Some Special Reliefs For NRI or PIO.

Friends,

Income Tax Act , under the Chapter XIIA provides some special provisions which grants reliefs to Non Resident Indians or Person of Indian Origin. The provisions are contained in section 115C to 115 I .The special relief is regarding special tax rates for two types of income-investment income and income from long term capital gains- of a Non Resident Indian.

Investment income

Investment income is defined in section 115C to mean that any income generated from following specified assets :

(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 as defined in clause (2) of section 2 of the Public Debt Act, 1944 (18 of 1944);

(v) such other assets as the Central Government may specify in this
Long term capital gains.
Long term gains are long term gains on any assets as stated in aforesaid “specified asset{i to v} . So do not confuse with all types of long term capital gains. In simple terms it means any of the assets , stated in [i to v] ] purchased in foreign exchange can only qualify for the special treatments.

Special Rates
The provision under section 115E provides rates as under

   1. on investment income on specified assets @ 20%
   2. on long term gains on specified assets @ 10 %
   3. on long term gains on all other types assets @ 20 %

Am I compulsorily assessed under these provisions?

No , these provisions are applied if the Non Resident Indian has not opted out of these provisions. That is , when you are filing return of income, you must state that chapter XIIA should not be applied in your case. If you have not stated any thing, it means that this chapter will apply on every Non Resident for income as stated above.

I am Person Of Indian Origin. Will I be Covered under these provisions?

As per section 115C , clause (e) “non-resident Indian means an individual, being a citizen of India or a person of Indian origin who is not a resident.” Also note that Explanation to section 115C states “A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India;”.Therefore ,A person of Indian origin is defined as Non Resident Indian for the Chapter XIIA of the I T Act.

Can I avail of the benefit if I become resident?

yes, section 115H provides that if a non resident Indian has invested in foreign exchange in specified assets [as listed above in i to v] and subsequently becomes resident of India, he can give in writing toi the assessing officer that Chapter XXA shall continue to apply to him.


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NRI NON RESIDENT - SPECIAL PROVISIONS OF INCOME TAX

Friends,

Impact of residential status on the taxability of income

Resident Income:Worldwide Income Taxable

NOR (not ordinary resident)

    *  Income received in India
    * Income accruing or arising in India
    * Income deemed to accrue or arise in India
    *  Income from business or profession controlled wholly or partly in India

Not resident (NR)

    * Income received in India
    * Income accruing or arising in India
    * Income deemed to accrue or arise in India

Special provisions relating to NRs

1. Tax exempt incomes for NRs/NRIs

In following cases investment income is exempt from tax for NRs/NRIs :

    * Interest earned by a person resident outside India from non-resident external (NRE) accounts

    * Interest earned by an NR or NOR from foreign currency (non-resident) (FCNR) accounts
    * Interest on notified securities, bonds, annuity certificates and savings certificates issued by the Central Government
    * Interest on bonds issued by local authorities and notified by the Central Government in the official gazette
    * Dividends received from Indian companies and from specified mutual funds
    * Long-term capital gains from the transfer of equity shares in a company or units of an equity oriented fund provided such transaction has been subjected to securities transaction tax.


2. Computation of capital gains in the case of NRs

    * Any income arising from the transfer of a capital asset is chargeable to tax under capital gains in the year of the transfer. Capital gains are specified as either short term or long term depending on the holding period of the capital assets.
    * Short-term capital gains are included in total income and are taxed at the progressive slab tax rate of an individual, except for short-term capital gains resulting from specified securities traded on a recognized stock exchange in India (and on which Securities Transaction Tax is paid), which are taxed at a fixed rate of 15% plus applicable cess. \
    * Gains by an NR on the sale of assets (i.e., shares and debentures of an Indian company) acquired in foreign currency are computed differently.
    * Capital gains are computed by converting the full value of consideration, expenses incurred in connection with the transfer, and the cost of acquisition in the same foreign currency as was initially utilized for purchase. This conversion takes care of exchange-rate fluctuations.

3. Relevant provisions relating to NRIs and PIOs
    * Further, separate tax provisions have been prescribed for NRIs under the act in respect of long-term capital gains (Para A) or investment income (Para B) derived from foreign exchange assets.
    * A foreign exchange asset is a specified asset acquired by an NRI out of convertible foreign exchange.
    * NRIs also enjoy other benefits such as exemption from filing their return of income and the continuation of benefits under the special tax regime discussed in Paragraphs C & D.

Specified assets are:

    * Shares, debentures and deposits of public companies
    * Shares of private companies
    * Securities notified by the Central Government
    * Other notified assets (no such asset has yet been notified).

A. Income from long-term capital gains
Where long term capital gains arise from transfer of specified assets, the applicable tax rate will be 10% (plus applicable cess) on net capital gains.

From gains on such transfers, only expenses incurred in connection with the transfer are allowed as a
deduction to determine net capital gain. The valuation under these provisions is not in foreign currency.
Therefore, exchange-rate fluctuations are not considered.

Capital gains arising on the transfer of specified assets are completely exempt from tax if the following
conditions are fulfilled:

    *  The asset transferred must be long-term capital assets
    * Net consideration must be invested in specified assets
    * Investment should be made within six months of the transfer
    * Where only a portion of net consideration is reinvested, proportionate exemption is allowed
    * New asset must be held for at least three years.

B. Investment income
No deductions are permitted from income earned on investments. However, this income is taxed at a
preferential rate of tax of 20% (plus applicable cess), as against the maximum marginal rate of 30% (plus
applicable cess).

C. Exemption from filing return of income
The due date for filing both income tax and wealth tax returns is 31 July, i.e., within four months of the end
of the fiscal year (31 March).

NRIs have the option of not filing a tax return if:

    * Their total income consists only of investment income and/or long-term capital gains
    * Tax has been deducted at source on such income.


D. Continuation of special benefits
These provisions shall continue to apply to investment income even after NRIs become resident, provided
they furnish a declaration along with their tax returns.

NRIs may completely opt out of the special provisions mentioned above by filing a written declaration along
with their tax returns.


    * Special benefits relating to global depository receipts (GDRs)

There are special benefits relating to income from GDRs. The provisions apply to:

    * Interest and dividends
    * Long-term capital gains on bonds or shares issued abroad by Indian companies and purchased in foreign currency.

The tax rate on gross income, plus applicable cess, is 10%. Gross income means that no deduction is
allowed for:

    * Business expenses
    * Expenses on transfer
    * Other expenses
    * Deduction on account of specified payments or income.

Transfers outside India between NRIs, inter se, are not subject to capital gains tax in India.