created by
Rajesh Dhruva
THANKS - Hon.Finance Minister,Sir! Our Memo.re:TDS finds favour & Compies of various Memorandams
Dear Clients
Unfortunately, the press release quoting the Minister of State for Finance is a misnomer.
2. Replying to question in Rajya Sabha, the Hon'ble Minister of State for Finance has said that interest on NRE/FCNR Deposits will be liable to tax with effect from 01-04-2006.
3. Technically, with effect from 01-04-2006 means Assessment Year 2006-07 relating to Financial Year 2004-05.
.02 Accordingly, A.Y. 2006-07 means Financial Year commencing from 01-04-2005.
.03 Therefore, there is no modification nor extension and as finalized in the Union Budget of
2004-05, interest on NRE/FCNR Deposits will be liable to income-tax with effect from 01-04-2005.
2004-05, interest on NRE/FCNR Deposits will be liable to income-tax with effect from 01-04-2005.
HURRAY !!! 
HURRAY !!! Tax differed to 1.4.2005
Dear Friends,
Cheers !!!
Hon’ble Finance Minister being concerned about NRI’s wooes and to woo NRI’s has differed taxation of interest income of NRE and FCNR deposits till 1st April 2005.
Hence, NRIs will not be taxed on said income w.e.f 1st September 2004 & of course a glitter of hope is seen on horizon with expectation of rethinking in the ensuing finance bill 2005-06 to be presented in Feb. 2005.
Best wishes
RAJESH H DHRUVA
RAJESH H DHRUVA
· (CNBC News)
Aug-26-2004 12:06:
Lok Sabha passes Finance Bill 2004-05
The Finance Bill has been passed. The tax on NRI, NRE deposits has been deferred till April 1, and the tax-free income limit raised to Rs 1.09 lakh.
The Finance Bill 2004-05 was passed in Parliament, unopposed after the NDA decided to boycott proceedings in the Lok Sabha.
Finance Minister P Chidambaram has deferred the tax on non-resident Indians, NRI and NRE deposits till April 1 2005. He has also deferred the tax on aircraft leasing till April 1. The tax-free income limit has also been raised from Rs 1 lakh to Rs 1.09 lakh.
With its passage, the Lok sabha has given effect to the taxation proposals of the Budget. This was without debate as the entire BJP-led opposition boycotted the proceedings. This is for the first time in the annals of history of Parliament that a Finance Bill has been passed in the absence of the Opposition and without discussion. As many as 55 amendments to the Bill moved by the Finance Minister were adopted by the House. ......
Finance Minister P Chidambaram has deferred the tax on non-resident Indians, NRI and NRE deposits till April 1 2005. He has also deferred the tax on aircraft leasing till April 1. The tax-free income limit has also been raised from Rs 1 lakh to Rs 1.09 lakh.
With its passage, the Lok sabha has given effect to the taxation proposals of the Budget. This was without debate as the entire BJP-led opposition boycotted the proceedings. This is for the first time in the annals of history of Parliament that a Finance Bill has been passed in the absence of the Opposition and without discussion. As many as 55 amendments to the Bill moved by the Finance Minister were adopted by the House. ......
· economic times
Lok Sabha to vote on Budget on Thursday
REUTERS [ WEDNESDAY, AUGUST 25, 2004 01:06:38 PM ]
NEW DELHI: The union budget for this financial year will be put to vote in the Lok Sabha on Thursday.
The lower house approved the Appropriation Bill, which outlines spending on various projects by government ministries in 2004/05 (April-March), without any discussion on Wednesday because of differences between the opposition and the government.
The lower house approved the Appropriation Bill, which outlines spending on various projects by government ministries in 2004/05 (April-March), without any discussion on Wednesday because of differences between the opposition and the government.
"The finance bill will be taken up for voting and passage on Thursday," Parliamentary Affairs Minister Ghulam Nabi Azad told lawmakers in the lower house.
Congress Party spokesman Anand Sharma said the budget would also be passed without discussion as had been agreed in a meeting with opposition members.
Congress Party spokesman Anand Sharma said the budget would also be passed without discussion as had been agreed in a meeting with opposition members.
Proceedings in parliament have been disrupted since last week over the inclusion of members charged with crimes such as corruption and attempted murder in Prime Minister Manmohan Singh's council of ministers.
PREAMBLE
1. NRI’s have always played a pivotal role and contributed to the economic development of India and invariably supported the Government in times of economic crisis, be it the worst forex reserve crisis in 1992 when SBI's India Development Bonds were well subscribed by NRIs or year 1998 when NRIs contributed app. $ 4.5 bn. in SBI’s Resurgent India Bonds or year 2000 when although USA NRIs were not eligible to participate, the NRIs elsewhere subscribed a mighty sum of app. $ 5.5 bn. in less than 3 weeks time in the issue of India Millennium Deposits.
Even during the previous year, inspite of interest rates on NRE deposit being drastically reduced by RBI from average of 6.50% per annum to app. 2.25% per annum and Foreign currency deposit rates for a long time been at par with LIBOR, NRIs have added US$ 8.01 bn to the Forex reserves of the nation.
Even during the previous year, inspite of interest rates on NRE deposit being drastically reduced by RBI from average of 6.50% per annum to app. 2.25% per annum and Foreign currency deposit rates for a long time been at par with LIBOR, NRIs have added US$ 8.01 bn to the Forex reserves of the nation.
2. Since the inception of liberalisation process in 91-92 initiated by Hon’ble Prime Minister
Dr. Manmohan Singh, the Government on its part, also has been appreciative of the role of NRIs and encouraged NRI investments in India, as reflected in various incentives offered to NRIs and policies initiated time and again as also reflected in Hon'ble Prime Minister's speech as the then Finance Minister while presenting the Union Budget for 1991-92 :
" A comprehensive review of policies and procedures bearing on Non – Resident Indian investments shall be carried out and further relaxations made in order to remove all procedural difficulties and impediments to the setting up of industrial and other ventures by Non- Resident Indians."( Para 18 ).
Dr. Manmohan Singh, the Government on its part, also has been appreciative of the role of NRIs and encouraged NRI investments in India, as reflected in various incentives offered to NRIs and policies initiated time and again as also reflected in Hon'ble Prime Minister's speech as the then Finance Minister while presenting the Union Budget for 1991-92 :
" A comprehensive review of policies and procedures bearing on Non – Resident Indian investments shall be carried out and further relaxations made in order to remove all procedural difficulties and impediments to the setting up of industrial and other ventures by Non- Resident Indians."( Para 18 ).
3. Now, Finance Bill 2004-05, with effect from 1st September '04, proposes taxation in case of :
(A) Non-Resident Indian's income being :
.01 Interest income from NRE deposit [Sec. 10(4)(ii) ]
.02 Interest income from FCNR deposit [Sec. 10(4) (ii) r.t.w. Sec.10(15)(iv)(fa)] and
(B) Returnee Non-Resident Indian's income being :
.01 Interest income of continued FCNR deposit [Sec.10 (15)(iv)(fa)]
.02 Interest income of RFC accounts [Sec. 10(15)(iv)(fa)]
(A) Non-Resident Indian's income being :
.01 Interest income from NRE deposit [Sec. 10(4)(ii) ]
.02 Interest income from FCNR deposit [Sec. 10(4) (ii) r.t.w. Sec.10(15)(iv)(fa)] and
(B) Returnee Non-Resident Indian's income being :
.01 Interest income of continued FCNR deposit [Sec.10 (15)(iv)(fa)]
.02 Interest income of RFC accounts [Sec. 10(15)(iv)(fa)]
MEMORANDUM & REQUEST TO RECONSIDER TAX PROPOSALS :
1. TAX EXEMPTIONS BE CONTINUED :
.01 Interest earned by NRIs on NRE and FCNR deposits are granted tax exemptions since 1.4.1964 and all the investment schemes offered to NRIs thereafter, being NRNR deposits, State Bank of India's India Development Bonds, Resurgent India Bonds and India Millennium Deposits were all granted total tax exemption in India.
.01 Interest earned by NRIs on NRE and FCNR deposits are granted tax exemptions since 1.4.1964 and all the investment schemes offered to NRIs thereafter, being NRNR deposits, State Bank of India's India Development Bonds, Resurgent India Bonds and India Millennium Deposits were all granted total tax exemption in India.
.02 Said tax proposals originally mooted by Vijay Mathur's Committee in year 2002 were not implemented after thoughtful consideration of representations of NRIs across the globe.
.03 In many countries including advanced countries like United Kingdom, non-residents per se are not taxed on their investment income. In USA too, in case of Non Resident,
Non–Citizen's Interest Income, Long Term Capital Gains and Short Term Capital Gains are exempt from tax.
Non–Citizen's Interest Income, Long Term Capital Gains and Short Term Capital Gains are exempt from tax.
.04 As a matter of fact, tax exemption is an incentive for NRIs in Middle -East and many other countries to maintain their deposits in India. As otherwise, now, the interest rates offered by banks in India being at par or less than the rates offered abroad the NRIs will not have any incentive / advantage of placing said deposits in India.
2. NRIs AT DISADVANTAGE OF LOWER INTEREST RATES :
.01. Banks in India offer interest rates to residents in the range of 6% to 7% p.a. for 1 year term deposits.
.02. Against this on account of Reserve Bank of India’s directives , NRE rupee deposits are offered lower interest rate of 2.50% to 3.75% p.a. at par with LIBOR/SWAP whereas FCNR US$ deposits are offered interest of 2% to 3.40% p.a. for 1 to 3 years deposits.
.03 As such, the NRE rupee interest rates do not cover average rate of inflation in the range of 5% and in effect NRE deposits erode capital invested by NRIs.
.04 In view of this artificial cap on interest rates of NRE and FCNR deposits pegging the interest rates at a lower level and in disparity to interest rates offered to resident Indians, NRIs deposits should be allowed to be tax-free.
3. PROSPECTIVE TAX - A PRE-REQUISITE FOR EQUITY & JUSTICE :
.01 If the Government thinks it proper not to continue the tax-exemptions and wishes to implement the tax proposals the same should be levied on deposits placed upon enactment of said tax provisions.
.01 If the Government thinks it proper not to continue the tax-exemptions and wishes to implement the tax proposals the same should be levied on deposits placed upon enactment of said tax provisions.
.02 The NRE and FCNR deposits have been placed by NRIs on a crystal- clear assurance and understanding that the interest earned is exempt from tax in India and the principal and interest are fully repatriable.
.03 Any unilateral and retrospective change in said terms and conditions is morally and legally incorrect and detrimental to the high standards of equity and justice promoted by Government of India.
.04 An abrupt deletion of tax-exemptions will not only shake the confidence of NRIs at large but also be a major disincentive for future NRI investments in India.
.05 Therefore all existing NRE and FCNR deposits should be granted tax exemption till maturity.
.06 Tax exemption till maturity should also be granted on the grounds of continued tax-exemptions granted by the Government to NRIs on interest income arising out of existing investments in India Millennium Deposits and Non-Resident Non-Repatriable deposits ( NRNR ) till maturity.
4. TAX OF Rs. 610 Crs. ONLY :
.01 As per Reserve Bank of India, NRI FC (BE & O) deposits as on 31.3.2004 amounted to Rs.1,35,422 crores, mainly comprising of Rupee and US$ deposits.
.02 Presently Banks offer interest rates in average of 2.50% to 3.73% per annum on Rupee deposits and 2.00% to 3.30% per annum on US$ deposits.
.03 Thus total payment of interest comes to app. Rs.4,065 crores at an av. interest rate of 3% per annum.
.04 Double Tax Treaties ( DTAA ) with the countries, which account for more than 90% of NRI deposits attract withholding tax at 10% to 15% on interest payable to non-residents.
.05 Therefore Tax collection at higher rateof 15% amounts to Rs.610 crs. on interest estimated at Rs.4,065 crs.
.06 Tax proposed from NRIs estimated at Rs.610 crores is not only a small amount vis-a-vis the principal amount of deposits placed by NRIs of say Rs.1,35,422 crores, but also comprises a very small portion of Direct tax collection totaling to Rs.1,39,365 crs. comprising of Rs.50,929 crs. of Income Tax and Rs.88,436 crs. of Corporate Tax proposed to be collected by the Union Budget 2004-05.
.07 For a Central Revenue Plan, this amount of Rs. 610 crs. is indeed an insignificant contribution but the same has indeed a very large cost attached as at stake is " the trust and confidence reposed in India by NRIs across the globe “.
5. COMMON TAX RATE OF 10% :
.01 If tax is levied, the same may be levied at a uniform tax rate of 10%.
.02 The tax rate at 10% is suggested in view of existing DTAA with Indonesia, Oman, Portugal, South Africa and Qatar providing for withholding tax rate of 10% on interest income of NRIs residing in said countries.
Whereas DTAA with UAE, which is major source of NRI Deposits, has withholding tax rate of 12.50%.
And DTAA with USA, UK, Singapore, Canada, Australia, New Zealand provide for withholding tax at 15%.
Whereas DTAA with UAE, which is major source of NRI Deposits, has withholding tax rate of 12.50%.
And DTAA with USA, UK, Singapore, Canada, Australia, New Zealand provide for withholding tax at 15%.
.03 As more than 55% of NRE/FCNR Deposits are originated from UAE, Oman and Quatar and almost 90% of total deposits originate from all these countries; Residents of said countries being covered by provisions of relevant DTAA are eligible for tax rate in the range of 10%, 12.50% or at the most 15%.
.04 Therefore, a uniform tax rate of 10% should be made applicable to all the NRIs as regards interest earned from NRE and FCNR Deposits placed on or after the enactment of the said proposals.
.05 Support for 10% tax rate is also found in the provisions of Section 115C(f)(iii) whereby a Deposit with an Indian Bank for 36 months or more being defined as a long term capital asset is subject to tax rate of 10%, vide Section 115E(b)(ii).
.06 The view of fixed deposit being capital asset under Section 2(14) of the Income Tax Act 1961 and Section 2(e) of the Wealth Tax Act 1957 is also upheld by Calcutta High Court judgment of CIT V. East India Charitable Trust. [ (1994) 73 Taxmann 380) ].
6. PROVISIONS NECESSARY FOR NON FILING OF TAX RETURN :
.01 A matter of grave concern is the applicability of various invisible provisions of Income Tax Act, 1961, arising out of said tax proposals whereby in all cases of NRIs having total income exceeding Rs.50,000, NRIs will be required to :
( i ) apply for Permanent Account Number (PAN) ;
( ii) avail TDS certificates from various banks ;
( iii) prepare annual accounts ;
(iv ) appoint a Chartered Accountant or Tax Practitioner
( v ) file tax returns every year and
(vi ) appear before Tax Authorities in India, if summoned.
( i ) apply for Permanent Account Number (PAN) ;
( ii) avail TDS certificates from various banks ;
( iii) prepare annual accounts ;
(iv ) appoint a Chartered Accountant or Tax Practitioner
( v ) file tax returns every year and
(vi ) appear before Tax Authorities in India, if summoned.
.02 For NRIs residing far away and visiting India not very often, compliance of all these requirements will be a Herculean task and will cause unwarranted difficulties.
.03 Accordingly , if tax proposals are enacted, then , appropriate provisions be introduced granting exemptions to NRIs absolving them from requirements of filing tax return etc. , provided appropriate Tax Deduction at Source from interest on NRE and FCNR Deposits is made by concerned Bank.
.04 Similar provisions already exist in Chapter XII-A of Income Tax Act 1961 inserted since 1.6.1983 providing simplified mechanism of tax collection and non-filing of tax return by NRIs as regards investment income and long term capital gains arising out of specified assets.
Section 115G specifically exempts / absolves Non Resident Indians deriving income from specified assets from filing of tax returns if they do not have other taxable income in India.
Section 115G specifically exempts / absolves Non Resident Indians deriving income from specified assets from filing of tax returns if they do not have other taxable income in India.
7. SIMPLIFICATION OF PROCEDURAL ASPECTS :
.01 An appropriate provision be inserted, providing for uniform tax rate on interest income from NRE and FCNR accounts,
.02 relevant provision also be included in Chapter XVII-B for deduction of tax at source at appropriate rate ,
.03 exemptions from filing of tax return be incorporated , subject to deduction of appropriate tax,
.04 said provisions may specifically include NRE and FCNR deposits with foreign banks and NRE deposits with Co-Operative banks also, as existing provisions of CH. XII-A donot include foreign and co-op banks,
.05 appropriate provisions be incorprated for uniform tax rate of deduction as presently,
Section 195 r.t.w. Para-1(b)(i)(A) of Para-II of the FIRST SCHEDULE provides for tax deduction at source @ 20% " on any investment income " and
(ii) Para-1(b)(i)(A) (G) provides for tax deduction at source @ 30% " on the whole of the other income ".
8. CONCLUSION :
.01 It may be summarised that NRI depositors already have the option of -
( i ) being taxed at 10% to 15% taking recourse to provisions of relevant Article of Double Tax Treaty ( DTAA ) between India and their home country ;
( ii ) take recourse to tax of 20% treating the interest as investment income in case of deposit for 1 year or 2 years as per provisions of Section 115E(b)(i) ; or
( iii ) pay tax at 10% on long term capital gains arising out of cumulative option for 3 years deposit, as per provisions of Section 115E(b)(ii).
.02 However this would require tremendous efforts by by each and every individual NRI.
.03 Being acquainted overseas with minimum procedural requirements regarding tax matters as also till date non requirement of filing tax returns as regards their NRE and FCNR deposits in India , the procedural aspects and difficulties may discourage many of their existing and future investment plans in India.
.04 As the Government's intentions have been " to remove all procedural difficulties and impediments for NRIs " , tax collection should coincide with simplicity and convenience to honest tax-payers.
.05 With a view to follow said cardinal principles and not to discourage and dishearten NRIs from retaining their funds in India and thereby continuing their contribution to the growth of national economy, it is suggested that tax deduction / collection should be provided for in a simple and appropriate manner requiring the banks to deduct tax at source and ABSOLVE NRIs not having other income above the threshold exemption limit from the responsibility of filing tax returns in India and availing PAN etc.
.06 This provisions are of great importance as it may be appreciated that NRIs have not given prime importance to monetary income over their emotional ties and economic development of their mother-land as evident from the fact of NRE and FCNR deposits increasing from Rs.1,10,021 crores in 2003 to Rs.1,35,422 crores in 2004 inspite NRE interest rates being reduced from 6.50% to 2.25% p.a. in a short span of last 12 months.
9. RETURNEE NRIs :
.01 Presently NRIs returning to India for permanent settlement are exempt from income-tax as regards their global income and interest income of continued FCNR deposits and also Resident Foreign Currency ( RFC ) deposits so long as their residential status under the Income Tax Act,1961 is determined as ' Non-Resident ' ( NR ) or ' Resident but Not Ordinarily Resident
(R but NOR).
.02 Normally for NRIs returning after 8 to 9 years of stay abroad, said benefits are applicable for 2 to 3 years.
.03 Now the Finance Bill 2004-05 proposes to tax interest from foreign currency deposits being continued FCNR deposits and RFC deposits by modifying Section10(15)(iv)(fa) whereby a unique paradox is created for a returning NRI being :
(i ) granted exemption on interest income arising out of bank deposits held outside India which otherwise also offer better interest rates but
(ii) liable to pay tax if such foreign currency accounts are maintained in India by way of continued FCNR deposit or as an RFC deposit.
.04 This will simply discourage returning NRIs from repatriating funds to India and force them to retain the same abroad as permissible under FEMA,1999.
.05 It cannot be the intention of the Statute to discourage repatriation of returnee NRI's funds into India and if so necessary amendments be made to continue tax exemptions provided by Section 10(15)(iv)(fa) , as per the existing law.
Index of enclosures to Memorandum
1. Budget speech proposing withdrawal of tax exemption as regards interest on NRE and FCNR deposits.
9. Relevant Articles of Double Tax Treaty of India with countries and % :
( i ) Indonesia ( ii ) Oman (iii) Portugal (iv) South Africa (v) Qatar (vi) UAE
( i ) Indonesia ( ii ) Oman (iii) Portugal (iv) South Africa (v) Qatar (vi) UAE
(vii) USA (viii) UK (ix) Singapore (x) Canada (xi) Australia and (xii) New Zealand.
10. Calcutta High Court Judgment - The view of fixed deposit being capital asset under Section 2(14) of the Income Tax Act 1961 and Section 2(e) of the Wealth Tax Act 1957 is also upheld by Calcutta High Court judgment of CIT V. East India Charitable Trust. [ (1994) 73 Taxmann 380) ].
Annexures
" I propose to withdraw a few exemptions which have outlived their utility. Interest earned from a Non-Resident (External) Account and interest paid by banks to a Non-Resident or to a Not-Ordinarily Resident on deposits in foreign currency will not be exempt from tax........ These exemptions will cease prospectively from September 1, 2004. "
5. In section 10 of the Income-tax Act,
(a) in clause (4),in sub-clause (ii), after the proviso, the following proviso Shall be inserted with effect from the 1st day of April,2005,namely:-
“ Provided further that nothing contain in sub-clause shall apply to any income by way of interest paid or credited on or after the 1st day of September, 2004 to the Non-
(a) in clause (4),in sub-clause (ii), after the proviso, the following proviso Shall be inserted with effect from the 1st day of April,2005,namely:-
“ Provided further that nothing contain in sub-clause shall apply to any income by way of interest paid or credited on or after the 1st day of September, 2004 to the Non-
Resident (External) Accountant of such individual ”
15. in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance
with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and the rules made there under :
10. Incomes not included in total income
(ii) in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance
with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and the rules made there under :
10. Incomes not included in total income
(fa) by a scheduled bank [to a non-resident or to a person who is not ordinarily resident within the meaning of sub-section (6) of section 6] on deposits in foreign currency
where the acceptance of such deposits by the bank is approved by the Reserve Bank of India.
Explanation - For the purposes of this item, the expression "scheduled bank" shall have the meaning assigned to it in clause (ii) of the Explanation to clause (viia) of
sub-section (1) of section 36;]
2.Definitions. 2(14)“capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include—
(i)any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ;
[(ii)personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him.
Explanation.—For the purposes of this sub-clause, “jewellery” includes—
(a)ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals,
whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel ;
(b)precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing
apparel ;]
apparel ;]
(iii) agricultural land in India, not being land situate—
(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or
(b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette ;]
(iv)6½ per cent Gold Bonds, 1977,[or 7 per cent Gold Bonds, 1980,] [or National Defence Gold Bonds, 1980,] issued by the Central Government ;]
(v)Special Bearer Bonds, 1991, issued by the Central Government ;]
(vi)Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government ;]
115C Definitions
In this Chapter, unless the context otherwise requires,-
(a) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder;
(b) "foreign exchange asset" means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange;
(c) "investment income" means any income derived other than dividends referred to in section 115-O from a foreign exchange asset;
(d) "long-term capital gains" means income chargeable under the head "Capital gains" relating to a capital asset, being a foreign exchange asset which is not a short-term capital asset;
(e) "non-resident Indian" means an individual, being a citizen of India or a person of Indian origin who is not a "resident".
Explanation - A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India;
(f) "specified asset" means any of the following assets, namely
(i) shares in an Indian company;
(ii) debentures issued by an Indian company which is not a private company as defined in the Companies Act, 1956 (1 of 1956);
(iii) deposits with an Indian company which is not a private company as defined in the Companies Act, 1956 (1 of 1956);
(iv) any security of the Central Government as defined in clause (2) of section 2 of the Public Debt Act, 1944 (18 of 1944);
(v) such other assets as the Central Government may specify in this behalf by notification in the Official Gazette.
115D Special provision for computation of total income of non-residents
(1) No deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the investment income of a non-resident Indian.
(2) Where in the case of an assessee, being a non-resident Indian,-
(a) the gross total income consists only of investment income or income by way of long-term capital gains or both, no deduction shall be allowed to the assessee under Chapter VI-A and nothing contained in the provisions of the second proviso to section 48 shall apply to income chargeable under the head "Capital gains";
(b) the gross total income includes any income referred to in clause (a), the gross total income shall be reduced by the amount of such income and the deductions under Chapter VI-A shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.
115E Tax on Investment income and long-term capital gains
Where the total income of an assessee, being a non-resident Indian, includes-
(a) any income from investment or income from long-term capital gains of an asset other than a specified asset;
(b) income by way of long-term capital gains,
the tax payable by him shah be the aggregate of-
( i) the amount of income-tax calculated on the income in respect of investment income referred to in clause (a), if any, included in the total income, at the rate of twenty per cent;
(II) the amount of income-tax calculated on the income by way of long-term capital gains referred to in clause (b), if any, included in the total income, at the rate of ten per cent; and
(iii) the amount of income-tax with which he would have been chargeable had his total income been reduced by the amount of income referred to in clauses (a) and (b).
115F Tax on Investment income and long-term capital gains
Where the total income of an assessee, being a non-resident Indian, includes-
(1) any income from investment or income from long-term capital gains of an asset other than a specified asset;
(2) income by way of long-term capital gains,
the tax payable by him shah be the aggregate of-
(i) the amount of income-tax calculated on the income in respect of investment income referred to in clause (a), if any, included in the total income, at the rate of twenty per cent;
(ii) the amount of income-tax calculated on the income by way of long-term capital gains referred to in clause (b), if any, included in the total income, at the rate of ten per cent; and
(iii) the amount of income-tax with which he would have been chargeable had his total income been reduced by the amount of income referred to in clauses (a) and (b).
115F Capital gains on transfer of foreign exchange assets not to be charged in certain cases.
(1) Where, in the case of an assessee being a non-resident Indian, any long-term capital gains arise from the transfer of a foreign exchange asset (the asset so transferred being hereafter in this section referred to as the original asset), and the assessee has, within a period of six months after the date of such transfer, invested the whole or any part of the net consideration in any specified asset , or in any savings certificates referred to in clause (4B), of section 10 (such specified asset , or such savings certificates being hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;
(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the new asset bears to the net consideration shall not be charged under section 45.
Explanation.—For the purposes of this sub-section,—
(i) “cost”, in relation to any new asset, being a deposit referred to in sub-clause (iii), or specified under sub-clause (v), of clause (f) of section 115C, means the amount of such deposit;
(ii) “net consideration”, in relation to the transfer of the original asset, means the full value of the consideration received or accruing as a result of the transfer of such asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
(2) Where the new asset is transferred or converted (otherwise than by transfer) into money, within a period of three years from the date of its acquisition, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head “Capital gains” relating to capital assets other than short-term capital assets of the previous year in which the new asset is transferred or converted (otherwise than by transfer) into money.
115G Return of Income not to be filed in certain cases
It shall not be necessary for a non-resident Indian to furnish under sub-section (1) of section 139 a return of his income if-
(a) his total income in respect of which he is assessable under this Act during the previous year consisted only of investment income or income by way of long-term capital gains or both; and
(b) the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.
115H Benefit under Chapter to be available in certain cases even after the assessee becomes resident.
Where a person, who is a non-resident Indian in any previous year, becomes assessable as resident in India in respect of the total income of any subsequent year, he may furnish to the [Assessing] Officer a declaration in writing along with his return of income under section 139 for the assessment year for which he is so assessable, to the effect that the provisions of this Chapter shall continue to apply to him in relation to the investment income derived from any foreign exchange asset being an asset of the nature referred to in sub-clause (ii) or sub-clause (iii) or sub-sub-clause (iv) of clause (v) of section 115C; and if he does so, the provisions of this Chapter shall continue to apply to him in relation to such income for that assessment year and for every subsequent assessment year until the transfer or conversion (otherwise than by transfer) into money of such assets.
115I Chapter not to apply if the assessee so chooses
A non-resident Indian may elect not to be governed by the provisions of this Chapter for any assessment year by furnishing his return of income for that assessment year under section 139 declaring therein] that the provisions of this Chapter shall not apply to him for that assessment year and if he does so, the provisions of this Chapter shall not apply to him for that assessment year and his total income for that assessment year shall be computed and tax on such total income shall be charged in accordance with the other provisions of this Act.
195. Other sums
(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force:
Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode:]
Provided further that no such deduction shall be made in respect of any dividends referred to in
section 115-O.
Explanation - For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]
(2) Where the person responsible for paying any such sum chargeable under this Act (other than interest on securities and salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.
(3) Subject to rules [F3 F4 F5] made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted. every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1).
(4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation.
(5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.
Para-1(b)(i)(A) on any investment income 20 per cent. ;
Para-1(b)(i)(G) on the whole of the other income 30 per cent. ;
|
SL. No.
|
Country DTAA Between India and
|
Tax on Interest
|
|
|
Art
|
Rate(%)
|
||
|
1
|
Australia
|
11
|
15
|
|
2
|
Canada
|
11
|
15
|
|
3
|
Indonesia
|
11
|
10
|
|
4
|
Kenya
|
12
|
15
|
|
5
|
Malaysia
|
12
|
-
|
|
6
|
New Zealand
|
11
|
15
|
|
7
|
Oman (Sultanate of Oman)
|
12
|
10
|
|
8
|
Portuguese Republic
|
11
|
10
|
|
9
|
Qatar
|
11
|
10
|
|
10
|
Singapore
|
11
|
15
|
|
11
|
South Africa
|
11
|
10
|
|
12
|
Thailand
|
11
|
25
|
|
13
|
United Arab Emirates
|
11
|
12.5
|
|
14
|
United Kingdom
|
12
|
15
|
|
15
|
United States of America
|
11
|
15
|
OOPS !!! - SORRY - The Mummy Returns
While we had just forgotten the proposals of "Vijay Mathur working groups" for taxing interest income of NRE and FCNR deposits, with the finance bill 2004-05 " the mummy returns ".
The said bill proposes to tax interest income earned on NRE and FCNR deposits by NRIs. Well, we have presented a memorandum; details whereof can be found at : http://www.femaonline.com/memo_04-05.htm and in the meanwhile, hopeful the best.
If you as an NRI are concerned with the said matter, you may in your personal capacity or preferably through community or business related association of NRIs write to the Hon.Finance Minister and mark a copy to Hon.Prime Minister, Shri Manmohan singh. We welcome your queries on the subject.
We once again wishing and hoping for the very best.
Best Wishes,
RAJESH H DHRUVA
MEMORANDUM re: NON – RESIDENT TAXATION
HURRAY !!!
As you all are aware, VIJAY MATHUR WORKING GROUP ON NRI TAXATION had proposed deletion of income tax exemptions as regards interest earned by NRIs on NRE and FCNR deposits. It was also proposed to delete concessions offered vide Chapter XII A.
We had made presentation to the Hon. Finance Minister to continue the tax exemptions/concessions. We are happy that our request has found favour with the Hon. Finance Minister and the said exemptions continue to be operative.
HURRAY !!! And of course, many many thanks to Shri Jaswant Singhji, Hon. Finance Minister.
And of course, many many thanks to Shri Jaswant Singhji, Hon. Finance Minister."MEMORANDUM re: NON – RESIDENT TAXATION"
Dear NRIs,
A Working Group for 'Study of Non-Resident Taxation' was recently appointed by "Task Force on Direct Taxes " which in turn was appointed by Government of India. Said Group has made recommendations which means nothing but "Bad News" for NRIs. These recommendations are :
A Working Group for 'Study of Non-Resident Taxation' was recently appointed by "Task Force on Direct Taxes " which in turn was appointed by Government of India. Said Group has made recommendations which means nothing but "Bad News" for NRIs. These recommendations are :
1. Deletion to tax exemption granted to NRIs as regards interests income from NRE and FCNR(B) Deposits.
2. Deletion of chapter XII - A granting concessional tax rate for investment income and capital gains and.
3. Removal of "Not Ordinarily Resident" Status.
We have jointly prepared a memorandum being submitted to Government of India on behalf of Confederation of Overseas Indians (In Formation) being prepared by key stakeholders: Shri Praful Patel (London), Shri Russi J. Patel, ACA and Shri Bharatkumar Shah (UAE), Shri Rajesh Kapadia (FCA) and Shri Rajesh Dhruva (FCA) (India). This is presented herein below:
==================================================================================
January, 2003
Ministry of Finance & Company Affairs
Government of India
New Delhi.
Government of India
New Delhi.
The Government appointed a Task Force on Direct Taxes under the Chairmanship of Dr. Vijay Kelkar, which presented a "Consultation Paper" in November 2002 Para 3.15 of the "Consultation Paper" relating to tax treatment of non-residents, the Task Force recommended the creation of a Working Group headed by the Director General of Income Tax (International Taxation) and comprising representatives from trade and industry to examine various issues pertaining to non-resident's taxation.
The Working Group for 'Study of Non-Resident Taxation' (Working Group) was constituted by the Ministry of Finance and Company Affairs vide order F.No.153/221/2002-TPL dated November 14, 2002. (Appendix-I)
Chapter - 4
Domestic Law
4.1 Definition of India
The definition of India as appearing in the domestic law and that appearing in various DTAAs is not the same. The domestic law, infect, is narrower in its scope. The Working Group is of the view that the definition of India provided for in the DTAAs should be introduced in the Income Tax Act, 1961 also for the sake of uniformity. The Treaties Division in the ministry of External Affairs may be consulted in this regard.
4.3 Status of "not ordinarily resident" (NOR)
The existing tax law provides that a person is said to be "not ordinarily resident" if he has not been a resident in India in nine out of the last ten previous years preceding the year under consideration or has not been in India for 730 days or more out of the last seven years. Such a person enjoys the benefit of not being taxable in respect of his income accruing or arising outside India unless it is derived from a business controlled in or a profession set up in India. Such a provision acts against the grain of ' residence based taxation', which provides for taxation of a resident of a country in respect of income from any source wherever situated. India follows the concept of 'residence based taxation'. India also is a signatory to more that 65 DTAAs. A person availing of the status of 'not ordinarily resident' in India is not taxed on his overseas income but only on the DTAAs. A resident in India escapes taxation on has passive income in India because of the NOR provision and is required to pay tax only at very concessional rates in the tax at full rate in either country. There is no rationale for continuing with the concept of taxation on global basis in the case of a resident. By doing away with the status of NOR an individual would be taxable in India on global basis if he becomes a resident and the Tax Department would thereafter have to give credit for the taxes payable in the foreign country in respect of the same income. The individual would therefore not be tasted twice on the same income and the Government would get share of revenue. The Working Group recommends deletion of the provision regarding NOR.
4.5 Withdrawal of certain exemptions:
4.5.1 Section 10(4)(ii) excludes, in the case of an individual, from computation of income, interest accruing in a Non-Resident (External) Account. The exemption from tax is available only to non-resident India's (NRIs). under the existing tax regime, non-residents do not pay any tax in India on the interest on such deposits. They may ordinarily be paying tax in the country where they are resident on such interest income. In this manner tax in any case is being paid in the country of residence. The Working Group is of the view that with more than 65 DTAAs in place, there is no need for India to of exemption does not really flow to the taxpayer but to the other country's treasury. The interest accruing on such deposits should be taxed at source in India at the DTAA rate and credit for the taxes paid can be claimed in the country of residence by the NRIs as provided in DTAAs. In this manner double taxation in respect of the same income in the hands of the same individual would continue to file his return in the country of residence along with his claim for credit of tax payable in India. The Working Group, therefore, recommends that the provision of section 10(4)(ii) be omitted.
4.5.2 In line with the above, the Working Group also recommends that the provisions of section 10(15)(iv)(fa) and section 10(15)(iv)(fa) be deleted which relate to interest on foreign currency deposits by banks and interest on foreign currency loan taken by housing companies respectively.
4.10 Removal of Chapter XII-A
Chapter XII-A of the I.T. Act deals with special provisions relating to certain incomes of NRIs. Income from long term capital gains or investment income from specified assets are taxable on a gross basis at the rate of ten or twenty per cent respectively. With regard to such income they ordinarily should be paying full tax in the country of residence and getting credit for taxes paid in India. The tax should be neutral to the residential status of a person. In addition the DTAAs take care that the NRis would not be taxed twice on the same income. On the basis of the above, the Working Group recommends the abolition of Chapter XII-A in the I.T. Act.
4.13.3 There are certain provisions in the Act viz. section 194H, 194I, 1919J etc., which require tax to be deducted in respect of payments to any person (including non-residents) for payments of the nature of commission, rent, professional fees, etc. Section 195 deals with all payments except interest on securities and salary payable to non-residents. The Working Group recommends that the payments referred to in section 194H, 1941I, 194J etc. should exclude payments made to non-residents because they are covered by the provisions of section 195. This would obviate avoidable overlapping of the provisions.