BASIS OF TAX LIABILITY TO INDIA
The Tax liability of a person under the Income Tax Act depends on the residential status in the financial year (1st April to 31st March) in which the income accrues
or arises to him or is received by him.
For income tax purposes the residential status of an individual generally depends on his physical presence or stay in India and not on his nationality or domicile.
EXTENT OF TAX LIABILITY
Based on the residential status of a tax payer and the place where the income is earned, the income that is included in the total income is as under :
RESIDENTIAL STATUS NATURE OF INCOME
- Resident All income whether earned in India or outside India
- Not Ordinarily All incomes: -
Resident
- earned in India and
- all income earned outside India if the same is derived from a business which is controlled in India or from a profession which is set up in India.
- Non-resident All income earned in India
DOUBLE TAXATION AVOIDANCE
Since a resident is liable to pay tax in India on his 'total world income', it is possible that he may have to pay tax on his foreign income in that country also. To avoid such
a situation the Government of India has entered into agreements for avoidance of 'double taxation' with different countries.
SPECIAL PROVISIONS APPLICABLE TO NON RESIDENT INDIANS
With a view to attract investment by Non-Resident Indians(NRIs), certain relieves, exemptions and incentives have been provided
(Chapter XII A of Income Tax Act).
For Income Tax purposes, a Non-resident Indian has been defined as an individual being a citizen of India or a person of Indian
origin who is not a resident. A person is considered to be of Indian Origin if he or either of his parents or his grand
parents was born in undivided India.
20% TAX SCHEME
Income from foreign exchange assets (any specified asset which the assessee has acquired or purchased or subscribed
to in convertible foreign exchange) comprising of shares/debentures/deposits with Indian companies, Central Government securities or any
other notified assets subscribed to or purchased in convertible foreign exchange can be charged at a flat rate of 20%.
No deduction, basic exemptions etc. will be available under the 20% scheme.
LONG TERM CAPITAL GAINS
Long term capital gains on specified foreign exchange assets such as Units/Bonds/Shares and listed securities as specified by the Government held by NRIs are taxable @ 10%.
Minimum holding period for allowing this rate is one year for shares and other securities listed in stock exchanges in India and units of specified mutual funds. For other assets the minimum holding period is 36 months.
If the proceeds are reinvested within six months of such transfer in any specified securities and new assets are retained for 3 years, the proceeds are exempted from payment of Income
Tax.
Income from units of UTI are totally exempted from payment of Income Tax.
On short time capital gains, NRIs are liable to pay capital gains tax at the same rate that is applicable to residents i.e. @ 30%.
TAX EXEMPTIONS
Income from following investments made by NRIs out of convertible foreign exchange is totally exempt from income tax.
- Following Bank Accounts :
NRE, FCNR, - Units of UTI
- Specified securities, bonds, saving certificates
The above exemptions will cease immediately on the NRI becoming resident.
Where the NRI has income from only foreign exchange assets or income by way of long term capital gains from foreign exchange
assets or both, and tax deductible at source from such income has been deducted he is not required to file return of income
as otherwise required under the Income Tax Act.
The special provisions in relation to investment income from
foreign exchange assets (other than shares of an Indian company)will continue , even after the NRI becomes resident till transfer
or conversions of such assets into money, if the NRI so wishes.
WEALTH TAX
Wealth Tax is levied only on non-productive assets like urban land, buildings (except one house property),jewellery, bullion,
vehicles, cash over Rs.50,000 etc. Wealth Tax is levied @ 1% over aggregate value of chargeable assets in excess of Rs. 1.5 million.
ADVANCE RULINGS
NRI/OCB desirous of obtaining advance ruling may make an application stating the question on which the ruling is sought.
The question which could be of law or fact should relate to a transaction undertaken or proposed to be undertaken by the applicant.
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