Total NRIs Income & Indian Taxation Guide

As mentioned in Chapter-II, a person who is non-resident is liable to tax on that income only which is earned by him in India. Income is earned in India if:

It is directly or indirectly received in India; or
It accrues in India or the law construes it as having accrued in India.

The following are some of the instances when the law construes and income to have accrued in India:

Income from business arising through any business connection in India (refer Chapter X);
Income from property if such property is situated in India;
Income from any asset or source if such asset or source is in India;
Income from salaries if the services are rendered in India. In such cases salary for rest period or leave period will be regarded as earned in India if it forms part of service contract;
Income from salaries payable by the Government to a citizen of India even though the services are rendered outside India;
Income from dividend paid by an Indian company even if the same is paid outside India;
Income by way of interest payable by the Government or by any other person in certain circumstances (refer Chapter VII);
Income by way of Royalty if payable by the Government or by any other person in certain circumstances (refer Chapter VIII);
Income by way of fees for technical services if such fees is payable by the Government or by any other person in certain circumstances (refer Chapter VIII).

The following income, even though appearing to be arising in India, are construed as not arising in lndia:

If a non-resident running a news agency or publishing newspapers, magazines etc earns income from activities confined to the collection of news and views in India for transmission outside India, such income is not considered to have arisen in India.
In the case of a non-resident, no income shall be considered to have arisen in India if it arises from operations which are confined to the shooting of any cinematography film. This applies to the following types of non-residents:
1. Individual who is not a citizen of India; or
2. Firm which does not have any partner who is a citizen of India or who is resident in India; or
3. Company which does not have any shareholder who is resident in India.

Deduction of Tax at Source from payments to Non-residents

Any person responsible for making any payment (except dividend declared after 1.6.97) to a non-resident individual or a foreign company is required to deduct tax at source at the prescribed rate at the time of credit of such income to the account of the payee or at the time of payment thereof. If, however, person responsible for making the payment is the government, public sector bank or public financial institutions, deduction is to be made at the time of payment only.

Where the person responsible for making such payments considers that the whole of such sum would not be income chargeable in the case of recipient, he may make an application to the assessing officer to determine the appropriate proportion of such sum which will be chargeable to tax and upon such determination tax is required to be deducted only on the chargeable proportion.

The rate at which tax is to be deducted at source will be the rates as specified in the Finance Act of the relevant year or the rate specified in any agreement for avoidance of double tax whichever is beneficial to the assessee.

In respect of income of the nature referred to in para 7.2(iii) arising to Offshore Funds and of the nature referred to in para 7.2(iv), tax is deductible at the rates at which such income is taxable.

For certain remittances, the Reserve Bank of India Exchange Control Manual requires production of a no objection certificate from the Income-tax authorities. The Central Board of Direct Taxes, vide circular No. 759 and 767, has simplified the procedure by dispensing with such requirement. The person making the remittance has only to furnish an undertaking (in duplicate) addressed to the Assessing Officer which should be accompanied by a certificate from a Chartered Accountant in the prescribed form. The undertaking should be submitted to the Reserve Bank of India or the authorised dealer in foreign exchange who will forward a copy to the assessing officer.

Any tax deducted in excess of the required amount is normally refundable to the non-resident on making a proper claim for it. Sometimes the non-resident returns the amount in respect of which tax was deducted or, circumstances occur in which tax is found to be non-deductible or, in which tax is found to have been deducted in excess and the non-resident is either not able to claim refund or does not show initiative in claiming such refund. In such cases, the CBDT has by circular No. 790 dated 20.4.2000 permitted refund of excess tax to the person making the deduction.

Wealth Tax

Wealth tax w.e.f. assessment year 1993-94 is leviable only on certain specified assets. These include :-

guest house or any other house including farm house within twenty-five kilometres from the local limits of any local body but does not inlcude a house which has been allotted by a company to an employee, or an officer, or a director who is in the whole time employment having a gross annual salary of less than Rs. 5,00,000/-. It also does not include any house for residential or commercial purposes which form part of stock-in-trade or which is occupied by the assessee for his business or profession or a residential property let out for atleast 300 days in the year. Exemption from total wealth has been provided for one house or part of a house or a plot of land of up to 500 sq. metres belonging to an individual or a Hindu Undivided Family;
motor cars other than those used in the business of running them on hire;
jewellery, bullion (other than those used as stock-in-trade);
yachts and boats and aircraft (other than those used for commercial purposes);
cash in hand in excess of Rs. 50,000/- held by individuals or HUFs and in case of other person any amount not recorded in the books of account; and
urban land.

Urban lands on which construction of buildings is not permissible or land occupied by building constructed with approval or land held for industrial purposes for two years are not included. Land held as stock in-trade for ten years is also not included. Only those debts which have been incurred in relation to the aforementioned assets are allowed as a deduction in the computation of net wealth. The value of an asset, other than cash, is taken as per the rules framed for valuation of assets and where no rules exist, at the estimated price which it would fetch if it were sold in the open market. In the case of an individual the wealth of others in certain cases, as specified in section 4 of the Act is deemed to be owned by him and is also taken into account in computing his net wealth.

In computing the net wealth of an individual who is not a citizen of India or of an individual or HUF not resident in India or resident but not ordinarily resident in India or of a company not resident in India during the year ending on the valuation date, the value of assets and debt located outside India and the value of assets in India represented by such loan or debts due to the assessee in respect of which interest is exempt under section 10 of the Income-tax Act, 1961 is not taken into account.

From assessment year 1993-94, the wealth tax is leviable at the rate of one per cent of the amount by which the net wealth exceeds Rs 15,00,000/-.

In the case of an assessee being a person of Indian origin or a citizen of India who was ordinarily residing in a foreign country and who has returned to India for settling permanently, the moneys and the value of assets brought by him into India and the value of assets acquired by him out of such moneys within one year immediately preceding the date of his return and at any time thereafter will not be included in the net wealth of assessee. But this exemption shall apply only for a period of successive assessment years commencing with the assessment year next following the date on which such person returned to India.

The return of net wealth is ordinarily required to be furnished to the Wealth Tax Officer before the due date which is the due date for filing the income tax return by him (Refer 13.1). If any wealth-tax is payable on the net wealth declared by the tax payer in his return, he is required to pay such tax on the basis of self-assessment before furnishing the return and to attach the proof of payment thereof with the return.