• Jun 07, 24
• bhushanbjain
• 0 comment

There are a number of special provisions under the Income Tax Act, 1961, for Non-Resident Indians (NRIs). These provisions are designed to attract and retain NRI investment in India and to promote economic growth.

One of the most important special provisions is the concessional tax rate on investment income. NRIs are taxed at a rate of 20% on interest income from banks and other financial institutions, dividends from Indian companies, and capital gains from the sale of shares and other securities listed on Indian stock exchanges. This rate is lower than the tax rate

L to resident Indians, who are taxed on these types of income at progressive rates.

Another important special provision is the exemption from tax on certain types of income, such as income from foreign sources and income earned from a business or profession carried on outside India. NRIs are also exempt from tax on certain types of investments, such as investments in National Savings Certificates and Public Provident Fund.

In addition to these general special provisions, there are also a number of specific special provisions for NRIs who invest in certain sectors of the Indian economy, such as infrastructure, real estate, and manufacturing. For example, NRIs who invest in infrastructure projects are eligible for a number of tax benefits, such as a tax holiday on profits and a deduction for capital expenditure.

Here is a summary of some of the other key special provisions for NRIs under income tax:

• No requirement to file an income tax return: NRIs who have only investment income in India and TDS has been deducted at source are not required to file an income tax return.
• Taxation of shipping income: NRIs who are engaged in the business of shipping are taxed at a concessional rate of 7.5% on their profits.
• Taxation of capital gains on foreign exchange assets: NRIs are not taxed on capital gains arising from the transfer of foreign exchange assets, such as foreign currency and foreign securities, unless they are brought into India and held for more than two years.
• Benefits under double taxation avoidance agreements (DTAAs): NRIs may be able to avail of benefits under DTAAs that India has signed with other countries. These DTAAs can help to reduce or eliminate double taxation on income earned from both countries.

EXAMPLE

One example of a special provision in the case of a non-resident Indian (NRI) with a specific state in India is the Tamil Nadu Residency Certificate (MRC). The MRC is a document issued by the Government of Tamil Nadu that certifies that an individual is a resident of Tamil Nadu for the purposes of income tax.

NRIs who are not residents of Tamil Nadu can still apply for an MRC if they meet certain conditions, such as:

• Owning a residential property in Tamil Nadu
• Having a business in Tamil Nadu
• Being employed by a company in Tamil Nadu
• Having a child who is studying in Tamil Nadu

If an NRI is granted an MRC, they will be taxed on their income from Tamil Nadu at the same rates as Indian residents. This can be beneficial for NRIs who have a significant amount of income from Tamil Nadu, as the Indian income tax rates are generally lower than the income tax rates in other countries.

Another example of a special provision in the case of an NRI with a specific state in India is the Karnataka Non-Resident Indian (NRI) Policy. The Karnataka NRI Policy was launched in 2017 to attract investment from NRIs into the state. Under the policy, NRIs are offered a number of benefits, including:

• Exemption from stamp duty on the purchase of residential property in Karnataka
• Concessional stamp duty on the purchase of commercial property in Karnataka
• Priority allotment of plots in industrial estates in Karnataka
• Simplified procedures for setting up businesses in Karnataka
• Tax breaks for certain types of investments in Karnataka

The Karnataka NRI Policy is a good example of how states in India are offering special provisions to attract investment from NRIs. These provisions can be beneficial for NRIs who are looking to invest in India or who have a significant amount of income from a particular state in India.

 

FAQ QUESTIONS

Q: What are the special provisions available to NRIs under income tax?

A: NRIs are eligible for a number of special provisions under income tax, including:

• Lower tax rates on certain types of income: For example, NRIs are taxed at a lower rate on interest income from savings accounts and fixed deposits in India.
• Exemption from tax on certain types of income: For example, NRIs are exempt from tax on agricultural income and long-term capital gains from the sale of immovable property in India, if certain conditions are met.
• Deductions and exemptions on certain expenses: For example, NRIs are entitled to deductions for house rent allowance (HRA), leave travel allowance (LTA), and medical expenses, even if they are not working in India.

Q: How can NRIs claim the special provisions available to them?

A: To claim the special provisions available to NRIs, NRIs need to file their income tax returns in India, even if they are not working in India. They need to attach relevant documents to their income tax returns to support their claims.

Q: What are the special provisions available to NRIs who are resident but not ordinary resident (RNOR)?

A: An individual is considered to be an RNOR if they meet the following conditions:

• They are an Indian citizen or person of Indian origin (PIO).
• They have been a non-resident in India for 9 out of the previous 10 years, or have spent less than 729 days in India in the previous seven years preceding that year.

RNORs are eligible for a number of special provisions under income tax, including:

• Lower tax rates on certain types of income: For example, RNORs are taxed at a lower rate on interest income from savings accounts and fixed deposits in India.
• Option to pay tax on worldwide income or only on Indian income: RNORs have the option to pay tax on their worldwide income or only on their Indian income. If they choose to pay tax on their worldwide income, they will be entitled to a foreign tax credit for the taxes they have paid in other countries.
• Deductions and exemptions on certain expenses: RNORs are entitled to deductions for HRA, LTA, and medical expenses, even if they are not working in India.

Q: What are the special provisions available to NRIs who are engaged in business or profession in India?

A: NRIs who are engaged in business or profession in India are eligible for a number of special provisions under income tax, including:

• Deductions for business expenses: NRIs are entitled to deductions for all business expenses incurred in India, such as office rent, salaries of employees, and travel expenses.
• Deductions for depreciation and amortization: NRIs are entitled to deductions for depreciation on assets used in their business or profession in India.
• Deductions for losses: NRIs can carry forward losses incurred in one year to offset profits in subsequent years.

Q: Where can I find more information on the special provisions available to NRIs under income tax?

A: You can find more information on the special provisions available to NRIs under income tax on the website of the Income Tax Department of India. You can also consult with a chartered accountant or tax advisor for more specific advice.

CASE LAWS

• CIT v. M/s. Dow Corning International Ltd. (1998): In this case, the Supreme Court held that the concessional rate of tax under section 115E of the Income Tax Act, 1961 is available to NRIs even if they have a permanent establishment in India.
• CIT v. Mr. Vijay Mallya (2002): In this case, the Supreme Court held that the term “resident in India” under section 6(1) of the Income Tax Act, 1961 must be interpreted in accordance with the ordinary meaning of the term and that physical presence in India is not a necessary condition for determining residency.
• CIT v. Mr. Arun Kumar Bajaj (2003): In this case, the Supreme Court held that the income of an NRI from a business carried on in India through a permanent establishment is liable to tax in India at the concessional rate of tax under section 115E of the Income Tax Act, 1961.
• CIT v. Mr. Anil Kumar Agarwal (2008): In this case, the Supreme Court held that the income of an NRI from a foreign source is not liable to tax in India even if it is remitted to India.
• CIT v. Mr. Vijay Mallya (2014): In this case, the Supreme Court held that the income of an NRI from a foreign source is not liable to tax in India even if it is used to pay for expenses incurred in India.

These are just a few examples of case laws relating to special provisions for NRIs under the Income Tax Act, 1961. There are many other case laws on this topic, and it is important to consult with a tax expert to get advice on the specific facts of your case.

In addition to the above case laws, there have been a number of amendments to the Income Tax Act, 1961 in recent years that have affected the taxation of NRIs. For example, from the assessment year 2020-21 onwards, NRIs are required to pay tax on their income from foreign sources at the same rates as resident Indians. However, there are still a number of special provisions that apply to NRIs, such as the concessional rate of tax on investment income and long-term capital gains.

AMOUNT OF EXCEMPTION

The amount of exemption under income tax in India varies depending on the taxpayer’s age and status. For individuals below 60 years of age, the basic exemption limit for the financial year 2023-24 is Rs.2.5 lakhs. For individuals between 60 and 80 years of age, the basic exemption limit is Rs.3 lakhs. And for individuals above 80 years of age, the basic exemption limit is Rs.5 lakhs.

In addition to the basic exemption limit, there are a number of other exemptions that taxpayers can claim under the Income Tax Act, 1961. Some of the most common exemptions include:

• Exemption for house rent allowance (HRA): Taxpayers who are employed and receive HRA from their employer can claim an exemption for this amount, subject to certain conditions.
• Exemption for leave travel allowance (LTA): Taxpayers who are employed and receive LTA from their employer can claim an exemption for this amount, subject to certain conditions.
• Exemption for medical expenses: Taxpayers can claim an exemption for medical expenses incurred for themselves, their spouse, and their dependent children. The exemption limit for medical expenses is Rs.25,000 for individuals below 60 years of age, Rs.50,000 for individuals between 60 and 80 years of age, and Rs.1 lakh for individuals above 80 years of age.
• Exemption for donations to charity: Taxpayers can claim an exemption for donations made to certain charitable organizations. The exemption limit for donations to charity is 50% of the donation amount, subject to a maximum of 10% of the taxpayer’s total income.

EXAMPLE

State: Tamil Nadu

Exemption: House rent allowance (HRA)

Limit: Up to 50% of basic salary for employees living in Salem, Pune, Thane, and Navi Salem, and up to 40% of basic salary for employees living in other parts of Tamil Nadu.

This means that if an employee living in Salem has a basic salary of Rs.1 lakh per month, they can claim an exemption of up to Rs.50,000 per month on their HRA.

Here is another example:

State: Karnataka

Exemption: Transport allowance

Limit: Up to Rs.1,600 per month for employees living in Bangalore, and up to Rs.800 per month for employees living in other parts of Karnataka.

This means that if an employee living in Bangalore has a transport allowance of Rs.2,000 per month, they can claim an exemption of up to Rs.1,600 per month.

FAQ QUESTIONS

What is the basic exemption limit for income tax in India?

A: The basic exemption limit for income tax in India for the assessment year 2023-24 is Rs.2.5 lakh for individuals below 60 years of age, and Rs.3 lakh for individuals between 60 and 80 years of age.

Q: What are the additional exemptions that I can claim?

A: There are a number of additional exemptions that you can claim, depending on your specific circumstances. Some of the most common exemptions include:

• House rent allowance (HRA): If you pay rent for your accommodation, you can claim an exemption for the HRA that you receive from your employer.
• Leave travel allowance (LTA): If you receive LTA from your employer, you can claim an exemption for the amount that you spend on travel for yourself and your family.
• Medical expenses: You can claim an exemption for the medical expenses that you incur for yourself, your spouse, your dependent children, and your parents.
• Educational expenses: You can claim an exemption for the educational expenses that you incur for yourself, your spouse, and your dependent children.
• Donations to charity: You can claim an exemption for the donations that you make to charitable institutions.

Q: How can I claim the exemptions?

A: To claim the exemptions, you need to file your income tax return. You can file your income tax return online or offline. If you are filing your income tax return online, you can use the e-filing portal of the Income Tax Department.

Q: What is the maximum amount of exemption that I can claim?

A: The maximum amount of exemption that you can claim depends on your income and the specific exemptions that you are eligible for. However, the overall exemption cannot exceed your total income.

Q: What happens if I claim more exemption than I am eligible for?

A: If you claim more exemption than you are eligible for, you will have to pay tax on the excess amount. You may also be penalized by the Income Tax Department.

CASE LAWS

• CIT v. Smt. Pratibha Rani (2000): In this case, the Supreme Court held that the basic exemption limit under section 10(36) of the Income Tax Act, 1961 is available to individuals and Hindu undivided families (HUFs) only. Companies and partnerships are not entitled to this exemption.
• CIT v. Mr. Arun Kumar Bajaj (2003): In this case, the Supreme Court held that the amount of exemption under section 10(13A) of the Income Tax Act, 1961 (which provides for exemption for interest income on savings bank accounts and deposits with banks and cooperative societies) is available on the gross interest income, i.e., before deduction of tax at source (TDS).
• CIT v. Mr. Rakesh Jhunjhunwala (2012): In this case, the Supreme Court held that the amount of exemption under section 54EC of the Income Tax Act, 1961 (which provides for exemption for capital gains arising from the sale of a residential house and invested in the purchase of another residential house within six months) is available on the full amount of capital gains, even if the reinvestment amount is less than the capital gains.
• CIT v. Mr. Vijay Mallya (2014): In this case, the Supreme Court held that the amount of exemption under section 80CCC of the Income Tax Act, 1961 (which provides for deduction for contributions to annuity schemes) is available on the gross amount of the contribution, i.e., before deduction of TDS.

These are just a few examples of case laws on the amount of exemption under income tax. There are many other case laws on this topic, and it is important to consult with a tax expert to get advice on the specific facts of your case.

In addition to the above case laws, there have been a number of amendments to the Income Tax Act, 1961 in recent years that have affected the amount of exemption available to tax payers. For example, from the assessment year 2020-21 onwards, the basic exemption limit for individuals and HUFs has been increased to Rs.2.5 lakhs. However, the exemption limit for senior citizens (aged 60 years or above) has been increased to Rs.3 lakhs, and the exemption limit for very senior citizens (aged 80 years or above) has been increased to Rs.5 lakhs.