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section 115h

Tax Provisions for NRIs under section 115H

Last Update Date : August 11, 2018

section 115h

In the current era of globalization and the job opportunities available, our world has become smaller, as people migrate to different parts of the globe for their betterment. Indians are not an exception here and they are doing well representing India on a global stage. So, over a period of time when the individual is out of that individual would be treated as Non-Resident Indian (NRI) (as determined by the Income Tax Department).

The NRIs who make investments for their future, are given concessions as per their residential status by the ITD. This guide will help you understand the provisions available to NRIs under section 115H.

What is Section 115H?

A Non-Resident Indian (NRI), as per section 6 of Income Tax Act 1961, who has not resided in India for a specified period, is treated a NRI as per law. An NRI is a person who did not stay in India for at least 182 days in a financial year or 365 days spread over four consecutive years with a minimum of 60 days in that year.

As per Section 115H, an NRI is eligible to get a concessional tax rate on interest earned from his deposits or Interest Income. The rate of concession applies even when the deposits are transferred from one bank to the other bank, provided the identity of asset is not changed from convertible foreign exchange. Section 115H, which is a combination of Sections 115 C,D,E,F,G and I, depending upon its applicability, is pertinent to a person who was an NRI in the previous year and becomes assessible as Indian resident against the Total Income for the Financial Year.

Residential Status

Indian Resident is a person:

  • Who is in India for at least 6 months (182 days) during the financial year
  • Has resided in India for 2 months (60 days) in the previous year and resided for 1 year (365 days) in the last 4 financial years.

If a person who is working abroad then he/she is a resident, if he spends at least 182 days in India.The same rule is applicable to Overseas Citizens of India (OCI) who are on a visit to India . The second condition is not applicable to OCI holders if the parents or any of his grandparents were born in undivided India.

A NRI is a person who doesn’t meet any of the conditions.  As per External Affairs Ministry, there are approximately 30.8 million Indians who are residing out of India.

Special Provisions for NRI’s

Chapter XIIA

There are certain provisions given to NRIs related to certain incomes as per the Income Tax Act. As per Section 115H, the benefits are available even after the NRI becomes a resident of India. Let’s look at the provisions to understand the available benefits:

Section 115C – Definitions

Commonly used terms:

  1. Convertible Foreign Exchange” means it’s foreign exchange that is treated by the Reserve Bank of India as convertible
  2. “Foreign Exchange Asset” is the asset that is purchased with convertible foreign exchange by the NRI
  3. “Investment Income” means any income earned other than dividends referred to in section 115-O from a foreign exchange asset
  4. “Long-term Capital Gains” means income chargeable under the head “Capital gains” relating to a capital asset which is not a short-term capital asset, being a foreign exchange asset.
  5. “Non-Resident Indian” means an individual who is not “resident”, who is not an Indian citizen or of Indian origin.
    Note: A person shall be deemed to be of Indian origin in case the individual, or either of his parents or any of his grand-parents, was born in undivided India;
  6.  “Specified Asset” means any assets as per Companies Act, 1956 like – Indian Company Shares, Debentures issued by an Indian Company, Deposits with an Indian Company, Other assets as per the Central Government specifications as per Official Gazette.

Section 115D

Special Provisions for Computation of certain incomes of non-residents

  1. While calculating the income from investment, any expenditure or allowance is not allowed as a deduction for a non-resident Indian.
  2. In the case of an NRI,
    1. if income earned consists of investment income or income by way of long-term capital gains or both it is treated as the gross total income and no deductions or allowances are allowed under Chapter VI-A on this income and
    2. the gross total income will be reduced by the amount of such income from investments and capital gains and the deductions under Chapter VI-A will be allowed as if the gross total income so reduced were the gross total income of the NRI.

Section 115E

Tax on Investment Income and Long-Term Capital Gains

Where the total income of an individual, being an NRI, includes:

  1. any income from investment or income from long-term capital gains of an asset other than a specified asset;
  2. income through long-term capital gains and the tax payable will be the aggregate of:
    1. the amount of income-tax calculated on the income with respect to investment income referred as per point (a), if any, included in the total income, at the rate of twenty per cent;
    2. the amount of income-tax calculated on the income by way of long-term capital gains as per clause (b), if any, included in the total income, at a rate of 10%; and
    3. the amount of income-tax with which he would have been chargeable had his total income been reduced by the amount of income referred to in points (a) and (b).
Particulars Income from Investments Long-Term Capital Gains
Deduction for expenses Not allowed As per normal provision
Chapter VI-A deduction Not allowed Not allowed
Rate of Tax 20% 10%

Section 115F

Capital gains on transfer of foreign exchange assets

Exemption of long-term capital gains-when a foreign asset is transferred the capital gains arise and is exempted from tax in case the following conditions are fulfilled

  • The transferred asset must be a capital asset
  • Investment should be made within 6 months of transfer
  • Net consideration should be invested in specified assets only
  • The new asset must be held for at least 3 years

Section 115G

Non – Filing of Return of Income.

NRI need not file Income Tax Return if

  1. the total income consists of only investment income or income through capital gains or both
  2. the tax deductible at source under the provisions of Chapter XVII-B is deducted from such income.

Section 115H

Benefit applicable after NRI becomes resident.

As per Chapter XIIA, benefits will continue to apply to the investment income even after NRI becomes a resident. But he/she must furnish a declaration along with return of income for the same to get applicable. The benefit shall continue to apply to him/her in relation to such income until the transfer or conversion takes place into money of such asset. This benefit is not applicable to dividend income from shares, and won’t have any impact since dividend (with DDT) is exempt.

Section 115I

A non-resident Indian may elect not to be governed by the provisions of this Chapter for any assessment year by providing his return of income for that assessment year under section 139 declaring that the provisions of this Chapter shall not apply to him for that assessment year. His total income for that assessment year shall be computed and tax on such total income shall be charged in accordance with the other provisions of this Act.

Frequently Asked Questions

1.What is time limit to file the Income Tax Returns in India?

All individuals apart from Business people are required to submit their tax returns by 31st July every year towards the income earned in the Financial Year (1st April to 31st March) in case the income is above Rs. 2,50,000/- onwards.

2.What is Tax Exemption Certificate?

The tax rate applicable to an NRI’s income is the maximum rate at which that income is taxable in India. The actual liability is lesser and the more amount of tax paid is not claimed as refund through submission of Income Tax Return. In such situations, NRI apply to the Assessing Officer to provide them a concessional tax rate and issue a Tax Exemption Certificate so that whoever pays the income will deduct NIL or less tax.

3.Is there any concession applicable for NRIs?

The Income Tax Department has offered a concessional rate of tax applicable in case of certain income types earned by an NRI. A tax rate of 20% is applicable for Investment Income and 10% for income from Capital Gains from specified assets that are owned from convertible foreign exchange.

4.What are Specified Assets?

As per the Section 115C(f) the assets that are treated as specified assets are Indian company Shares, Central Government Securities, Deposits or Debentures of Indian Company etc.

5.What is the time taken to issue the Tax Exemption Certificate and what is the further course of action by NRI ?

The time period to issue the certificate will be within 10-25 days.  After getting the certificate, NRI will submit it to the Income Payer to deduct less amount of tax or NIL tax.

Various provisions are applicable to NRI’s so that he/she can benefit under the different sections as long as the conditions as per the law are satisfied. Section 115H specifically allows for the continuation of benefit against the investment income derived from foreign exchange asset to the NRI though he becomes a resident later.   To maximize your tax savings, consult our experts at H&R block India for customized tax planning.

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