TDS and Tax Liability in India

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

Ans.

The taxability of incomes of any person in India is generally based on his / her Residential Status (RS) under the Income-Tax Act, 1961. The scope of total income determined based on RS, is explained in the ensuing questions. Further, refer FAQs on determination of Residential Status in case of individuals.

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 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.

3. What is the scope of total income chargeable to tax of a RNOR 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 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;

c.    Income deemed to accrue or arise in India; and

d.    Income earned outside India from business controlled or profession set-up in India is taxable in India.

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

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

Ans.

He/she shall be liable to tax in India on her/his global income. However, he/she may be eligible to claim credit of foreign taxes paid on foreign income in the other country as per ‘Double Taxation Avoidance Agreement’ between India (DTAA) and other country and provisions of the Income-tax Act, 1961. Refer Chapter 22 - FAQs on DTAA.

5. What is the Income tax liability of an individual Deemed to be Resident in India?

Ans.

Recently, a new provision is introduced wherein an individual is deemed to be “Resident” in India in the relevant previous year, irrespective of number of days of stay in India if the following conditions are satisfied –

·         Individual is Citizen of India;

·       Has total income exceeding ? 15 lakhs (other than income from the foreign sources) in India during the previous year;

·       Who is not liable to tax in any country or territory by reason on his domicile or residence or any other criteria of similar nature.

Such ‘deemed residents’ shall be considered as ‘RNOR’ and accordingly their scope of total income in India shall be same as that of RNOR as mentioned in FAQ 3 above.

6. How can NRI pay taxes in India?

Ans.

NRI can pay taxes in India as under:

a.    Advance Tax – The tax liability in India is paid in installments (at prescribed percentage of tax liability, mentioned in the Act) during the FY on the basis of estimate of taxable income in India;

b.    Tax Deduction at Source (TDS) – When an NRI earns any taxable income in India, the payer is liable to withhold the amount of tax applicable on the said income and pay the balance amount of income to the NRI. The taxes so withheld are paid to the Government of India on behalf of the NRI. A table documenting the withholding rate of tax applicable in case of income of NRI is explained in ensuing question; and

c.    Self-Assessment Taxes (SA Tax)- After the end of the FY, the NRI may also pay taxes after undertaking a Self-Assessment of his income.

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?

Ans.

The following are TDS and Income tax rates applicable to NRIs on income computed in accordance with provisions of the Act subject to DTAA benefits, if any, between India and NRI’s country of residence:

Sr. No.

 

Type of Asset

Basic rate under the Act
(excluding Cess and Surcharge)

 

 

 

 

 

Income tax rate

TDS

 

i

Immovable Property

 

 

 

 

a

Rent

Slab Rate

30%

 

b

Long Term Capital Gains

20%

20%

 

c

Short Term Capital Gains

Slab Rate

30%

 

 

 

 

 

ii

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

 

 

 

a

Interest on NRO a/c

Slab Rate

30%

 

b

Interest on NRE a/c

Exempt

NIL

 

c

Interest on FCNR Deposits

Exempt

NIL

 

d

Interest on PPF a/c

Exempt

NIL

 

e

Interest on Tax free bonds

Exempt

Nil

 

 

 

 

 

iii

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

 

 

 

a

Dividend

Exempt - Upto FY 2019-20

Nil

20% - From FY 2020-21

20%

b

LTCG (Period of Holding > 1 year)

10% (with Grandfathering)
(upto Rs. 1,00,000/- exempt)

10%

c

STCG (Period of Holding = 1 year)

15%

15%

 

 

 

 

 

iv

Equity Shares - Unlisted

 

 

 

a

Dividend

Exempt - Upto FY 2019-20

Nil

Slab Rate - From FY 2020-21

20%

b

LTCG (Period of Holding > 2 years)

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

10%

c

STCG (Period of Holding = 2 years)

Slab Rate

30%

 

 

 

 

 

v

Mutual Funds - Equity Oriented (STT Paid at the time of Sale) - Note 1

 

 

 

a

Dividend

Exempt in India - Upto FY 2019-20

Nil

*20%/ slab rate - From FY 2020-21

20%

b

LTCG (Period of Holding > 1 year)

10% (with Grandfathering)
(upto Rs. 1,00,000 exempt)

10%

c

STCG (Period of Holding = 1 year)

15%

15%

 

 

 

 

 

 

 

 

 

 

 

vi

Mutual funds – Specified Mutual Funds

 

 

 

 

a

Deemed STCG

From FY 2023-24 – Slab rate

30%

 

 

 

 

 

 

 

vii

Mutual Funds – (Others i.e Other than Equity oriented and Specified Mutual Funds) - Note 1

 

 

a

LTCG (Period of Holding > 3 years)

20% (with indexation)

20%

b

STCG (Period of Holding = 3 years)

Slab Rate

30%

 

 

 

 

 

viii

Salary

Slab Rate

30%

 

* As per Section 115A of the Income-tax Act, 1961, income received in respect of units of Mutual Funds purchased in foreign currency is taxable at the rate of 20%. In other cases it may be taxed at slab rates.

 

Note 1:

 

Nature of Mutual Fund

Percentage of investment in Equity shares of domestic company by Mutual Fund

Specified

Less than or equal to 35%

Others

More than 35% but less than 65%

Equity oriented

More than or equal to 65%


8. What are the slab rates applicable in case of taxable income earned by a NRI from the FY 2023-24?

Ans.

An option is provided to the individuals to either govern by current tax regime or new (concessional) tax regime.


The new tax regime provides reduced slab rates that are applicable without certain deductions and exemptions as prescribed in the said regime. From FY 2023-24, the new income tax regime will be 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 rates of taxes and other provisions applicable for both current and new tax regime are as under:

Total Income

Tax Rate under Old Tax Regime

Total Income

Tax Rate under New Tax Regime

Upto Rs. 2,50,000/-

NIL

Upto Rs. 3,00,000

NIL

Rs. 2,50,000 to 5,00,000

5%

Rs.3,00,000 to 6,00,000

5%

Rs. 5,00,000 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%

 

·         Comparison of some important deductions available under both regimes (FY 2023-24):

 

Nature of deduction

Old Tax Regime

New Tax Regime

House Rent Allowance

ü   

X

Leave Travel Allowance

ü   

X

Interest on home loan under Section 24b – self- occupied or vacant property

ü   

X

Interest on home loan under Section 24b – let out property

ü   

ü   

Deduction under Chapter VI A, eg:

80C – LIC, 

80D – Mediclaim premium

80G – Donation

80TTA – Deduction for interest from savings account

ü   

X

Standard deduction of Rs. 50,000 from salaries

ü   

ü   

Family Pension

ü   

ü   


·         Surcharge Rates:

 

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 any income chargeable under section 111A, 112 and section 112A of the Act, 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 is available under both old as well as new tax regime.

9. Can NRI avail benefit of basic exemption limit of Rs. 2,50,000/- if NRI is having only STCG from Equity shares or Equity oriented Mutual fund (on which STT is paid)?

Ans.

No. Benefit of basic exemption is not available if NRI has only STCG from Equity shares or Equity oriented Mutual Fund (on which STT is paid).

10. Can NRI avail benefit of basic exemption limit of Rs. 2,50,000/- if NRI is having only LTCG from Equity shares or Equity oriented Mutual fund?

Ans.

No benefit is available of basic exemption of Rs. 2,50,000/- against LTCG from Equity shares or Equity oriented Mutual fund. However, such gain is not taxable up to an amount of Rs. 1,00,000/-. In such case, basic rate of tax @ 10% is applicable on capital gains over and above Rs.1,00,000/-.

11. Are there any different slab rates for NRI senior citizens?

Ans.

No there are no different slab rates applicable to NRI senior citizens. Slab Rates as mentioned in FAQ 8 are applicable in case of NRI [irrespective of whether being Senior Citizen as per Income-tax Act, 1961 or otherwise] for FY 2023-24 (i.e. 1st April, 2023 to 31st March, 2024).

12. 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 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.

13. 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 Chapter 22 - 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 Double Taxation Avoidance Agreement (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 planning strategies and curb revenue loss through treaty abuse and base erosion and profit shifting strategies.

14. What is the taxability of dividend income from shares/mutual funds?

Ans.

From FY 2020-21, any dividend received on or after 1st April, 2020 will be taxed in the hands of shareholders/ unit holders.

 Updated 10/2023