WHEN ENHANCED COMPENSTATIONS IS PAID BUT IT IS SUBJECT – MATTER OF DISPUTE

When enhanced compensation is paid but is the subject matter of a dispute under income tax, it means that the taxpayer and the Income Tax Department are not in agreement on whether the enhanced compensation is taxable. This can happen for a number of reasons, such as:

The taxpayer may argue that the enhanced compensation is exempt from tax under Section 10(37) of the Income Tax Act, which exempts income from the transfer of agricultural land acquired under the Land Acquisition Act. However, the Income Tax Department may disagree with this interpretation.
The taxpayer may argue that the enhanced compensation is not taxable because it is simply a return of their original investment in the land. However, the Income Tax Department may argue that the enhanced compensation is taxable as capital gains.
The taxpayer may argue that the enhanced compensation is not taxable because it is compensation for the loss of their land and livelihood. However, the Income Tax Department may argue that the enhanced compensation is taxable because it is a form of income.

If the taxpayer and the Income Tax Department cannot resolve the dispute, the taxpayer may file an appeal with the Income Tax Appellate Tribunal (ITAT) or the High Court.

In the meantime, the taxpayer is still liable to pay tax on the enhanced compensation, even if the dispute is still ongoing. However, the taxpayer may be able to reduce or avoid paying tax by filing a return with the Income Tax Department and disclosing the dispute. The taxpayer may also be able to apply for a stay of the tax demand until the dispute is resolved.

If the taxpayer is successful in their appeal, they may be entitled to a refund of any taxes that they have already paid on the enhanced compensation.

EXAMPLE

One example of an enhanced compensation dispute with a specific state in India is the case of the farmers of Singur in West Bengal. In 2006, the West Bengal government acquired land in Singur to set up a Tata Nano car factory. The government offered farmers compensation at a rate of Rs.16.75 lakh per acre. However, the farmers were not satisfied with the compensation amount and demanded Rs.40 lakh per acre.

The farmers went to court to challenge the government’s decision. In 2008, the Calcutta High Court ordered the government to pay enhanced compensation of Rs.25 lakh per acre to the farmeRs.However, the government refused to comply with the court’s order.

The farmers continued to fight for their rights. In 2011, the Supreme Court of India ordered the government to pay enhanced compensation to the farmeRs.The court also directed the government to return the land to the farmers who did not want to sell their land.

The West Bengal government has still not paid enhanced compensation to the farmers of Singur. The farmers are continuing their fight to get their due compensation.

FAQ QUESTIONS

What is enhanced compensation?

A: Enhanced compensation is a payment made to an individual or entity whose property has been acquired compulsorily, in addition to the market value of the property. It is typically awarded to compensate for the compulsory nature of the acquisition, as well as for any other losses or expenses incurred by the individual or entity as a result of the acquisition.

Q: When is enhanced compensation taxable?

A: Enhanced compensation is taxable in the year in which it is received.

Q: What if the enhanced compensation is subject to a dispute under income tax?

A: If the enhanced compensation is subject to a dispute under income tax, the taxpayer should still pay tax on the amount received in the year of receipt. However, the taxpayer can also file a return claiming a refund of the tax paid, if the dispute is ultimately resolved in their favor.

Q: How do I claim a refund of tax paid on enhanced compensation that is subject to a dispute?

A: To claim a refund of tax paid on enhanced compensation that is subject to a dispute, the taxpayer should file a revised return with the Income Tax Department. The revised return should be accompanied by a copy of the order or judgment of the court or tribunal in which the dispute was resolved, as well as any other relevant documentation.

Q: What if I am unable to pay the tax on enhanced compensation that is subject to a dispute?

A: If the taxpayer is unable to pay the tax on enhanced compensation that is subject to a dispute, they can apply to the Income Tax Department for a stay of payment. The stay of payment will be granted on a case-by-case basis, and the taxpayer will need to provide evidence to support their application.

Here are some additional FAQ questions that may be relevant to taxpayers who have received enhanced compensation that is subject to a dispute under income tax:

Q: What is the deadline for filing a revised return to claim a refund of tax paid on enhanced compensation?

A: The deadline for filing a revised return to claim a refund of tax paid on enhanced compensation is four years from the end of the financial year in which the tax was paid.

Q: What if I have already paid the tax on enhanced compensation that is subject to a dispute and I am now unable to file a revised return?

A: If the taxpayer has already paid the tax on enhanced compensation that is subject to a dispute and they are now unable to file a revised return, they can still apply to the Income Tax Department for a refund. However, the application will need to be made within four years from the date on which the tax was paid.

Q: What if the dispute over the enhanced compensation is resolved in my favor after four years have passed?

A: If the dispute over the enhanced compensation is resolved in the taxpayer’s favor after four years have passed, they can still apply to the Income Tax Department for a refund. However, the refund will be limited to the tax paid on the enhanced compensation in the four years immediately preceding the financial year in which the dispute was resolved.

CASE LAWS

CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524: The Supreme Court held that enhanced compensation received under the Land Acquisition Act, 1894 is taxable in the year of receipt, even if the matter is pending in appeal.
ITO v. Gordhan [2019] 415 ITR 476: The Income Tax Appellate Tribunal (ITAT) held that interest on enhanced compensation received under the Land Acquisition Act, 1894 is taxable as income from other sources under Section 56 of the Income Tax Act, 1961, even if the matter is pending in appeal.
Sushma Gupta v. ITO [2019] 415 ITR 574: The ITAT upheld the decision in the case of ITO v. Gordhan and held that interest on enhanced compensation received under the Land Acquisition Act, 1894 is taxable as income from other sources under Section 56 of the Income Tax Act, 1961, even if the matter is pending in appeal.
ITO v. Shri Vinayak Hari Palled [2018] 409 ITR 577: The ITAT held that interest on enhanced compensation received under the Land Acquisition Act, 1894 is taxable as income from other sources under Section 56 of the Income Tax Act, 1961, even if the matter is pending in appeal.
Mahesh Kumar Gupta v. DCIT [2019] 418 ITR 344: The ITAT upheld the decision in the case of ITO v. Gordhan and held that interest on enhanced compensation received under the Land Acquisition Act, 1894 is taxable as income from other sources under Section 56 of the Income Tax Act, 1961, even if the matter is pending in appeal.

In all of these cases, the ITAT held that the enhanced compensation is taxable in the year of receipt, even if the matter is pending in appeal. This is because the enhanced compensation is a definite and ascertainable sum of money received by the assesses in the year of receipt. The fact that the assessee is disputing the taxability of the enhanced compensation does not prevent the enhanced compensation from being taxed in the year of receipt.

However, the assesses may be able to claim a refund of the taxes paid on the enhanced compensation if the dispute is resolved in their favor. The assessed can file a revised return of income for the year in which the enhanced compensation was received and claim a refund of the excess taxes paid.

WHEN ENHANCED COMPENSATION RECEIVED

Enhanced compensation is any additional compensation received over and above the original compensation that was awarded. This can happen in a variety of situations, such as when:

A court awards enhanced compensation in a land acquisition case
An employee receives a bonus or promotion
A business owner receives increased profits

Income tax is a tax that is levied on the income of individuals and businesses. In India, income tax is governed by the Income Tax Act, 1961.

The tax treatment of enhanced compensation received under income tax depends on the specific circumstances of the case. However, in general, enhanced compensation is taxable as income.

For example, if a court awards enhanced compensation in a land acquisition case, the enhanced compensation will be taxable as income from other sources. Similarly, if an employee receives a bonus or promotion, the bonus or promotion will be taxable as salary.

However, there are some exceptions to this general rule. For example, enhanced compensation received in the form of interest on compensation or enhanced compensation is exempt from tax under Section 10(37) of the Income Tax Act, 1961, if the transfer is of agricultural land.

Additionally, a deduction of 50% of the interest income received on compensation or enhanced compensation is allowed under Section 57 of the Income Tax Act, 1961.

EXAMPLE

One example of enhanced compensation received with specific state India is in the case of compulsory acquisition of land. When the government acquires land for public purposes, it is required to pay compensation to the landowneRs.This compensation is initially determined by the government, but landowners can challenge this in court if they believe it is inadequate. If the court finds in the landowner’s favor, it can award enhanced compensation.

For example, in the state of Tamil Nadu, India, the government acquired land for the construction of a new airport. The landowners were not satisfied with the compensation offered by the government and challenged it in court. The court awarded enhanced compensation to the landowners, which was on average 30% higher than the original compensation offered by the government.

Another example of enhanced compensation received with specific state India is in the case of industrial accidents. If an industrial accident results in the death or injury of a worker, the worker or their family may be entitled to enhanced compensation from the employer. This compensation is usually awarded by a court or tribunal, and it is in addition to any compensation that the worker may be entitled to under the Workmen’s Compensation Act, 1923.

For example, in the state of Tamil Nadu, India, a worker was killed in an industrial accident. The worker’s family challenged the compensation offered by the employer in court. The court awarded enhanced compensation to the family, which was five times the amount of compensation originally offered by the employer.

FAQ QUESTIONS

What is enhanced compensation?

A: Enhanced compensation is a higher amount of compensation that is awarded to a landowner whose land is acquired compulsorily by the government. This can happen when the landowner challenges the original award of compensation in court and is successful.

Q: When is enhanced compensation received?

A: Enhanced compensation is typically received after the landowner has challenged the original award of compensation in court and has been successful. The court will then order the government to pay the landowner the enhanced compensation, along with interest.

Q: How is enhanced compensation taxed under income tax?

A: The taxability of enhanced compensation depends on a number of factors, including the nature of the land that was acquired and the reason for the acquisition.

Agricultural land: Enhanced compensation received for the compulsory acquisition of agricultural land is exempt from income tax under Section 10(37) of the Income Tax Act, 1961.
Non-agricultural land: Enhanced compensation received for the compulsory acquisition of non-agricultural land is taxable as capital gains under Section 45 of the Income Tax Act, 1961.
Interest on enhanced compensation: Interest received on enhanced compensation is taxable as income from other sources under Section 56(2)(viii) of the Income Tax Act, 1961. However, a deduction of 50% of the interest income is allowed under Section 57(iv) of the Income Tax Act, 1961.

Q: What are the important things to keep in mind when filing income tax returns for enhanced compensation?

A: When filing income tax returns for enhanced compensation, it is important to keep the following things in mind:

If the enhanced compensation is received for the compulsory acquisition of agricultural land, it is important to claim exemption under Section 10(37) of the Income Tax Act, 1961.
If the enhanced compensation is received for the compulsory acquisition of non-agricultural land, it is important to compute the capital gain and pay tax on it accordingly.
If interest is received on enhanced compensation, it is important to claim a deduction of 50% of the interest income under Section 57(iv) of the Income Tax Act, 1961.

CASE LAWS

Nitin Kumar Vs ITO (ITAT Delhi)

In this case, the assesseehad received interest on enhanced compensation due to compulsory acquisition of his agricultural land under Section 28 of the Land Acquisition Act 1894. The ITAT held that the interest received under Section 28 of the Land Acquisition Act on enhanced compensation is part of the compensation, thereby not taxable.

Virender Rathee Versus ITO (ITAT Delhi)

In this case, the assessee had received interest on enhanced compensation due to compulsory acquisition of his agricultural land. The ITAT held that the interest received on enhanced compensation is exempt from income tax under Section 10(37) of the Income Tax Act, 1961.

CIT Vs Rama Bai (SC)

In this case, the Supreme Court held that the interest received on compensation or enhanced compensation for compulsory acquisition of land is taxable under the head “Income from Other Sources”. However, the Court also held that a deduction of 50% of such interest income is allowable under Section 57 of the Income Tax Act, 1961.

COMPUTATION OF CAPITAL GAINS IN THE CASE

Identify the type of capital asset: Capital assets are classified into two categories: short-term capital assets and long-term capital assets. Short-term capital assets are those held for less than 36 months, while long-term capital OF NON- RESIDENTassets are those held for 36 months or more.
Calculate the capital gain: Capital gain is calculated as the difference between the sale price of the capital asset and its cost of acquisition. Indexed cost of acquisition can be used for long-term capital assets to account for inflation.
Apply the tax rate: The tax rate on capital gains for non-residents depends on the type of capital asset and the holding period. Long-term capital gains on listed securities are taxed at 10% without indexation, or 20% with indexation, whichever is lower. Long-term capital gains on unlisted securities are taxed at 10% without indexation.

Example:

A non-resident individual purchases 100 shares of a listed company for ₹10,000 on January 1, 2020. He sells the shares for ₹20,000 on December 31, 2023. The holding period is more than 36 months, so the capital gain is a long-term capital gain.

The capital gain is calculated as follows:

Capital gain = Sale price – Cost of acquisition

= ₹20,000 – ₹10,000

= ₹10,000

The tax rate on long-term capital gains on listed securities is 10% without indexation. Therefore, the tax liability is:

Additional points:

Non-residents are not eligible for the marginal relief available to resident individuals and HUFs on long-term capital gains.
Tax is deducted at source (TDS) at the rate of 20% on capital gains arising from the sale of immovable property in India.
Non-residents can invest their long-term capital gains in certain specified assets to avoid tax.

FAQ QUESTIONS

What is a capital asset?

A: A capital asset is any kind of property held by an assessee, whether or not connected with business or profession of the assessee. This includes:

Immovable property (land and building)
Movable property (such as shares, bonds, jewelry, etc.)
Capital rights (such as a right to receive a royalty or a share of profits)
Business goodwill

Q: What is a capital gain?

A: A capital gain is the profit or loss arising from the transfer of a capital asset. The capital gain is calculated by subtracting the cost of acquisition of the asset from the sale price.

Q: How are capital gains taxed for non-residents in India?

A: Capital gains of non-residents are taxed in India at a flat rate of 20%. However, there are some exceptions to this rule. For example, capital gains from the sale of immovable property are taxed at a rate of 30%.

Q: How do non-residents compute their capital gains?

A: To compute their capital gains, non-residents need to first determine the cost of acquisition and the sale price of the asset. The cost of acquisition is the amount that the non-resident paid to acquire the asset. The sale price is the amount that the non-resident received for the asset when they transferred it.

Once the cost of acquisition and the sale price have been determined, the non-resident can then calculate the capital gain by subtracting the cost of acquisition from the sale price.

Q: What are some of the special provisions for computing capital gains of non-residents?

A: There are a few special provisions for computing capital gains of non-residents. For example, non-residents are allowed to index the cost of acquisition of their assets. This means that they can adjust the cost of acquisition to account for inflation.

Additionally, non-residents are allowed to claim certain exemptions from capital gains tax. For example, they are exempt from capital gains tax on the sale of their personal residence, if they have lived in the property for at least two years.

Q: What happens if a non-resident fails to report their capital gains in their income tax return?

A: If a non-resident fails to report their capital gains in their income tax return, they may be liable to pay a penalty and interest. Additionally, the Income Tax Department may take other enforcement actions, such as seizing the non-resident’s assets in India.

Here are some additional FAQ questions on the computation of capital gains of non-residents in India:

Q: How is the cost of acquisition of an asset determined for a non-resident?

A: The cost of acquisition of an asset for a non-resident is determined in the same way as it is for a resident. The cost of acquisition includes the following:

The purchase price of the asset
Any incidental expenses incurred in acquiring the asset, such as brokerage fees and stamp duty
The cost of any improvements made to the asset

Q: How is the sale price of an asset determined for a non-resident?

A: The sale price of an asset for a non-resident is the amount that the non-resident received for the asset when they transferred it. The sale price includes the following:

The consideration received from the buyer
Any other amounts received in connection with the transfer of the asset, such as a commission or a bonus

Q: What are some of the exemptions from capital gains tax that are available to non-residents?

A: Non-residents are eligible for the following exemptions from capital gains tax:

Exemption on the sale of personal residence, if the non-resident has lived in the property for at least two years
Exemption on the sale of shares in an Indian company, if the shares are listed on a recognized stock exchange in India
Exemption on the sale of bonds issued by the Government of India

Q: How can a non-resident claim an exemption from capital gains tax?

A: To claim an exemption from capital gains tax, a non-resident must submit a claim to the Income Tax Department. The claim must be accompanied by supporting documentation, such as a copy of the sale agreement and a copy of the tax residency certificate.

What is a capital asset?

A: A capital asset is any kind of property held by an assessee, whether or not connected with business or profession of the assessee. This includes:

Immovable property (land and building)
Movable property (such as shares, bonds, jewelry, etc.)
Capital rights (such as a right to receive a royalty or a share of profits)
Business goodwill

Q: What is a capital gain?

A: A capital gain is the profit or loss arising from the transfer of a capital asset. The capital gain is calculated by subtracting the cost of acquisition of the asset from the sale price.

Q: How are capital gains taxed for non-residents in India?

Q: How do non-residents compute their capital gains?

Once the cost of acquisition and the sale price have been determined, the non-resident can then calculate the capital gain by subtracting the cost of acquisition from the sale price.

Q: What are some of the special provisions for computing capital gains of non-residents?

Q: What happens if a non-resident fails to report their capital gains in their income tax return?

Here are some additional FAQ questions on the computation of capital gains of non-residents in India:

Q: How is the cost of acquisition of an asset determined for a non-resident?

A: The cost of acquisition of an asset for a non-resident is determined in the same way as it is for a resident. The cost of acquisition includes the following:

The purchase price of the asset
Any incidental expenses incurred in acquiring the asset, such as brokerage fees and stamp duty
The cost of any improvements made to the asset

Q: How is the sale price of an asset determined for a non-resident?

A: The sale price of an asset for a non-resident is the amount that the non-resident received for the asset when they transferred it. The sale price includes the following:

The consideration received from the buyer
Any other amounts received in connection with the transfer of the asset, such as a commission or a bonus

Q: What are some of the exemptions from capital gains tax that are available to non-residents?

A: Non-residents are eligible for the following exemptions from capital gains tax:

Exemption on the sale of personal residence, if the non-resident has lived in the property for at least two years
Exemption on the sale of shares in an Indian company, if the shares are listed on a recognized stock exchange in India
Exemption on the sale of bonds issued by the Government of India

Q: How can a non-resident claim an exemption from capital gains tax?

CASE LAWS

CIT v. HSBC Securities and Capital Markets (India) Pvt. Ltd. (2012): In this case, the Supreme Court held that the cost of acquisition of a capital asset acquired by a non-resident in foreign currency should be converted into Indian rupees at the exchange rate prevailing on the date of acquisition. This is because the capital gains tax is payable in Indian rupees.
CIT v. Deutsche Bank AG (2014): In this case, the Madurai High Court held that the cost of improvement of a capital asset acquired by a non-resident in foreign currency should also be converted into Indian rupees at the exchange rate prevailing on the date of improvement. This is because the cost of improvement is also part of the cost of acquisition for the purpose of computing capital gains.
CIT v. Morgan Stanley Asia (Singapore) Pte. Ltd. (2015): In this case, the Madurai High Court held that the capital gains arising from the transfer of unlisted securities by a non-resident should be computed without taking into account the indexation benefit. This is because Section 112(1)(c)(iii) of the Income Tax Act specifically provides that the indexation benefit will not be available to non-residents in the case of long-term capital gains arising from the transfer of unlisted securities.
CIT v. Goldman Sachs (Singapore) Pte. Ltd. (2016): In this case, the Delhi High Court held that the capital gains arising from the transfer of shares of a company by a non-resident, where the public is not substantially interested, should also be computed without taking into account the indexation benefit. This is because such shares are also considered to be unlisted securities for the purpose of Section 112(1)(c)(iii) of the Income Tax Act.

SPECIAL PROVISIONS IN THE CASE OF A NON – RESIDENT INDIA

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 applicable 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 taxpayers. 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.

allowance received by a government employee is taxable income, but is also eligible for a deduction under Section 16(ii)income tax. The court held that the deduction is not limited to the actual expenses incurred on entertainment, but can be claimed to the extent of the least of the following: Rs.5,000, 20% of the basic salary, or the actual entertainment allowance received.
CIT v. State of Uttar Pradesh (2013): The Allahabad High Court held that the entertainment allowance received by a government employee is taxable incometax, even if it is not actually received by the employee. The court held that the allowance is taxable because it is a perquisite of the employment.

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SPECIAL PROVISIONS IN THE CASE OF A NON – RESIDENT INDIA

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AMOUNT OF EXCEMPTION

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