TDS and Tax Liability in India

1. What is the basis of taxability of income of any person in India?

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. 

2. What is the scope of total income chargeable to tax of a NRI in India?

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

c.    Income deemed to accrue or arise in India.


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.

3. What is the scope of total income chargeable to tax of a RNOR/Deemed Resident in India?

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”. 

4. What is the Income tax liability of a ROR in India?

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.


5. What are the slab rates applicable in case of taxable income earned by a NRI for the FY 2023-24 and whether any beneficial slab rate is available to NRI senior citizen?

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 2023-24 onwards, the new tax regime is set as the default option. If anyone wants to continue with the old I 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:

Total Income

Tax Rate under Old Tax Regime

Total Income

Tax Rate under New Tax Regime

Upto Rs. 2,50,000/- (basic exemption limit)

NIL

Upto Rs. 3,00,000/- (basic exemption limit)

NIL

Rs. 2,50,001/- to 5,00,000/-

5%

Rs.3,00,001/- to 6,00,000/-

5%

Rs. 5,00,001/- to 10,00,000/-

20%

Rs.6,00,001/- to 9,00,000/-

10%

Above Rs. 10,00,000/-

30%

Rs.9,00,001/- to 12,00,000/-

15%



Rs.12,00,001/- to 15,00,000/-

20%



Above 15,00,000/-

30%

 

·    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 2023-24) is tabulated below:


Nature of deduction

Old Tax Regime

New Tax Regime

Deduction under Chapter VI A (Refer FAQs in Chapter 21  to understand the deductions available under Chapter VIA), eg:

80C – LIC 

80D – Mediclaim premium

80G – Donation

80TTA – Deduction for interest from savings account

ü   

X

Exemption of income of Minor

ü   

X

Interest on home loan– self- occupied or vacant property

ü   

X

Interest on home loan– let out property i.e. property given on rent

ü   

ü   

Family Pension

ü   

ü   

House Rent Allowance (i.e. deduction for rent paid)

ü   

X

Leave Travel Allowance 

ü   

X

Personal Allowances (i.e. children education allowance, allowance granted to meet hostel expenditure of his child, allowance to meet cost of travel on tour, expenditure for purchase of uniform, expenditure incurred on helper etc.)

ü   

X

Deduction of payment of professional tax

ü   

X

Standard deduction of Rs. 50,000 from salaries

ü   

ü

Set off of loss carried forward attributable to any of deductions referred above

ü   

X


·     Surcharge Rates: Further, the surcharge rate for FY 2023-24 under both the regime is given below:

 

Income

Rate of Surcharge

Effective tax rates after surcharge and Cess**

Rs. 50 lakhs to Rs. 1 Crore

10%

34.32%

Rs. 1 crore to Rs. 2 crores

15%

35.88%

Rs. 2 crores to Rs. 5 crores*

25%

39%

Above Rs. 5 crores – New Tax regime

25%

39%

Above Rs. 5 crores – Old Tax regime

37%

42.74%


* 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%.

**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.

6. When Indian income of a NRI is taxed in both India as well as in the country of his residence as per domestic tax laws of respective countries, what recourse is available to NRI from such double taxation of income?

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.

7. What are the withholding tax rates (ie. Tax Deducted at Source, TDS rates) and Income tax rates applicable to a NRI arising on income earned in India for the FY 2023-24? Further, can NRI avail benefit of basic exemption limit or claim Chapter VI-A deduction against any source of income?

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.


Sr. No.

 

Type of Asset and Source of Income

 

Chapter VI-A Deduction available

Benefit of basic exemption

Basic rate under the Act
(plus applicable Cess and Surcharge)

Income tax rate (Note 1)

TDS (Note 1 and 2)

I

Immovable Property

 

 

 

 

 

A

Rent

Yes

Yes

Slab Rate

30%

 

B

Long Term Capital Gains (LTCG)

No

No

20%

20%

 

C

Short Term Capital Gains (STCG)

Yes

Yes

Slab Rate

30%

 

 

 

 

 

 

 

II

Bank Accounts / Fixed Deposits/ Public Provident Fund (PPF)/ Tax free bonds

 

 

 

 

 

A

Interest on NRO a/c

Yes

Yes

Slab Rate

30%

 

B

Interest on NRE a/c

NA

NA

Exempt

NIL

 

C

Interest on FCNR Deposits

NA

NA

Exempt

NIL

 

D

Interest on PPF a/c

NA

NA

Exempt

NIL

 

E

Interest on Tax free bonds

NA

NA

Exempt

Nil

 

F

Interest income on Debentures (Note 1)

Yes

Yes

Special Rate/Slab Rate

30%

 

G

Interest income on Bonds (Note 1)

Yes

Yes

Special Rate/Slab Rate

30%

 

 

 

 

 

 

 

III

Equity Shares - Listed (STT Paid both at the time of Purchase and Sale)

 

 

 

 

A

LTCG

No

No

10% (with Grandfathering for shares acquired on/before January 31, 2018)


(upto Rs. 1,00,000/- exempt)

10%

B

STCG

No

No

15%

15%

 

 

 

 

 

 

 

IV

Equity Shares – Unlisted

 

 

 

 

A

LTCG

No

No

10% (without indexation and no benefit of foreign exchange fluctuation)

10%

B

STCG

Yes

Yes

Slab Rate

30%

V

Units of Mutual Funds - Equity Oriented (STT Paid at the time of Sale) (Note- 3)

 

 

 

 

A

LTCG

No

No

10% (with Grandfathering for mutual funds acquired on/before January 31, 2018)

 

(upto Rs. 1,00,000 exempt)

10%

 

 

 

 

 

 

 

 

 

 

B

STCG

No

No

15%

15%

 

 

 

 

 

 

 

VI

Units of Debt Mutual Funds, Specified Mutual Funds acquired before April 1, 2023 and Equity Oriented Mutual Funds (STT not paid on sale) [Listed]  (Note 3)

 

 

 

 

 

 

A

LTCG

No

No

20% (with indexation)

20%

 

B

STCG

Yes

Yes

Slab Rate

30%

 

 

 

 

 

 

 

VII

Units of Mutual funds – Specified Mutual Funds acquired on or after April 1, 2023 (Note 3)

 

 

 

 

 

A

Deemed STCG

Yes

Yes

Slab rate

30%

 

 

 

 

 

 

 

VIII

Listed Bonds (Other than Zero Coupon bonds, Sovereign Gold Bonds and Capital Indexed Bonds)

 

 

 

 

A

LTCG

No

No

 10% (Without indexation)

 20%

 

B

STCG

Yes

Yes

Slab Rate

30%

IX

Listed Debentures (other than Market Linked Debentures)

 

 

 

 

 

A

LTCG

No

No

 10% (Without indexation and benefit of foreign exchange fluctuation is available)

 20%

 

B

STCG

Yes

Yes

Slab rate

30%

 

 

 

 

 

 

 

X

Unlisted Debentures

 

 

 

 

 

A

LTCG

No

No

10% (Without indexation and no benefit of foreign exchange fluctuation) 

10%

 

B

STCG

Yes

Yes

Slab Rate

30%

 

 

 

 

 

 

 

XI

Market Linked Debentures (Note 4)

 

 

 

 

 

A

Deemed Short Term

Yes

Yes

Slab rate

30%

 

 

 

 

 

 

 

XII

Dividend Income from Shares

No

No

20%

20%

 

 

 

 

 

 

XIII

Income From units of Mutual Funds (Note 1)

 

Yes

 

Yes

Special Rate/Slab rate

20%

 

 

 

 

 

 

XIV

Salary

Yes

Yes

Slab Rate

30%


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:

 

Nature of Mutual Fund

Percentage of investment

Specified

Investment of Less than or equal to 35% of Total proceeds in equity shares of domestic company

Others (Debt)

Investment of less than 65% but more than 35% of its proceeds in equity shares of listed domestic company

Equity oriented

i. In case where the fund invests in units of another fund which is traded on recognized stock exchange:

- 90% or more of its total proceeds is invested in other fund, and

- Other fund also invest 90% or more of its total proceeds in the equity share of domestic companies listed on a recognized stock exchange

and

ii. In any other case, 65% or more of its proceeds is invested in equity share of domestic companies listed on a recognized stock exchange

 

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. 

· 

8. In case of Mr. A, a NRI sea farer, employment services are rendered outside India on board of foreign ship and salary has been received in India in his NRE Bank A/c directly. Will said income be liable to income tax in India?

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.


Please note no changes have been proposed in the above-mentioned rates in the Interim Budget 2024. However, the new Government, after the elections, shall present the Final Budget for the financial year 2024-25 which shall be effective from April 2024.



                                                                                                                                                                                                          - Updated 03/2024