With a view to
attract investment by Non-resident Indians (NRIs) and Indian
Nationals living abroad, certain reliefs, exemptions and
incentives have been provided in the scheme of income taxation.
Chapter XIIA of the Income Tax Act contains special provisions
relating to taxation of non-resident Indians. Nonresident
Indian has been defined as an individual being a citizen of India or
a person of Indian origin, who is not a resident. A person is
considered to be of Indian origin if he or either of his parents or
any of his grand parents was born in undivided India. All the
special exemptions, deductions and concessions applicable to
NRIs are dealt with in the succeeding paragraphs. These concessions
are in addition to the concessions available to nonresidents
in general since NRIs form only a special class of nonresidents.
Joint holdings of non-resident Indians
Non-residents of Indian nationality/origin may invest in shares
either singly or jointly with their close relatives resident in
India. The Reserve Bank of India permits such joint holdings with
repatriation benefits, provided-
- the investment is made by
sending remittances from abroad or out of funds held in the
Overseas Investor's Non-resident (External) Account or FCNR
account;
- the first holder of shares is
the non-resident Indian who actually made the investment out of
his funds; and
- the resident holder is closely
related to the non resident investor.
Remittance/repatriation of
capital/dividend will be allowed to the non-resident investor, i.e.
the first holder. In the event of the joint resident holder
inheriting shares, he/she will not be entitled to any
remittance/repatriation facilities. The special tax incentives
provided in the Act to non-residents of Indian origin are available
only to them and not to the resident Indians.
Special Exemptions in respect of Investment income of
Non-Resident Indians
Following investment income arising to Non-resident Indians (NRIs)
are totally exempt :-
- The entire income accruing or
arising to a NRI investing in the units of the Unit Trust of
India is free of income tax provided the units purchased by them
are out of the amount remitted from abroad or from their
Non-resident (External) Account,
- Income arising from investment
in notified savings certificates obtained by NRIs is exempt from
tax provided the certificates are subscribed to in convertible
foreign exchange remitted from a foreign country in accordance
with Foreign Exchange Regulation Act. For this purpose National
Saving Certificate VI and VII issues are notified.
- Income from NRI Bonds 1988 and
NRI Bonds (Second Series) purchased by NRIs in foreign exchange
is exempt from tax. This exemption continues to be available to
a Non-resident Indian even after he becomes resident and is
available also to the nominee or survivor of the NRI and to the
donee who gets a gift of such bonds from the NRI.
Concessional Tax Treatment
of certain incomes of non-resident Indians
The income other than dividend and long term capital gains derived
from any 'Foreign Exchange Asset1 by NRI is charged to tax at the
flat rate of 20%. Long term capital gains arising on transfer of
such assets are charged at the flat rate of 10%. The term 'Foreign
Exchange Asset1 means any of the following assets acquired,
purchased or subscribed to in convertible foreign exchange in
accordance with Foreign Exchange Regulation Act :-
- Shares in Indian company
- Debentures issued by a public
limited company
- Deposits in a Public Ltd. Co.
- Securities of the Central
Government
- Any other notified asset.
In computing the total income of
such persons from any foreign exchange asset, no deduction is
allowed in respect of any expenditure or allowance under any
provision of the Act. Further, where a NRI has income only from
foreign exchange asset or income by way of long term capital gains
arising in transfer of a foreign exchange asset, or both, and the
tax deductible at source from such income has been deducted, he is
not required to file the return of income as otherwise required
under the Act.
It may further be noted that the special provisions mentioned as
above, will continue to apply in relation to the investment income
from 'foreign exchange assets' (other than shares of an Indian
Comapany) even after the NRI becomes resident in India. If the NRI
becoming a resident wishes to be assessed under these provisions, he
is required to file a declaration in writing along with the return
of income. These special provisions will apply in relation to such
income until the transfer or conversion of such assets into money.
Non-resident Indian may also elect not to be governed by these
provisions for any assessment year by furnishing to the assessing
officer the return of income for that assessment year and declaring
therein that these provisions shall not apply to him for that
assessment year. If he does so, then his total income and tax will
be computed in accordance with the normal provisions of the Act.
Any long term capital gain arising to a NRI from the transfer of a
foreign exchange asset, the net consideration of which is invested
or deposited within a period of 6 months from the date of transfer
in any specified asset mentioned at (a) to (e) of para 11.3 or in
the National Saving Certificate VI or VII issue is dealt with as
follows:-
- if the cost of the new asset is
not less than the net consideration in respect of the original
foreign exchange asset, the whole of the capital gain will
not be liable to tax;
- if the cost of the new asset
is less than the net consideration in respect of the original
foreign exchange asset, proportionate amount of capital
gain will be exempted from tax. The proportionate amount will
be- Capital gain x (Cost of new assets / Net consideration of
Transfer)
Simplified procedure of
remittances
With a view to simplify the procedure for tax deduction at source
and to avoid delay and inconvenience in the case of nonresident
Indians wishing to remit the sale proceeds of foreign exchange
assets, it has been provided that the non-resident Indians can remit
such proceeds abroad or credit the same to their Non-resident
(External) Account without having to obtain 'No Objection
Certificate1 from the Income-tax authorities provided tax @ 10% on
the long term capital gains relating to such assets is deducted by
the authorised dealer, i.e. the bank concerned. |
