In India, income taxation is determined according to the residence status of an individual. For an Indian resident, income earned in India, as well as around the world, is taxable.

The only point to consider is at what rate different incomes such as real estate property income, capital gains etc. must be imposed.

However, when it comes to a Non-Resident Indian (“NRI”), there is an entirely different tax mechanism. Each income has to be assessed against various parameters to determine whether it is taxable in India or not. Generally, income earned or sourced in India is taxable in India. However, there are certain provisions that tax any income from any source, whether inside or outside India, if such income is received in India. One can always re-establish the advantages of the convention in determining the best appropriate taxation of a given income.

Typically, a person meeting one of the following conditions becomes resident in India:

a. If a person is in India for 182 days or more during the current year, or

b. If a person is in India for more than 365 days in the past 4 years and is in India for a period of 60 days or more in the current year.

If a person does not meet any of these conditions, they are considered non-resident in India according to the applicable tax provisions and therefore only their Indian income becomes taxable in India and not their aggregate income.

However, the 2020 Finance Law (applicable from YY 2021-22), inserted the new provisions of presumption of residence, in which a person is deemed to reside in India;

I. In the case of an Indian Citizen / Person of Indian Origin (PIO) – if their stay during the year is 120 days or more (instead of 182 days) and their total income other than income from foreign source exceeds Rs. 15,000,000 / – during the year;

ii. In the case of an Indian citizen – if his total income other than foreign source income exceeds Rs. 15,000,000 / – and he is not subject to tax in another country or territory due to his domicile or residence or any other specific criterion (that is to say without even staying a single day in India).

Therefore, a person who monitors the number of days of presence in India, is now also required to keep a tab of his Indian taxable income while determining his residency status.

Generally speaking, a fixed asset is defined as any property of any kind held by the person, any security held by foreign institutional investors, an insurance scheme linked to shares (to which the exemption u / s 10 ( 10D) does not apply), but excludes, any goodwill, consumer provisions or raw materials held for professional purposes and personal movable property (excluding: jewelry, archaeological collection, drawings, paintings, sculptures and any other work of art).

Capital gains have a special tax mechanism in the case of residents as well as NRIs. Some important aspects of NRIs in relation to capital gains are as follows:

1. In order to levy capital gains tax, it must be determined whether the capital gain is long-term (LTCG) or short-term (STCG)?

The fixed asset should be classified as short term / long term fixed asset according to the holding period as follows;

I. In the case of listed equities, equity-oriented fund units / UTI units, zero coupon bonds if the holding period is less than or equal to 12 months, then the gain resulting from these transfers is STCG, in the other cases it is LTCG (i.e. detention> 12 months)

ii. In the case of unlisted shares, land or buildings both, the assets mentioned below, if the holding period is less than or equal to 24 months, then the gain resulting from such transfer is STCG, in the other cases are LTCG (i.e. detention> 24 months)

iii. In the case of a debt-oriented Fund Unit, unlisted securities other than shares, other fixed assets, if the holding period is less than or equal to 36 months, then the gain resulting from such a transfer is STCG, in other cases this is LTCG (i.e. held> 36 months).

2. Tax rate on LTCG / STCG:

STCG is taxable at a concessional rate of 15% on the transfer of certain fixed assets and with regard to LTCG, NRIs can benefit from an exemption of up to 1 lakh on Indian stocks and beyond the gains will be taxable @ 10 % without any indexing benefit.

3. Tax on capital gains realized by non-residents: some considerations;

● NRIs are subject to TDS at the rates applicable on realized capital gains regardless of any threshold value;

● INRs do not have the advantage of adjusting their capital gains in relation to the ceiling of the basic exemption;

● NRIs are allowed to apply for a capital gains exemption by making certain investments in accordance with the provisions of Articles 54 to 54GB of the law.

● No deduction rights under Chapter VI-A are available on investment income and capital gains;

● If the transfer is made outside India by an NRI to another NRI, this will not be treated as a transfer for the purposes of calculating capital gains;

● Capital gains arising from the sale of global deposit receipts, rupee denominated bonds, government securities with periodic payment of interest, and other specified capital assets by non-residents outside India are not eligible for income tax in India as they are not considered transfer.

● Capital gains must be calculated in foreign currency using Telegraph Transfer Purchase Rate (“TTBR”) and Telegraph Transfer Selling Rate (“TTSR”) in accordance with applicable rules and must be converted to Indian currency using the rate in effect on that Date.

It should be noted here that, in order to reduce the burden of compliance, the Indian government has provided the benefit of not filing income tax returns by the NRI if, during the year, he / she has as investment income and that the TDS was deducted on this. However, it is possible that the total TDS deducted will exceed the tax payable from the NRI, in which case the NRI must file a return to claim the excess TDS deducted.

If any of these conditions are not met when filing the tax return and the case is assessed by income tax officers, NRIs may face the consequences of penalties in accordance with income tax provisions.

The author, Sneha Padhiar, is a partner at Bhuta Shah & Co. Opinions expressed are personal

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