Value Added Services

Taxation


Tax Benefits

    There are several tax benefits that NRIs can avail of through opening various NRI accounts. The bank deposits including are free from wealth tax in India. Interest earned on NRE, FCNR and NRNR accounts are exempted from Indian income tax.

    Additionally, gifts made out of NRE, FCNR and NRNR accounts are free from gift tax in India (in the case of the NRNR account, the gift tax exemption is available only for one time gifts). As per the latest guidelines, NRNR deposits are no longer permitted, the existing NRNR deposits can be converted to NRE on maturity.

Tax Concessions

    After the permanent return of the NRI, NRE/FCNR deposits with banks registered in India and investments in government securities and company debentures out of foreign exchange funds are eligible for a flat income tax rate of 20% on their income.

    The concession will be available till the maturity of these investments. On the permanent return to India by an NRI, he/she may choose to invest the balances in his NRE/FCNR deposits in RFC accounts.

    Alternatively, he may allow these accounts to be converted into Resident Rupee accounts (FCNR deposits may be continued to be maintained, till maturity, at the contracted rate of interest).

    The income from Resident Rupee accounts is taxable from the date of the NRI's return to India. An NRI has the option of having this income taxed at a flat rate of 20%; however he will not be eligible for any deductions.

    Finance Act 2003 provisions require returning Indians to be non resident in India in 9 of the 10 previous years or he has not during the 7 preceding years been in India for a period amounting to 730 days or more. It also restricts the tax benefits of NOR status to a two year period as against the previous exemption of 9 years.

    For non residents all income earned in India is taxable.

    Any person responsible for making any payment (except dividend declared after 1.6.97) to a non-resident individual or a foreign company is required to deduct tax at source at the prescribed rate at the time of credit of such income to the account of the payee or at the time of payment thereof.  The rate at which tax is to be deducted at source will be the rates as specified in the Finance Act.

    For certain remittances, the Reserve Bank of India Exchange Control Manual requires production of a no objection certificate from the Income tax authorities.  The Central Board of Direct Taxes, vide circular No.759 and 767, has simplified the procedure by dispensing with such requirement.  The person making the remittance has only to furnish an undertaking (in duplicate) addressed to the Assessing Officer which should be accompanied by a certificate from a Chartered Accountant in the prescribed form.  The undertaking should be submitted to the Reserve Bank of India or the authorized dealer in foreign exchange who will forward a copy to the assessing officer.

Tax exemptions

    The following investment income arising to Non-resident Indians (NRIs) are exempt from tax:

    Income accruing to an NRI from the units of the Unit Trust of India provided the units are purchased by the NRI out of  NRE  sources.

    Income from investment in notified savings certificate like NSE VI and NSE VII.

    Interest  on specified securities or bonds being NRI bond 1988 NRI bond (Second series issued by SBI) including income by way of premium on the redemption of such bonds.

    Tax on salary income of a foreign technician, paid by the employer.  Such tax paid is not a perquisite in the hands of such technician.

    Remuneration, received by non-Indian citizen as employee of a foreign enterprise for service rendered in India.

    Salary, received by a non-resident, who is not a citizen of India, for services, rendered in connection with his employment on a foreign ship, provided that his total stay in India does not exceed  90 days in the previous year.

    Remuneration received by non-Indian citizen as employee of a foreign enterprise for service rendered in India.

    Salary, received by a non-resident, who is not a citizen of India, for services rendered in connection with his employment on a foreign ship, provided that his total stay in india does not exceed 90 days in the previous year.

    Remuneration, received by an individual, who is not a citizen of India, as an employee of the Government of a foreign state during his stay in India in connection with his training in any establishment / office /for services rendered in connection with his employment on a foreign ship, provided that his total stay in India does not exceed 9o days in the previous year.

    Remuneration, received by an individual, who is not a citizen of India, as an employee of the Government of a foreign state during his stay in India in connection with his training in any establishment / office / undertaking, owned by the Government.

    Allowances or perquisites, paid or allowed as such outside India by the Government to its employee, who is a citizen or India, for rendering services outside India.

    Foreign income and remuneration, received by an individual who is assigned duties in India from the Government of a foreign Sate for services, rendered in connection with co-operative technical assistance programs and projects, in accordance with an agreement, entered into by the Central Government and the Government of a foreign State.

    Foreign income and remuneration or fee, received by a consultant, being an individual, who is either not a citizen of  India or , being a citizen of India, is not ordinarily resident in India, or any other person, being a non-resident.
    Foreign income and remuneration, received by an individual who is an employee of the consultant, referred by an individual who is an employee of the consultant, referred to in section 10(8A) and is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India.

    Foreign income of any family member of a person, referred to in section 10(8), 10(8A) and 10(8b).
    Interest on Non-resident (Non-repatriable) rupee deposit account (NRNR) (Notified by Central Government).  The notification states that interest on NRNR deposits, accruing to non-residents only would be exempt under section 10(15) of the Income Tax Act.  Therefore, interest on NRNR account is not exempt from income tax when a person acquired the status of `resident but not ordinary resident’.

    Interest earned on Foreign Currency (Ordinary Non-repatriable Deposit account) FCNR.  Under this section any interest on deposits in foreign currency with a scheduled bank, if a scheme approved by the Reserve Bank of India, is exempt.  This exemption is also available to a person who is not ordinarily resident.  Interest on Resident Foreign Currency (RFC) account is exempt till such time as the NRI maintains the status of Not Ordinarily Resident.

    Interest on bonds, issued under the Gold Deposit Scheme, 1999.

    Income of European Economic Community, derived in India by way of interest, dividends or capital gains from investments made out of its funds under notified schemes.

    Income of SAARC fund for Regional projects, set up under the Colombo Declaration, issued on December 21, 1991.

    Any income from the following:

    • Dividends, referred to in Section 115-0; or
    • Income, received in respect of units from the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or
    • Income, received in respect of the units of mutual funds specified under clause (23D)

    Income from long term capital gains derived from a foreign exchange asset by NRI is taxed at a flat rate of 20%

    Long term capital gain on transfer of such assets is charged at 10%

    Foreign exchange assets are shares in Indian company, debenture of a public company, deposits of a public limited company or securities of the central government.



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