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CONCESSIONAL TAX REGIME
The NRIs are offered special provisions under the
Income-tax Act, 1961 whereby he is -
- Offered procedural simplification
- Fixed rate of taxation.
- Tax on real income i.e. income is computed
in Foreign Exchange (so that rupee depreciation
do not increase taxes)
- Deduction of tax at source the
amount at which he is liable for taxation.
NRIs have been offered
a separate concessional tax regime in respect of
certain types of income under Chapter XIIA comprising
section 115C to 115I. The said chapter has been
introduced in the Income tax Act with a view to
encouraging and inviting Non-residents Indian to
invest their foreign earnings in India.
As per section 115E,
concessional tax of 20 percent is available in respect
of investment income and 10% in respect of long
term capital gains from the specified assets which
are acquired out of convertible foreign exchange.
Specified assets are defined under section
115C(f) as:
- Shares in an Indian company.
- Debentures and deposits in an Indian company
(which is not a private company).
- Any security of the Central Government.
- Any other notified asset. (no asset has been
notified as yet).
There are some strings
attached. If an NRI opts for the concessional tax
treatment, he is taxed at a flat rate [section 115D],
and he is denied-
- Any deduction in respect of any expenditure
or allowance under any provisions of this Act
(like interest on over draft, Bank charges for
collection).
- Deduction under Chapter VIA (like section
80L).
- Benefit of cost indexation for capital gains.
However, expenses
incurred wholly and exclusively in connection with
transfer of capital asset is allowable while working
out capital gains.
Reinvestment of long term Capital
Gains
As per section 115F(a), long term capital gains
from sale of specified assets would be exempt if,
within six months, the net consideration is reinvested
in any specified asset or savings certificate notified
under section 10(4B). If only a proportion is reinvested,
proportionate exemption is available. The holding
period for the new asset is three years and if it
is transferred within three years, the capital gain
which was exempted will be liable to be taxed in
the year of such transfer of the new asset [section
115F(2)].
Option
Under the scheme the NRI need not file his return of income, if
- His total income consists of investment income
or long term capital gains or both, and
- Tax has been deducted at source under Chapter
XVII-B.[Sec.115G]
NRIs also have a
choice to opt out of these provisions. They are
not forced on NRIs. If the NRI wants to opt out,
he will have to give a declaration in the return
of the income. In respect of each assessment year,
the choice is entirely with the NRI. [Sec.115I]
Continuance of
benefit after return
The benefit of concessional tax treatment under
chapter XIIA continues even after NRI becomes a
resident. However he has to file a declaration in
writing to the assessing officer alongwith the return
of income u/s. 139. The option having been once
exercised is irrevocable, and the provisions of
the Chapter will continue to apply till the transfer
or conversion into money of the said assets. It
is pertinent to note that the benefits are not available
for long-term capital gain after the non-resident
Indian becomes a resident. |
