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.
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.
Indian Resident is a person:
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.
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:
Commonly used terms:
Special Provisions for Computation of certain incomes of non-residents
Tax on Investment Income and Long-Term Capital Gains
Where the total income of an individual, being an NRI, includes:
|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%|
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
Non – Filing of Return of Income.
NRI need not file Income Tax Return if
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.
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.
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.