With a view to attract investment by Non-resident
Indians (NRIs) and Indian Nationals living abroad, certain reliefs, exemptions
and incentives have been provided in the scheme of income taxation. Chapter
XIIA of the Income Tax Act contains special provisions relating to taxation of
non-resident Indians. Nonresident Indian has been defined as an individual
being a citizen of India or a person of Indian origin, who is not a resident. A
person is considered to be of Indian origin if he or either of his parents or
any of his grand parents was born in undivided India. All the special
exemptions, deductions and concessions applicable to NRIs are dealt with in
the succeeding paragraphs. These concessions are in addition to the concessions
available to nonresidents in general since NRIs form only a special class of
nonresidents.
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Joint holdings of
non-resident Indians
Non-residents of Indian nationality/origin may invest in shares
either singly or jointly with their close relatives resident in India. The
Reserve Bank of India permits such joint holdings with repatriation benefits,
provided-
a.
the investment is made by sending remittances from abroad or out
of funds held in the Overseas Investor's Non-resident (External) Account or
FCNR account;
b.
the first holder of shares is the non-resident Indian who actually
made the investment out of his funds; and
c.
the resident holder is closely related to the non resident
investor.
Remittance/repatriation of capital/dividend will be allowed to the
non-resident investor, i.e. the first holder. In the event of the joint
resident holder inheriting shares, he/she will not be entitled to any
remittance/repatriation facilities. The special tax incentives provided in the
Act to non-residents of Indian origin are available only to them and not to the
resident Indians.
Special Exemptions in respect of
Investment income of Non-Resident Indians
Following investment income arising
to Non-resident Indians (NRIs) are totally exempt :-
a.
The entire income accruing or arising to a NRI investing in the
units of the Unit Trust of India is free of income tax provided the units
purchased by them are out of the amount remitted from abroad or from their
Non-resident (External) Account,
b.
Income arising from investment in notified savings certificates
obtained by NRIs is exempt from tax provided the certificates
are subscribed to in convertible foreign exchange remitted
from a foreign country in accordance with Foreign Exchange Regulation Act. For
this purpose National Saving Certificate VI and VII issues are notified.
c.
Income from NRI Bonds 1988 and
NRI Bonds (Second Series) purchased by NRIs in foreign exchange is
exempt from tax. This exemption continues to be available to a Non-resident
Indian even after he becomes resident and is available also to the nominee or
survivor of the NRI and to the donee who gets a gift of such bonds from the
NRI.
Concessional Tax
Treatment of certain incomes of non-resident Indians
The income other than dividend and long term capital gains derived
from any 'Foreign Exchange Asset1 by NRI is
charged to tax at the flat rate of 20%. Long term capital gains arising on
transfer of such assets are charged at the flat rate of 10%. The term 'Foreign
Exchange Asset1 means any
of the following assets acquired, purchased or subscribed to in convertible
foreign exchange in accordance with Foreign Exchange Regulation Act :-
a.
Shares in Indian company
b.
Debentures issued by a public limited company
c.
Deposits in a Public Ltd. Co.
d.
Securities of the Central Government
e.
Any other notified asset.
In computing the total income of such persons from any foreign
exchange asset, no deduction is allowed in respect of any expenditure or
allowance under any provision of the Act. Further, where a NRI has income only
from foreign exchange asset or income by way of long term capital gains arising
in transfer of a foreign exchange asset, or both, and the tax deductible at
source from such income has been deducted, he is not required to file the
return of income as otherwise required under the Act.
It may further be noted that the special provisions mentioned as
above, will continue to apply in relation to the investment income from
'foreign exchange assets' (other than shares of an Indian Comapany) even after
the NRI becomes resident in India. If the NRI becoming a resident wishes to be
assessed under these provisions, he is required to file a
declaration in writing along with the return of income. These special
provisions will apply in relation to such income until the transfer or
conversion of such assets into money.
Non-resident Indian may also elect not to be governed by these
provisions for any assessment year by furnishing to the assessing officer the
return of income for that assessment year and declaring therein that these
provisions shall not apply to him for that assessment year. If he does so, then
his total income and tax will be computed in accordance with the normal
provisions of the Act.
Any long term capital gain arising to a NRI from the transfer of a
foreign exchange asset, the net consideration of which is invested or deposited
within a period of 6 months from the date of transfer in any specified asset
mentioned at (a) to (e) of para 11.3 or in the National Saving Certificate VI
or VII issue is dealt with as follows:-
a.
if the cost of the new asset is not less than the net
consideration in respect of the original foreign exchange asset, the whole of
the capital gain will not be liable to tax;
b.
if the cost of the new asset is less than the net consideration in
respect of the original foreign exchange asset, proportionate amount of
capital gain will be exempted from tax. The proportionate amount will
be- Capital gain x (Cost of new assets / Net consideration of
Transfer)
Simplified
procedure of remittances
With a view to simplify the procedure for tax deduction at source
and to avoid delay and inconvenience in the case of nonresident Indians
wishing to remit the sale proceeds of foreign exchange assets, it has been
provided that the non-resident Indians can remit such proceeds abroad or credit
the same to their Non-resident (External) Account without having to obtain 'No
Objection Certificate1 from the
Income-tax authorities provided tax @ 10% on the long term capital gains
relating to such assets is deducted by the authorised dealer, i.e. the bank
concerned.
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