Tax Liability

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 under the Act and the scope of total income determined thereof, which is explained in the ensuing questions and refer Chapter-1 for details on Determination of Residential Status in case of individuals.

What is the scope of total income chargeable to tax of a NR in India?

Ans.

Following income earned by NRIs liable to tax in India:

 

1.     Income earned from any source in India is taxable in India viz; Interest income from investments in India; Capital Gains from investments in India; and Income from Immovable Property located in India;

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

3.     Income deemed to accrue or arise in India.

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

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:

 

1.     Income earned from any source in India is taxable in India viz; Interest income from Investments in India; Capital Gains from investments in India; and Income from Immovable Property located in India;

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

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

4.     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


What is the Income tax liability of a Resident and ordinary resident (ROR) in India?

Ans.

For a person who is ROR in India, she/he shall be liable to tax in India on her/his global income.

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 in respect of any income arising outside India like capital gains, dividend, interest, rentals etc. other than the income from business controlled from India or income from profession which is set up in India, shall not be liable to tax in India.

For the definitions of the terms ‘NR’, ‘RNOR’, ‘ROR’ and ‘Deemed Resident’, please refer Chapter 1 – Residential Status.


How can NRI pay taxes in India?

Ans.

NRI can pay taxes in India as under:

 

1.     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;

 

2.     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

 

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

What are the withholding tax rates applicable to a NRI in case of any tax payable arising on income in India for the FY 2020-21?

Ans.

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

Sr. No.

Type of Assets

Tax Liability

Basic Rate of Tax*

1

Interest on Banking A/c

 

 

 

A

NRO Savings Bank A/c

Taxable

30%

 

B

NRE Bank A/c

Exempt

Nil

 

C

FCNR Deposit A/c

Exempt

Nil

2

Immovable Property

 

 

 

A

Capital Gains

 

 

 

 

I

LTCG

Taxable

20%

 

 

II

STCG

Taxable

30%

 

B

Rental Income

Taxable

30%

3

Equity Shares and Units of Mutual Fund

 

 

 

A

Capital Gains on equity shares sold

 

 

 

1

STT paid on both sale and purchase of shares (Listed)

 

 

 

 

I

LTCG

Taxable

10%#

 

 

II

STCG

Taxable

15%

 

2

STT not paid (not listed on Recognized Stock Exchange.)

 

 

 

 

I

LTCG

Taxable

10%

 

 

II

STCG

Taxable

30%

 

B

Capital Gains on Units of Mutual Fund sold

 

 

 

1

STT paid on sale (Listed equity oriented Mutual Funds)

 

 

 

 

I

LTCG

Taxable

10%#

 

 

II

STCG

Taxable

15%

 

2

STT not Paid (not listed on Recognized Stock Exchange and Debt oriented Mutual Funds)

 

 

 

 

I

LTCG

Taxable

10%

 

 

Ii

STCG

Taxable

30%

4.

Other Securities

 

 

 

a. Listed on Recognised Stock Exchange

 

 

 

 

I

LTCG

Taxable

20%

 

 

II

STCG

Taxable

30%

 

b. Unlisted

 

 

 

 

I

LTCG

Taxable

10%

 

 

II

STCG

Taxable

30%

5.

Royalty & Fees for Technical Service (FTS)

Taxable

10%

6.

Dividend on shares

Taxable

20%

7.

Dividend on units of mutual funds

Taxable

20%

#The said Capital Gain income is exempt up to an aggregate amount of Rs.1,00,000/- and above that is charged at 10%.

 

*Rate of taxes shall be increased by applicable rate of surcharge and Health and Education Cess as given below:

Surcharge : In case of aggregate income paid or likely to be paid is as follows –

Rate of Surcharge

i.

Exceeds Rs. 50 lakh but upto Rs.1 crore

10% of income tax

ii.

Exceeds Rs. 1 crore but upto Rs. 2 crores

15% of income tax

iii.

Exceeds Rs. 2 crores but upto Rs. 5 crores

25% of income tax

iv.

Above Rs. 5 crores

37% of income tax

Health and Education Cess on income tax

4% of income tax and surcharge

 

Provided that in case where the total income includes income by way of dividend or income under the provisions of section 111A and section 112A of the Act (being an equity share or an equity oriented mutual fund unit and unit of business trust), the rate of surcharge on the amount of Income-tax computed in respect of that part of income shall not exceed 15%.

What are the slab rates applicable in case of taxable income earned by a NRI during the FY 2020-21?

Ans.

As per the Budget passed recently by the Government of India, an option is provided to the individuals to either govern by current tax regime or new (concessional) tax regime.

 

Please note, an individual may opt for new tax regime in the form and manner prescribed under the Act. Further, the said individual opting for new tax regime is not allowed to claim certain exemptions and deductions.

 

The rates of taxes and other provisions applicable for both current and new tax regime are as under:

 

(a)  Current Tax Regime:

Total Income
(Aggregate of all the sources of income taxable in India)

Basic Rate of tax (Note 2)

Upto Rs. 2,50,000/-

Nil (Note 1)

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

5% of the amount by which the income exceeds Rs. 2,50,000/-

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

Rs. 12,500/- plus 20% of the amount by which the income exceeds
Rs. 5,00,000/-

Above Rs. 10,00,000/-

Rs. 1,12,500/- plus 30 % of the amount by which income exceeds
Rs. 10,00,000/-

 

 

(b) New Tax regime:

 

New income-tax regime is optional for the tax payers. The new regime provides reduced slab rates (as mentioned below) that are applicable without certain exemptions and deductions, which are also tabulated in below separately:

 

Total Income
(Aggregate of all the sources of income taxable in India)

Basic Rate of tax (Note 2)

Upto Rs. 2,50,000/-

Nil (Note 1)

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

5% of the amount by which the income exceeds Rs. 2,50,000/-

Rs. 5,00,001/- to Rs. 7,50,000/-

Rs. 12,500/- plus 10% of the amount by which the income exceeds
Rs. 5,00,000/-

Rs. 7,50,001/- to Rs. 10,00,000/-

 

Rs. 37,500/- plus 15% of the amount by which income exceeds
Rs. 7,50,000/-

Rs. 10,00,001/- to Rs. 12,50,000/-

 

Rs. 75,000/- plus 20% of the amount by which the total income exceeds Rs. 10,00,000/-

 

Rs. 12,50,001/- to Rs. 15,00,000/-

 

Rs. 1,25,000/- plus 25% of the amount by which the total income exceeds Rs. 12,50,000/-

Above Rs. 15,00,000/-

 

Rs. 1,87,500/- plus 30% of the amount by which income exceeds Rs. 15,00,000/-

 

The option shall be exercised for each previous year where the individual has no business or profession income.

 

In the other cases, the option exercised for a previous year shall be valid for that previous year and all subsequent years. However, the said option can be withdrawn only once where it was exercised and thereafter, the said individual shall never be eligible to exercise option under this section, except for where such individual ceases to have business or profession income in which case, he shall be able to exercise the option for each previous year.

 

The option shall become invalid for a previous year or previous years, as the case may be, if the individual fails to satisfy the conditions and in such case other provisions of the Act shall apply [including Current Tax Regime].

 

Further, please note the provisions for alternate minimum tax shall not be applicable to taxpayers opting for new tax regime.

 

The conditions for opting the new tax regime requires computation of total income of the individual as under:

 

1.   Without claiming the Exemptions and Deductions: Refer respective Chapters 9 on Deductions from Gross Total Income and Chapter 3 on Exempt Income for Non-Residents, for details of deduction and exemptions not allowed under new tax regime.

 

2.   Without claiming set-off of any loss carried forward or depreciation from any earlier assessment year if such loss or depreciation is attributable to any of the deductions referred to in Point 1 (such loss shall be deemed to have been allowed).

 

3.   Without claiming the set-off of any loss under the head house property with any other head of income.

 

4.   By claiming the depreciation, other than additional depreciation, determined in such manner as may be prescribed.

 

5.   Without any exemption or deduction for allowance of perquisite provided under any other law for the time being in force.

 

Notes:

 

Note 1: If NRI is having only STCG from Equity shares or Equity oriented Mutual fund (on which STT is paid), there is no benefit of basic exemption available.

If NRI is having only LTCG from Equity shares or Equity oriented Mutual fund, there is no benefit available of above basic exemption of Rs. 2,50,000/-. 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/-.

Note 2: Rate of taxes shall be increased by applicable rate of surcharge and Health and Education Cess on income tax as given below -

 

Surcharge : In case of total income

Rate of Surcharge

i.

Exceeds Rs. 50 lakh but upto Rs.1 crore

10% of income tax

ii.

Exceeds Rs. 1 crore but upto Rs. 2 crores

15% of income tax

iii.

Exceeds Rs. 2 crores but upto Rs. 5 crores

25% of income tax

iv.

Above Rs. 5 crores

37% of income tax

Health and Education Cess on income tax

4% of income tax and surcharge

 

Provided that in case where the total income includes any income chargeable under Section 111A and section 112A of the Act (being an equity share or an equity oriented mutual fund unit and unit of business trust), the rate of surcharge on the amount of Income-tax computed in respect of that part of income shall not exceed 15%.

Note 3: Slab Rates as per above tables are applicable in case of NRI irrespective of whether being Senior Citizen of India or otherwise] for FY 2020-21 i.e. 1st April, 2020 to
31st March, 2021)
.

 

In case of Mr. A, a NRI sea farer, the 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 the 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 the Government 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.

When an Indian income of a NRI is taxed in both India as well as in the country of his residence, what recourse is available to NRI from such double taxation of income?

Ans.

In the given case, it is seen that there is double taxation of income. In such a situation, 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.

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 and its 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.

What is the taxability of dividend income?

Ans.

Until FY 2016-17, the dividend income from companies and mutual funds was exempt from tax in the hands of the shareholders/ unit holders and instead dividend distribution tax was required to be paid by the domestic companies and mutual funds on the said dividend distributed. Further, from FY 2017-18, the dividend from domestic companies exceeding Rs. 10 lakhs was charged to tax at 10% in hands of shareholders being resident in India.

 

Now from FY 2020-21, it is provided in the recent Budget that no dividend distribution tax (DDT) shall be paid by the domestic companies/ mutual funds and instead dividend received from a domestic Company/mutual funds shall be taxable in the hands of recipient i.e. shareholders/unit holders.

 

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

 

It is further provided that dividend received on and after 31st March, 2020 shall not be taxable in the hands of recipient, if DDT has already been paid by the Company who has declared dividend.

 

It is also provided that no deduction of expenses shall be allowed from dividend income, other than deduction on account of interest expense and such interest expense shall not exceed 20% of the dividend income.

 

Since the dividend income in now taxed in the hands of recipient, corresponding amendments have been made in the provisions relating to withholding of taxes, which has been explained in Answer to Question g above.