Exempt Income for Non-Residents

Which income of NRs are exempt from tax in India?

Ans.

For NRs, certain incomes, although falling within the scope of total income of the individual, may still be exempt from tax. Such income has been specified under provisions of the Act. List of such incomes are as follows:

i. Interest earned on NRE a/cs provided such person is resident outside India as per FEMA or permitted by RBI to maintain such a/c;

ii. Interest paid to NR or to RNOR on foreign currency deposits, i.e., FCNR and RFC deposits. The exemption for interest on RFC a/c and FCNR a/c continues till such time as the a/c holder continues to be RNOR;

iii. If eligible foreign currency Bonds or Global Depository Receipts (GDR) of Indian Company issued under GDR schemes or rupee denominated bond of an Indian Company (issued outside India) is transferred outside India, by one NRI to another NRI, then capital gains arising on such transfer are exempt from income tax;

iv. Dividends on shares of Indian companies and on units of Mutual Funds;

v. Any sum received under life insurance policy provided the policy was issued on or after April 1, 2003 but on or before March 31, 2012 and yearly premium does not exceed 20% of the sum assured. In case of a policy issued after April 1, 2012, the sum received under the policy shall be exempt if the yearly premium does not exceed 10% of the sum assured; 

vi. Transfer of Government security carrying periodic payment of interest made outside India by a NR to another NR;

vii. Remuneration received by Foreign Diplomats / Consulate and their staff (subject to certain conditions);

viii. Royalty or fees received by a NR for technical services rendered in or outside India to the National Technical Research Organization;

ix. Remuneration received by NR, not being a citizen of India, as employee of a foreign enterprise for services rendered by him during his stay in India, if:
• Foreign enterprise is not engaged in any trade or business in India;
• His stay in India does not exceed in aggregate a period of 90 days in such previous year; and
• Such remuneration is not liable to be deducted from the income of employer chargeable under this Act.

x. Salary received by a NR, not being a citizen of India, for services rendered in connection with his employment on a foreign ship if his total stay in India does not exceed 90 days in the previous year;

xi. In case of sale of units of an Equity Oriented Fund or a Business Trust, being a long-term capital asset, first Rs.1,00,000/- of gains arise on such sale shall be exempted provided that STT has been paid on sale of such units;

xii. In case of sale of equity shares, being a long-term capital asset, first Rs.1,00,000/- of gains arise on such sale shall be exempted provided that STT has been paid on sale. Further, if the said shares are purchased after October 1, 2004 then STT is required to be paid on purchase also, subject to certain exceptions.

Are STCG on sale of mutual fund units invested from NRE a/c exempt from tax?

Ans. No, only Interest income earned on deposits in NRE a/c are exempt from tax. Accordingly, income on any other investments credited to NRE a/c, unless specifically exempted under the Act, would be taxable.