1. Taxation of NRIs abbas & co. Chartered Accountants
CA Abbas Gulamhusainwala

2. Agenda Definition of the Non-residents Taxability of the NRIs
Section 195 and application of the TDS
Application of DTAA
Controversial issues

3. Resident in India- Sec 6 Individual Stay in India < 60 days Yes
Resident but not ordinary resident
Stay in India >
182 days in previous year
Yes
NRI for 9 PY out of 10 PY
NRI No
Indian Citizen for a job or crew member of a ship
Yes
Stayed less than 729 days in 7 years No
Stayed 60 days or more in a previous year and more than 365 days in 4 PY
Resident and ordinary resident No

4. Resident in India- Sec 6 Some important points –
Previous year starts from 1 April to 31 March
Day of arrival and day of departure both have to be considered
Dates stamped on the passport is normally considered
Ensure that the date on the passport is stamped legibly
Keep track of number of days in India and plan your trip accordingly
In case of first year of leaving India for the employment, leave before 28 September . Otherwise global income will be taxable
In last year of returning to India, keep ensure that return on or after 2 February if stay in last four year is exceeding 365 days

5. Some issues….
Mr. X is working on a rig outside India. He frequently comes to India. He comes at late night and leaves early in the morning and accordingly by excluding a day of arrival, claims status as NR.
The AO is of the view that with the day of arrival his stays in India is 187 days and therefore becomes Resident.
Whether AO is correct by counting both the days?

6. Some issues….
Mr. X is a former employee of A India. He has joined A Japan. His stay in Japan is more than 183 days and in India 83 days. A India paid him salary for his stay in India.
The AO is of the view that his salary for the period of 83 days is taxable in India as service is rendered in India.
Whether AO is correct in charging tax on such salary?

7. Resident in India- Sec 6 Company if Indian company
control & management wholly in India

8. Resident in India- Sec 6 HUF, Firms AoP, BoI etc.
Resident unless control and management wholly outside India

9. Scope of Income – Sec 5 In case of Non-resident –
Income received or deemed to be received in India
Income accrues or arises or is deemed to be accrues or arises in India
In case of resident but not ordinary resident –
Any income received outside India which is derived from the business controlled in India or profession set up in India
In case of resident–
Global Income of the assessee

10. Salary – Sec 9(1)(ii) & (iii)
Salary is deemed to accrue or arise in India–
If the service is rendered in India
Salary for the rest period or leave period on account of service rendered in India
Salary payable by the Government for service rendered outside India

11. Some issues….
Mr. X is working at UK. The salary directly credited in his account in India.
As the salary is received in India, is AO right in treating as income received in India?

12. Short Stay Exemption u/s 10(6)
Short Stay Exemption – Section 10(6)(vi)
Remuneration paid to the employee of the foreign enterprise is exempt in India if
the enterprise is not engaged in any trade or business in India
Stay of the employee does not exceed 90 days
Such remuneration is not liable for deduction from the employer’s income chargeable in India
Short Stay Exemption – Section 10(6)(viii)
Remuneration paid to non-resident in connection with his employment on a foreign ship is exempt in India if

13. Business Income– Sec 9(1)(i)
Income earned
Through or from any Business Connection in India – Any business activity carried out through a person who, acting on behalf of the non-resident
Through or from any property or capital assets or source of income in India
Through transfer of capital asset situated in India

14. Chapter XII-A Definitions – Section 115C
Foreign Exchange Assets means specified assets acquired with convertible foreign exchange
Specified assets means shares, debentures or deposits with Indian Company, Government Securities
Special provision for computation of income of NRs – Section 115D
The NRI are not allowed to claim
Any expenditure under any provision of the Act
Indexation for the purpose of working of LTCG

15. Chapter XII-A Tax on Income– Section 115E Aggregate of-
20 percent of income from investment
10 percent of LTCG
At regular applicable rate
Capital gain not to be charged– Section 115F
The LTCG has arise out of foreign exchange asset will not be taxable if within the period of six months, the amount is invested in
Specified Assets or
Saving Certificates

16. Chapter XII-A Exemption from filing ROI by NRs – Section 115G
Not mandatory to file the ROI if the income consist
Investment income like interest, dividend
Long term capital gain from such investment
The TDS has been deducted on such income
Option to NRs even becomes ordinary resident – Section 115H
If the NRI becomes resident can still choose to apply the above provision by filing a declaration for it

17. Other Income Section Source of income Point of taxation 9(1)(iv)
Dividend
Paid by an India Company
9(1)(v)
Interest
Paid by the Government or a resident of India (Unless it is paid for any business connection outside India)
9(1)(vi)
Royalty
Paid by the Government or a resident of India (Unless it is paid for any business connection outside India
9(1)(vii)
FTS

18. Special Provisions
Special Provisions For Computing Profits And Gains In Case Of Non-Residents Engaged In Certain Business
Sec 44B
Sec 44BB
Sec 44BBA
Sec 44BBB
Nature of business
non-resident engaged operation ships.
non-resident engaged
in providing service/ facilities or supplying plant/ machinery for extraction or production of mineral oils (including petroleum and natural gas)
non-resident engaged in operation of aircraft.
foreign company engaged in civil construction or erection, testing or commissioning of plant or machinery in connection with an approved turnkey power project
Deemed Income
7½ % of gross receipts
10% of gross receipts
5 % of gross receipts
10 % of gross receipts

19. 1. Interest on Banking Account
Withholding of Tax– Sec 195
If NRI receives any Income from any person, the tax is required to be deducted at source at a rate applicable to NRI's
Type of Assets
1. Interest on Banking Account
Sr. No.
Particulars
Tax Liability
Rate of TDS a.
NRO Savings Bank Account
Taxable
30.00% b.
NRE Bank Account
Exempt
Nil c.
FCNR Deposit Account

20. Withholding of Tax– Sec 195
If NRI receives any Income from any person, the tax is required to be deducted at source at a rate applicable to NRI's
Type of Assets
2. Immovable Property
Sr. No.
Particulars
 Tax Liability
 Basic Rate of TDS a.
Capital Gains i.
Long Term Capital Gains
Taxable
20.00%
ii.
Short Term Capital Gains
Slab Rates b.
 Rental Income
30.00%

21. 3. Shares, Units of Mutual Fund
Withholding of Tax– Sec 195
If NRI receives any Income from any person, the tax is required to be deducted at source at a rate applicable to NRI's
Type of Assets
3. Shares, Units of Mutual Fund
Sr. No.
Particulars
Tax Liability
Basic Rate of TDS a.
Capital Gains i.
Long Term Capital Gains
If not Exempt
20.00%
ii.
Short Term Capital Gains
Taxable
15.00% b.
Dividend Income
Exempt
Nil

22. Some issues….
Mr. X has purchased a property from Mr. Y who is not a resident of the country.
Is there any tax withholding responsibility?
If Mr. X is not aware about the status of Mr. Y, will it make any difference?
In case tax is required to be withheld, on which amount?

23. Some issues….
XYZ Ltd is having a joint venture with ABC LLC for execution of the project in India. ABC LLC has appointed some engineers to work on the assignment in India. The part of the salary of the engineers is paid by XYZ Ltd and part is paid by ABC LLC at USA.
What is the tax withholding responsibility on XYZ Ltd?
In case tax is required to be withheld, on which amount?

24. Withholding of Tax– Sec 195
Section 194E –
Amount paid to the NRI sportsmen/entertainer, tax at 20% is to be deducted
Section 194LC –
Interest paid to the NRIs, not being a company or foreign company, tax at 5% is to be deducted

25. Section 206AA
In case PAN has not been furnished TDS shall be deducted at the rate higher of the
Rate specified in the Act
Rates in force
At twenty percent
206AA applicable in DTAA scenario ?
Impact of 25% tax rate amendment on above ?
206AA applicable when tax is grossed up u/s 195A ?

26. 206AA & DTAA View 1: section 206AA overrides the Treaty provisions :
206AA starts with a non-obstante clause
Allotment of PAN serves the primary purpose of providing elementary satisfaction to the country of source as to treaty residency of NR.
Assessee can file return and claim refund later on.
CBDT vide press release had clarified that they need to obtain PAN to claim lower rate under the Tax Treaty
View 2: section 206AA does not overrides the Treaty provisions :
The stated object behind insertion of Section 206AA as stated in the Explanatory Memorandum is that ‘non quoting of PANs by deductees is creating problems in the processing of returns of income and in granting credit for TDS leading to delays in issue of refunds’. The object behind insertion nowhere talks of facilitating verification of treaty residency.
The tax treaty is self contained code and is a mini legislation as accepted by Supreme Court in the case of UOI v Azadi Bachao Andolan (263 ITR 706).

27. VIEW 1: 25% rate will apply:
Impact of 25% tax rate
VIEW 1: 25% rate will apply:
Rate to be applied as per 206AA is higher of
Rate prescribed u/s 115A of the Act is 25%
10 %
(say the DTAA Rate)
20%
VIEW 2: 20% will apply:
Rate to be applied higher of
Rate prescribed under the Act for withholding has been determined as per DTAA (considering provisions u/s 90 of the Act) say 10%
20%

28. VIEW -1 upheld by Bangalore ITAT in case of Bosch Ltd
206AA & grossed up tax u/s 195A
VIEW-1: Section 206AA is not applicable for grossing up u/s 195A of the Act
Section 206AA of the Act were introduced with the object of improving compliance and not to impose any punitive tax incidence on the payee
Section 206AA starts with non-obstante clause
VIEW -1 upheld by Bangalore ITAT in case of Bosch Ltd
Section 206AA does not by itself create any withholding obligation.
VIEW 2: Section 206AA is applicable for grossing up u/s 195A of the Act
Section 206AA supplements the primary withholding section in case of default in PAN
Thus, the rate of 20% as provided in section 206AA would be substituted for the rate provided under the respective provisions which creates the withholding tax obligation

29. DTAA
DTAA –
What is Treaty: A formally concluded and ratified agreement between independent nations
aim is to avoid double taxation of same income. The treaty can be bilateral, that is, apply to only the two countries in question, or multilateral
provided such an arrangement exists between their country of residence and the country/countries where their income sources are
Two model of treaties – OECD Model and UN Model

30. DTAA DTAA – The benefits of DTAA are
lower withholding tax (tax deducted at source or TDS)
exemption from tax
credits for taxes paid on the doubly-taxed income that can be enchased at a later date
India has DTAA with over 85 countries

31. DTAA Independent Personal Services –
Income derived by a profession of the state would be taxable in that state unless:
He has a fixed base regularly available to him in the other contracting state to perform his activity, in that case income only attributable to the activity shall be taxable in other state
Stays in the other contracting state exceeds 90 / 183 days in a year, only so much of the income derived from the activity performed in other state
Professional services includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physician, lawyer, engineer, architect, dentist and accountant.

32. DTAA Tax Credit – Exemption Method:
Full Exemption: Resident state does not take into account income earned in source state
Exemption with progression: The resident state does not tax the income but take it into account for computing the taxable amount
Credit Method:
Full Exemption: Full credit is given for the tax paid in source state
Ordinary Credit: Tax credit is restricted to the amount would have been taxed by the resident state

33. DTAA DTAA – Certain important terms Most Favoured Nation :
The term means the country which is the recipient of this treatment must, nominally, receive equal trade advantages as the "most favoured nation" by the country granting such treatment. In effect, a country that has been accorded MFN status may not be treated less advantageously than any other country with MFN status by the promising country
Make Available :
Person acquiring the service is enabled to apply the technology embedded in the services provided to him independent of the service provider.

34. DTAA DTAA – Attribution Rule:
Profit that must arise economically from the business carried out by the PE and have direct and proximate connection with the PE
Force of attraction
It is an extension of the attribution rule. The force of attraction rule means all income arising from all sources in a country, where the foreign enterprise maintains the PE is subject to tax in that country irrespective of whether the said income is attributable to the PE or not.

35. DTAA DTAA – Economic Double taxation:
Country levies tax on an income that has already been taxed in the same or another country. For example, corporate profits are taxed when they are earned, and then taxed again when dividend is distributed to shareholders.
Jurisdictional Double taxation:
The same income is taxed in two jurisdiction, source country and resident country.

36. DTAA DTAA – Tax sparing :
Term used to denote a special form of double taxation relief in tax treaties with developing countries. Where a country grants tax incentives to encourage foreign investment and that company is a resident of another country with which a tax treaty has been concluded, the other country may give a credit against its own tax for the tax which the company would have paid if the tax had not been "spared (i.e. given up)" under the provisions of the tax incentives.

37. Wealth Tax
WEALTH TAX
Assets located outside India of Non-resident / Resident but Not Ordinary Resident are exempt from Wealth Tax.
If NRI return to India with the intention of permanently residing in India, the assets brought by him will be exempt. Also, the money and the assets acquired from the money, brought by NRI within one year after his return, will be exempt. This exemption is available to NRI for a period of seven years after his return to India. [Sec. 5(1)(v)]

38. Some issues….
Mr. A resident of Singapore received the interest income in India. To claim the treaty benefit, the tax authority asked the taxpayer to prove that the interest income is received in Singapore.
Whether the tax authority is right in not providing relief under treaty if the taxpayer could not prove receipt in Singapore ?

39. Some issues….
B H Ltd has paid the fees for consultancy in acquisition of business in Brazil.
Whether payment to Brazilian company will fall under exception of section 9(1)(vii)(b)?

40. Some issues….
H Co. is a Hong Kong company providing investment advisory services to another non-resident for making investments in India. Whether the investment advisory fee received by H Co. from non-residents is taxable in India?
If instead of Hong Kong, would it make a difference if H Co. is a Company resident in a country with which India has a Tax Treaty?

41. Questions

42. Thanks
T-19, Vrund Complex, Urmi Crossing, Productivity Road, Vadodara |
07 January 2014