinarily resident in India and would not be taxed on their income from foreign sources.”

2. In accordance with Article 15 on Dependent Personal Services

“Salary, wages or other similar remuneration to a non-resident would be taxed in the Contracting State where the income arises out of the exercise of such employment.”

Also notwithstanding anything contained above if “an Indian resident is employed in the other Contracting State (say Singapore) and derives a salary, remuneration or any similar other income then, the income would be taxable in the India if he is not present in the other Contracting State (say Singapore) for more than 183 days and the income is paid by or on behalf of an employer who is not a resident of Singapore and the income is not borne by the PE or a fixed base which the Indian employer has in Singapore.”

3. In accordance with Article 10 on Dividends

Dividends paid by an Indian company to a non-resident Indian resident in Singapore may be taxed in Singapore. “However, there are no tax on dividends in Singapore so dividend received is non-taxable in the hands of a Singapore resident.”

“However, dividends paid by a company which is a resident of a Contracting State (say India) to a resident of the other Contracting State (say Singapore) may also be taxed in Contracting State (India) of which the company paying the dividends is a resident but if the beneficial owner is the recipient the tax would not exceed 15%.”

4. In accordance with Article 13 on Capital Gains

Thus, Capital Gains arising to a Non-Resident Indian from shares of a company resident in India, acquired before April 1, 2017, would be taxed only in the state in which the alienator is resident, in this case Singapore. Also, capital gains arising to resident of India from shares of a Singapore company, acquired before April 1. 2017, would be taxable only in the state in which the alienator is resident i.e., India.”

“Thus, it is important to understand, that at present capital gains arising to a non-resident Indian, residing in Singapore would be taxed at the rate of tax on capital gains applicable to such persons in India and no incentives are allowed on such investments based on the DTAA.”

“Gains arising from alienation of any other property other than immovable property and shares would be taxed in the Contracting State in which the alienator is a resident.”

5. In accordance with Article 11 on Interest

“Interest arising in one Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State.” For example, Interest arising in Singapore to an Indian resident may also be taxed in India.

“Such interest arising in the Contracting State may also be taxed there, according to the laws of that State but if the beneficial owner of interest is a resident of the other Contracting State, then the interest arising to a company resident in the other Contracting State would be taxed at a rate not exceeding 15%. of the gross amount of interest.”

“Therefore, interest arising in India and paid to a resident of Singapore may be taxed in Singapore. Such interest arising in India may also be taxed in India but if the beneficial owner of the interest is a resident of Singapore, then the interest would not be taxed at a rate exceeding 15% of the gross amount of interest.”

6. Section 90 of the Income Tax Act, 1961

a. According to section 90(1)(a) of the Income Tax Act, 1961 the Central Government may enter into an agreement with the Government of another country outside India for granting relief in respect of the income tax paid in both the countries according to Section 90(1)(a)(i) or according to Section 90(1)(a)(ii) for promoting mutual economic relations, trade and investment; or

b. According to Section 90(1)(b) for avoidance of double taxation of income under this act or any other corresponding law in force in the other country, as the case may be, without creating opportunities for exemption or reduced taxation through tax evasion or avoidance including treaty shopping arrangements aimed at providing relief or direct or indirect benefits to the residents of any other country.

c. Section 90(1)(c) – For exchange of information for the prevention of tax evasion etc.

d. Section 90(1)(d) – For recovery of tax under this act or under any other corresponding law in force in any other territory etc.

e. According to Section 90(2) where the Central Government has entered into an agreement with another country for granting of tax relief or avoidance of double taxation on the income of the assessee then the provisions of the Income Tax Act, 1961 would apply to the extent this agreement is more beneficial to that assessee.

f. In such cases to obtain relief the Tax Residency Certificate and other information in Form 10F, 10FA and 10FB need to be provided to the Income Tax authorities.

7. Section 91 of the Income Tax Act, 1961

This Section deals with the countries with which no Agreement exists.

8. Section 93 of the Income Tax Act, 1961

This Section deals with transfer of assets to non-residents and the treatment of consequent income therefrom.

9. Section 115A of the Income Tax Act, 1961

a. According to Section 115A(1) where the total income of a non-resident individual or a foreign company includes any income by way of [Section 115A(1)(a)(i)] dividends the income tax payable would be the aggregate of amount of income tax calculated on the amount of dividends at the rate of 20% [Section 115A(1)(a)(A)]

b. Again, according to Section 115A(1)(a)(ii) where the total income of a non-resident or a foreign company includes any interest income received from a debt incurred by an Indian concern in foreign currency the interest income would be chargeable to tax at the rate of 20% as per Section 115A(1)(a)(B).

c. In accordance to Section 115A(5)(a) where the total income of non-resident individual or a foreign company referred to in Section 115A(1) consists only of income by way of dividends [Section 115A(1)(a)(i)] or income by way of interest [Section 115A(1)(a)(ii)] and tax has been deducted at source from such income under section 115A(5)(b) under the provisions of Part B of Chapter XVII at the rate specified i.e. 20% then such a non-resident or foreign company need not file a return of income under section 139(1) of the Income Tax Act, 1961.

10. Section 115AB of the Income Tax Act, 1961

This section deals with tax on income from units purchased in foreign currency and capital gains arising therefrom to Offshore Funds. Not required for our purpose.

11. Section 115AC of the Income Tax Act, 1961

This section deals with income to non-residents by way of interest on bonds purchased in foreign currency, dividends from GDRs or long-term capital gains from transfer of GDRs. In short, such income would be chargeable to tax at the rate of 10% and if the total income of the assessee consists only of such income, then it would not be necessary for him to furnish his return of income under section 139(1) of the Income Tax Act provided tax on aggregate of such income has been deducted at source under Part B of Chapter XVII of the said act.

12. Section 115ACA of the Income Tax Act, 1961

This section deals with any income to resident individual employees of Indian company by way of dividends from GDRs and long-term capital gains from GDRs purchased in foreign currency as a part of Employees Stock Options would be chargeable to tax at the rate of 10%.

13. Section 115D of the Income Tax Act, 1961

No deduction in respect of any expenditure or allowance would be allowed under any provision of the Act in computing the investment income earned by a non-resident. No deduction would be allowed to the non-resident where his gross total income consists only of income by way of investments or long-term capital gains and provisions of second proviso to section 48 with respect to deduction on account of indexed cost of acquisition and indexed cost of improvement would be allowed. However, deductions under Chapter VIA would be allowed from gross total income.

14. Section 115F of the Income Tax Act, 1961

Capital gains on transfer of foreign exchange assets not to be charged under certain cases. I think this may be required for our purpose.

15. Section 115H of the Income Tax Act, 1961

Where a person who is a non-resident Indian in any previous year becomes assessable as a resident in respect of his total income in any subsequent year then he may submit a declaration in writing to the Assessing Officer at the time of furnishing his return of income under Section 139(1) for the assessment year to the effect that the provisions of this Chapter may continue to apply with respect to his investment income derived from specified foreign exchange assets as defined under Section 115C in that assessment year and for every assessment year till the transfer or conversion of such foreign exchange assets to money.

16. Section 115 – I of the Income Tax Act, 1961

A non-resident may in any assessment year elect not to be charged to tax in that assessment year in according to the provisions of this Chapter by submitting his return of Income under Section 139(1) and declaring therein that the provisions of this Chapter would not apply for the computation of his income in that assessment year and the tax would be charged according to the other provisions of this act.

17. Section 174 of the Income Tax Act, 1961

This Section deals with assessment of individuals leaving India.

18.Section 194LC of the Income Tax Act, 1961

Where any income by way of interest is payable to a non-resident individual or a foreign company in respect of monies borrowed from it in foreign currency by a specified company then the specified company referred to in this section would deduct tax at source at the rate of 5% of the amount of interest at the time of payment of such interest by whatever mode cheque, bank draft etc. or credit whichever is earlier.

19.Rule 37BB

Please refer Form 15CA, 15CB and 15CC. Form 15CB to be furnished by a CA and payment not to exceed 5 lac rupees per year under this form.

20.Rule 37BC

In case of non-resident individual or a foreign company, referred to as the deductee, not having a permanent account number, the provisions of Section 206AA would not apply in respect of payments in the nature of dividends, interest, royalties, fees for technical services or payments on transfer of any capital asset, if the non-resident individual furnishes details like name, email address, contact number, address, Tax Residency Certificate of the country in which he is resident, Tax Identification Number or any other unique number by which the deductee would be identified by the country of his residence. Also, the provisions of Section 206AA shall not apply to such a non-resident individual or a foreign company if the provisions of Section 139A do not apply to such individual on account of Rule 114AAB

21.Also Refer Rule 114 – I, Refer Form 27Q (in respect of payments other than salary made to non-residents)

22.RULE 128 – FOREIGN TAX CREDIT

An assessee being a resident would be allowed a credit in respect of foreign tax paid by him in a country with which India has a DTAA under Section 90 and also under Section 91 with which India has no DTAA. The credit would be available in respect of tax, surcharge and cess paid but not in respect of interest, fee and penalty. The credit shall be lower of the amounts payable under the act and the foreign tax paid on such income. The credit for the amount of tax paid by way of deduction or otherwise would be available in the year in which such income corresponding to such tax has been offered to tax or assessed to tax in India. If the income on which foreign tax has been paid or deducted has been offered to tax across more than 1 year then the tax credit would be allowed in proportion to the assessment of income to tax in those years. The tax credit would be substantiated in Form No. 67.

1. TAXATION OF TOTAL INCOME OR GLOBAL INCOME

As discussed earlier according to Section 90, the Central Government may enter into an agreement with the Government of any country outside India for the granting of relief in respect of taxes paid in that country and vice versa. Tax credit or Tax relief available under section 90 or 91 is generally lower of the following amounts:

1) Tax paid on doubly taxed income outside India.

2) Tax payable on doubly taxed income under Income Tax Act. Therefore, tax relief on doubly taxed income will be equal to taxes paid outside India if the taxes due on such income is more under the Indian Income Tax Act’1961 and if tax payable in India on such doubly taxed income is less than taxes paid outside then tax relief will be equal to the taxes calculated under the Income Tax Act’1961.

Thus, tax computation of both the residents earning income from foreign sources and non-resident Indians in respect of income earned or arising in India would be subject the matter of DTAAs.

2. RULE 128 – FOREIGN TAX CREDIT

“An assessee being a resident would be allowed a credit in respect of foreign tax paid by him in a country with which India has a DTAA under Section 90 and under Section 91 with which India has no DTAA. The credit would be available in respect of payment of tax, surcharge and cess but not in respect of interest, fee and penalty. The credit shall be lower of the amounts payable under the act and the foreign tax paid on such income. The credit for the tax paid by way of deduction or otherwise would be available in the year in which such income corresponding to such tax has been offered to tax or assessed to tax in India. If the income on which foreign tax has been paid or deducted has been offered to tax across more than 1 year then the tax credit would be allowed in proportion to the assessment of income to tax in those years.”

Form 67 is a simple form for claiming “foreign tax credit” which asks for all the basic information mentioned below like:

a) Source and amount of income earned abroad in INR

b) Taxes paid outside India in INR

c) Country in which taxes are paid

d) Exchange rate for computation of tax credit

e) Tax payable on such income in India under normal provisions also under section 115JB/115JC

where applicable.

f) Article of DTAA where tax credit is claimed as per the Double taxation avoidance agreement.

g) Rate of tax as per DTAA.

h) Whether credit for any foreign tax has been claimed which is under dispute

i) Whether any refund of foreign tax has been claimed in any prior accounting year as a result of carry backward of losses.

3. RULE – 21AB

“In order to claim relief under Section 90 and Section 90A for foreign tax credit the assessee has to submit a certificate and complete the documentation like the Tax Residency Certificate, Tax Identification Number or other unique identification number, address of the assesse in the country of residence etc. in the Form 10F. The resident assessee for the purpose of obtaining the certificate of residence would have to make an application in Form 10FA to the Assessing Officer who would then grant the certificate of residence in form 10FB.”

4. Rule 37BC

“In case of non-resident individual or a foreign company, referred to as the deductee, not having a permanent account number, the provisions of Section 206AA would not apply in respect of payments in the nature of dividends, interest, royalties, fees for technical services or payments on transfer of any capital asset, if the non-resident individual furnishes details like name, email address, contact number, address, Tax Residency Certificate of the country in which he is resident, Tax Identification Number or any other unique number by which the deductee would be identified by the country of his residence. Also, the provisions of Section 206AA shall not apply to such a non-resident individual or a foreign company if the provisions of Section 139A do not apply to such individual on account of Rule 114AAB.”

5. Rule 37BB

Applicable – Any person making payment to a non-resident other than company or a foreign company has to submit Form 15CA to the assessing officer where the payment does not exceed 5 lac rupees in a year. Please refer Form 15CA, 15CB and 15CC. Form 15CB to be furnished by a CA.

6. Also Refer Rule 114 – I

Refer Form 27Q (in respect of payments other than salary made to non-residents)

This article can further include all the procedural aspects regarding operational aspects of NRE, NRO, EEFC Accounts etc. and the other procedural aspects which are generally taken care of by the Authorized Dealers (Scheduled Banks. etc)

NB (Just a brief can be expanded upon if required)

NRE ACCOUNT

Non-Resident External account can only be opened by an NRI with income from foreign sources. It is denominated in INR unlike the FCNR account. The principal and the interest earned from such account is non-taxable and fully repatriable. The funds credited to an NRE account (from foreign sources) can be utilized to make investments in India but a PAN card is essential in such a case otherwise FORM 60 is sufficient. The income earned from Indian investments made by debit to an NRE account is taxable as it is deemed to accrue or arise in India.

NRO ACCOUNT

Non-Resident Ordinary account can be opened by NRIs to park their Indian income. It is also denominated in INR. The interest earned from such an account is subject to TDS. Rent, dividend and income earned from sale of immovable properties can be credited to NRO account by the NRI subject to deduction of tax at source. The amount credited to the NRO account can be repatriated abroad subject to a maximum of 1 million dollars post deduction of applicable taxes.