BARJEEL GEOJIT FINANCIAL SERVICES LLC,

DUBAI

NRI TAXATION – PERSPECTIVES,

IMPLICATIONS & COMPLIANCE

1st AUGUST, 2020

CA R Bupathy
Chairman Geojit Financial Services Ltd.
Past President, ICAI
Scope of Presentation
 Introduction
 Amendments to residential status in Finance Act 2020
 Issues and Impact of amendments
 Taxation of Dividends and TDS provisions
 Taxation of Income from Mutual Funds and TDS provisions
 Capital Gain on transfer of securities/units of mutual funds
 TDS on rent received by NR and sale of property
 Returning to India for permanent settlement – Tax Implications
 Procedural Compliance and filing of returns

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Importance Of Residential Status
 Computation of total income depends on residential status of
assessee

Residential status

Resident Non - Resident

Ordinarily Not Ordinarily

Resident Resident

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Scope Of Total Income – Sec 5

Residential Status – Scope of Total Income:

 Ordinarily Resident – Global Income

 Non Resident – Income in India only included
 Not Ordinarily Resident - Income Outside India included only when it
accrues or arises from a business controlled from India or Profession
set up in India

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Residential status of an Individual – Sec 6(1)

 Stage 1: Identify resident/Non-resident

 Stay in India during PY for 182 days or more

OR
 Stay in India during 4 years preceding PY for 365 days or more and
stay during the PY for 60 days or more

Resident of India

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Residential status of an Individual – Sec 6(1)
 Explanation:

 Indian citizen leaving India as member of a crew of an Indian ship or

for purpose of employment 60 days shall be substituted by 182 days.
 i.e. Individual is permitted to stay up to 181 days to be treated as a
Non-Resident.
 Indian citizen or person of Indian origin visiting India, 60 days shall
be substituted by 120 days (Finance Act 2020 reduced it from 182 to
120 days) if total income excluding income from foreign sources
exceeds Rs.15 lakhs.
 i.e. Individual is permitted to stay in India up to 119 days to be
treated as a Non-Resident.
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Objective of Amendment in Finance Act 2020

 Reduction of number of days stay in India from

182 to120.

 Memorandum Explaining the Amendment.

 Provisions misused by individuals carrying on substantial economic
activities from India and remaining non-resident in perpetuity.
 Global Income not being subject to tax.
 To avoid such situation
 Is the objective achieved ?

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Deemed Resident of India – Sec. 6(1A)
Amendment in Finance Act 2020
 Notwithstanding anything contained in Sec 6(1)
 Indian citizen
 Total Income in India excluding income from foreign sources exceeds
Rs.15L
 Not liable for tax in any country by reason of residential status or
domicile
 Shall be deemed to be a resident of India
 Objective HNWI not paying tax in any country – Tax laws should not
encourage such situation.

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Residential Status Stage 2
 Stage 2: Identify Ordinarily Resident/Not Ordinarily Resident – Sec 6(6)
 An Individual will be considered as not ordinarily resident in the following
situations
 Non-resident of India in 9 out of 10 years preceding the PY (or)
 Stay in India during the 7 years preceding the PY for less than 730 days (or)

 FINANCE ACT 2020:

 Indian Citizen or person of Indian origin having a total income in India
(excluding income from foreign sources) exceeding Rs. 15 lakhs visiting
India for 120 days but not exceeding 181 days during the PY.
 Indian Citizen deemed as resident u/s 6(1A)

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Definition of Income from Foreign
Sources

 Income accruing or arising outside India except

Income derived from a business controlled in or a
profession set up in India.

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Impact of Amendment

 An individual will be treated as NOR if

 Citizen of India or person of Indian origin
 Total Income excluding Income from foreign sources exceeds Rs.15
lakhs
 Stay in India during 4 years preceeding the PY exceeds 364 days
 Stay in India during the PY exceeds 119 but less than 182 days.

 Deemed Resident of India u/s 6(1A) will be considered as NOR.

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Residential status of an Individual in
following situations:-

 An Indian citizen visiting India and staying in India for:-

1. 115 days – Non-Resident
2. 125 days – Not Ordinarily Resident
3. 185 days – If the individual is non-resident in 9 out of 10 years
preceeding the PY - Not Ordinarily Resident (or)
Individual has stayed in India during 7 years preceeding the PY for
less than 730 days - Not Ordinarily Resident
 This situation is dynamic and will change each year

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Definition of Non-Resident Sec 2(30)

 Non – Resident means a person who is not a resident of

India and includes Not Ordinarily resident only for sections
92,93 and 168
 For all other purposes of the Income Tax Act Non Resident
will not include Not Ordinarily resident

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Issues & Impact of Amendments
Issue No. 1:
 Computation of total income
 Exemption - Interest on NRE A/c – Person resident outside India as per FEMA
 Exemption - Interest on FCNR A/c – Applicable to NR and NOR
 Exemption – Interest from Units in IFSC – Applicable only to NR
Issue No. 2:
 Determination of total income requires identification of residential status
 Identification of residential status depends on total Income
 It is a catch 22 situation
 To illustrate:
 Interest received by a NR from unit in IFSC is exempted u/s 10(15)
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Issues & Impact of Amendment
Impact No.1:
 Concessional tax rates applicable only to Non-Residents – Refer 115A
 Denied for NOR
Income – Rate of Tax (plus surcharge & cess):
 Dividend from Domestic Companies – 20% Subject to DTAA
 Income from mutual funds – 20%
 Interest received from Government or Indian Concern on monies borrowed in
foreign currency – 20%
 Interest received from Infrastructure Bonds – 5%
 Interest on Rupee Denominated Bonds – 5%
 Interest or Dividend from Specified Bonds or GDR or Long Term Capital Gains
on transfer of such Bonds – 10%
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Rates of Surcharge
 Range of Total Income – Rate of Surcharge:

 Rs.50 lakh to Rs.1 crore – 10%

 Rs.1 crore to Rs.2 crores – 15%
 Rs.2 crores to Rs.5 crores – 25%
 Rs.5 crores to Rs.10 crores – 37%

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Issue & Impact of Amendments

Impact No.2:
 Determination of residential status under Double Taxation Avoidance
Agreement (DTAA)
 Situations of dual residency will increase
 Need to apply Tie- breaker rule to ascertain Residential status for
application of provisions of DTAA will also increase
 Related Compliance Issues

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Reporting of Foreign Assets by Residents
of India
 Also applicable to NOR.

Particulars – Details required:

 Details of Foreign Bank Accounts – Country Code, name & address of the bank,
name mentioned in the account and peak balance
 Details of Financial Interest in any entity - Country Code, name & address of the
entity and total investment
 Details of Immovable property - Country Code, name & address of the property
and total investment
 Details of any other asset - Country Code, nature of the asset and total
investment
 Details of accounts in which assessee has Signing Authority - Name & address of
the institution, name mentioned in the account and peak balance/investment18
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Taxation of Dividend Income

 Dividends declared/paid by domestic companies

 Dividend Distribution Tax not applicable on dividends declared after
31st March 2020.
 Dividends taxable in the assessment of the shareholders.
 Dividends for NR taxable at flat rate of 20% plus surcharge and cess
u/s 115A
 It is further subjected to concessional rates in DTAA
 TDS @ 20% plus surcharge and cess or rate specified in DTAA

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Taxation of Dividend Income

 Procedure for claiming concessional TDS rate in DTAA

 The following documents must be submitted to the company
 Self Attested PAN card
 Tax Residency Certificate
 Self Declaration in Form 10F
 Self Declaration of beneficial ownership (BO)
 Option to file return if total income consist only of dividend income
 Practical difficulty to exercise the option

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Taxation of Income from Mutual Funds

 Income from mutual funds for NR taxable at the flat rate of 20% plus
surcharge and cess u/s 115A.
 TDS @ 20% plus surcharge and cess
 TDS applicable in respect of Income from mutual funds.
 Whether income includes Capital Gains on redemption of units of
Equity Oriented Funds.

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Capital Gains on Transfer of Securities
 Classification of asset
 The following assets will be Short Term if held for not more than 12 months
 Securities listed on stock exchange
 Units of Equity Oriented Funds
 Units of Business Trust
 Zero Coupon Bonds
 The following assets will be Short Term if held for not more than 24 months
 Shares in Unlisted Companies
 Immovable Property
 Any other asset will be Short term if held for not more than 36 months

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Taxability of Capital Gains
 Short term Capital Gain (STCG) at regular slab rates
 Long term Capital Gain (LTCG) at 20% plus surcharge and cess

 Taxability of STCG on transfer of listed shares and

units of Equity Oriented Funds
 The purchase and sale transactions must be subject to STT
 Purchase transaction not chargeable to STT eligible under certain
situations
 STCG taxable @15% plus surcharge(max.15%) and cess

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Taxability of LTCG on transfer of listed shares and
units of Equity Oriented Funds

 The purchase and sale transactions must be subject to STT

 Purchase transaction not chargeable to STT eligible under certain
situations
 LTCG in excess of Rs.1L taxable @10% plus surcharge(max.15%) & cess

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Computation of Long Term Capital Gains

 Full value of consideration

 Less: Cost of acquisition
 Expenses Incurred for the transaction

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Cost of Acquisition
 Cost of Acquisition of shares acquired before 31-Jan-18
 Step 1 – Cost of Acquisition
 Step 2 – FMV as on 31-Jan-18 (or) Sale value of the shares whichever is less
 Step 3 – Higher of answer in Step 1 and Step 2
 Impact:
 The appreciation from date of acquisition till 31-Jan-18 is not subject to tax
 The loss from date of acquisition till 31-Jan-18 is not recognized
 LTCL can be set off against LTCG
 Unabsorbed LTCL can be carried over and set off against LTCG – It has to be
absorbed within 8 years
 STCL can be set off against CG and unabsorbed STCL has to be absorbed within 8
years
 To claim carry over of STCL and LTCL the ITR has to be filed before the due date
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Fair Market Value

 Highest price quoted on 31-Jan-18

 If non-traded on 31-Jan-18, the highest price on a date immediately
preceding 31-Jan-18
 In the case of units, the net asset value as on 31-Jan-18

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TDS on Capital Gains

 Tax will be deducted on CG on sale of shares and units at the applicable

rates
 TDS reflected in 26AS

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TDS on Rent

 Tenant making payment of rent to NR

 Tax has to be deducted @ 30% plus surcharge and cess on the rent
paid
 Assessee could make an online application for lower deduction of tax
 Tax will be deducted by tenant at the rates specified in the
certificate
 Tenant making the payment has to obtain TAN
 Practical Issues

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TDS on Capital Gains on Other Assets

 Tax will be deducted at the applicable rates on the consideration paid

 Assessee could make an online application for lower deduction of tax
 Tax will be deducted by purchaser at the rates specified in the
certificate
 Purchaser making the payment has to obtain TAN
 Practical Issues

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Returning to India for permanent settlement – Tax
Implications

 Residential status on return to India

 Taxability of Interest on NRE A/c in India
 Taxability of Interest on FCNR A/c
 Pointers for decision making to invest in FCNR A/c
 Planning of date of return to India
 Retention of Bank A/c and investments outside India after returning
to India
 Termination benefits received after returning to India

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Procedural Compliance and filing of
returns
 Obligation to file ITR
 Options given to assessee not to file ITR in certain cases
 Linking information with external database
 Additional information in 26AS
 Auto filling of Income Tax Returns

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 Thank You

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