Ans.

The taxability of income of any person in India is generally based on his/her Residential Status (RS) and scope of total income determined based on the said RS under the Income-tax Act, 1961 (IT Act) and Double Tax Avoidance Agreement (DTAA) entered between India and country of residence of the said person.

As per the IT Act, the RS of an individual may be classified in any one of the following (Refer FAQs on Residential Status to understand how RS is determined under the IT Act): 

·         Resident and Ordinarily Resident (ROR)  

·         Resident and Not Ordinarily Resident (RNOR)

·         Non-Resident (NR)

Further, the scope of total income which is chargeable to tax in India is based on the RS of the above individual, which is explained in the ensuing questions. 

Ans.

Following income earned by NRI is liable to tax in India:

a.   Income earned from any source in India is taxable in India i.e. Income which accrues or arises in India and is deemed to accrue or arise in India eg:- Interest income from investments in India; Capital Gains from investments in India; Income from Immovable Property located in India;

b.   Any other income received or deemed to be received in India; and

Any income other than above may not be taxable in India.

Further, NRI may take recourse to DTAA between India and his country of residence to evaluate if there is any benefit/relief available under DTAA, while determining the scope of total income and taxability of income thereof.

Ans.

Following income earned by RNOR is liable to tax in India:

a.   Income earned from any source in India is taxable in India i.e. Income which accrues or arises in India and is deemed to accrue or arise in India eg:-; Interest income from Investments in India; Capital Gains from investments in India; and Income from Immovable Property located in India;

b.    Any other income received or deemed to be received in India; and

c.    Income earned outside India from business controlled or profession set-up in India

Any income other than above may not be taxable in India.

Further, a person who qualifies as a Deemed Resident of India is considered as RNOR under the IT Act and their scope of total income is determined in the same manner as RNOR, as explained above. Refer FAQ no. 4 on “Residential Status” for conditions to qualify as “Deemed Resident”. 

Ans.

He/she shall be liable to tax in India on his/her global income. However, if any foreign source income is taxed in both India as well as in the source country, he/she may be eligible to claim credit of foreign taxes paid on foreign income in the foreign country as per provisions of the IT Act and DTAA between India and foreign country. Refer FAQ on DTAA.

Ans.

Income earned by a NRI is taxable at slab rate (except for certain special income which is taxed at special rate). An option is provided to the NRI who is not earning business income to either be governed by new tax regime or old tax regime, whichever is beneficial for him. Different slab rate of tax is provided in New Tax Regime and Old Tax Regime and details of which along with comparison between both the regime are explained in the ensuing paragraphs. From FY 2024-25 onwards, the new tax regime is set as the default option. If anyone wants to continue with the old regime, he/she is required to opt for it at the time of filing the ROI.

·     The slab rates applicable to NRI individual under new tax regime and old tax regime is tabulated below:

·    Higher basic exemption limit is available in case of resident senior citizen. However, if the senior citizen is an NRI, such higher basic exemption limit is not available and slab rates tabulated above will continue to apply to all NRI individuals including senior citizens.

·    The new tax regime provides beneficial slab rates. However, the taxpayer loses certain deductions under the said regime. The comparison of some important deductions available under both regimes (FY 2024-25) is tabulated below:

* Provided that in case where total income includes dividend income from shares or long-term capital gain on transfer of capital assets and short term capital gain on transfer of equity share in a company or a unit of an equity oriented fund or a unit of a business trust, rate of surcharge on amount of Income-tax computed in respect of that part of income shall not exceed 15% and in that case effective tax rate after surcharge and cess shall be 35.88%.

**Health and Education cess shall be levied at the rate of 4% payable on income-tax and surcharge.

Marginal tax rate relief on surcharge is available i.e. a relief will be provided to certain taxpayers up to the amount of the difference between the excess tax payable (including surcharge) on the income above prescribed limit and the amount of income that exceeds such prescribed limit.

Ans.

In the given case, it is seen that there may be double taxation of same income. In such a situation, one may take recourse to DTAA between India and his country of residence to evaluate if there is any benefit/relief available under DTAA. For detailed understanding refer FAQ on DTAA. As a last recourse, taxes paid on such income in the source country [i.e. India, in the present case] can be claimed as credit while paying taxes in the Resident country as per DTAA between India and country of residence of NRI and/or as per domestic tax laws of the Resident Country of NRI subject to satisfaction of terms and conditions as mentioned therein.

Further, please note India has recently signed the Multilateral Convention to implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (commonly referred to as Multilateral Instrument-MLI) along with representatives of many countries. It’s provisions will be applicable on India’s DTAAs from FY 2020-21 so as to act as a deterrent to tax evasion strategies and curb revenue loss through treaty abuse and base erosion and profit shifting strategies.

Ans.

The TDS and Income tax rates applicable to NRIs as per the provisions of the IT Act is outlined in below table along with the source of income against which NRI can avail basic exemption limit or claim deduction under Chapter VI-A, subject to the provisions of DTAA which generally override the provisions of the IT act as per the option/choice of the taxpayer. Accordingly, NRIs can take recourse of beneficial rates (if any) applicable to them under DTAA between India and NRI’s country of residence as in which case the below rates will be revised as per DTAA rates.

Note 1:

• The IT Act provides for various Special Regime of taxation for NRIs (eg. Section 115A, Section 115C to Section 115I etc.), in which specific tax rates (“Special Rate”) are given for certain nature of income earned by NRIs. In certain special regime, NRI has an option to opt for special rate of tax (if beneficial). Section 115C to Section 115I housed under Chapter XIIA of the IT Act is one of the Special Regime and FAQs related to this Special Regime. Therefore, it is important to evaluate if any source of income tabulated above is taxable or eligible for taxation at special rate of tax before finalizing the tax position.
• The TDS rate mentioned in the above table may also undergo change depending upon the classification of income under the Special Regime and same has to be evaluated accordingly.

Note 2: It is the responsibility of the payer to deduct TDS at the time of making payment to the NRI individual. However, if payer has failed to deduct TDS, due to which, NRI is liable to pay any taxes in India, he/she can discharge the same by way of advance tax and/or self-assessment tax etc.  

Note 3: Mutual Funds are classified as under:

As per recent amendment, Benefit of Indexation for the calculation of Long-term capital gains on “Specified Mutual Funds” will not be available for Investment made on or after April 1, 2023, and Gain arising from such type of Mutual fund will attract tax as per Normal tax rate as per slab applicable to Individual.

Note-4:

• "Market Linked Debenture" means a security by whatever name called, which has an underlying principle component in the form of a debt security and where the returns are linked to market returns on other underlying securities or indices and include any security classified or regulated as a market linked debenture by the Securities and Exchange Board of India;
• As per recent amendment, Capital gain arising on Sale of Market Linked Debentures sold on/after April 1, 2023, shall be deemed as short-term capital gain. Therefore, no Benefit of Indexation shall be available.

Ans.

It is understood that salary income received in NRE Bank A/c by Mr. A may be regarded as income received in India, which may be liable to be taxed in India. However, it has been clarified by Government of India vide its Circular no. 13/2017 dated April 11, 2017 that in case of NRI sea farers on board of foreign ship, salary received in NRE Bank A/c in India shall not be included in his Total Income taxable in India.

                                                                                                                                                                                                          - Updated 11/2024