The Income-tax Act, 1961 provides for special provisions to tax the income from specified assets in the hands of Non-resident Indians. These provisions are optional to such assessees i.e., they can either pay tax at the rates prescribed under this chapter or at the normal rates applicable to them. This option can be changed every year.
Who are non-resident Indians?
Non-resident Indians are:
• Individuals being citizens of India; or
• Persons of Indian origin (i.e., either himself or his parents or grandparents was born in undivided India)
Not being a resident during the previous year of earning income from such specified assets.
What are the specified assets?
Specified assets to be taxed at special rates under this chapter are:
1. Shares of an Indian Company;
2. Debentures of an Indian Public Company;
3. Deposits with an Indian Public Company;
4. Securities of Central Government; and
5. Any other asset(s) as may be notified by Central Government
which are acquired/purchased/ subscribed to in convertible foreign exchange.
What is the income from specified asset?
Any investment income or long-term capital gain from the specified assets.
Taxability of income of NRI:
Income from specified assets:
1. Investment income: Taxable @ 20%
2. Long-term capital gains: Taxable @ 10%
Other income: Taxable @ applicable rates as per the normal provisions of the Act
In addition, applicable surcharge and HEC@4% shall be added to arrive at the final tax liability
Once the assessee opts for the special provisions of this chapter, then,
• No deduction for any expenses incurred will be allowed;
• No deduction under Chapter VIA will be allowed; and
• He cannot adjust the basic Exemption limit against such income
• In case of long-term capital gain, he can claim the transfer expenses, but he will not be given the indexation benefit.
Further, the assessee can claim proportionate exemption from such long-term capital gain, u/s 115F of the Act, if the net sale proceeds from such transfer invested in another forex asset or any notified certificates u/s 10(4B) within 6 months from the date of transfer. Such asset acquired should be held by the assessee for at least 3 years from acquisition. Otherwise, the benefit so claimed shall be taxable in the year of transfer.
Further, such assessee need not file return of income if:
• He has no other income taxable in India, other than the specified income under this chapter; and
• The Tax deductible at Source from such income has been duly made
However, if the assessee becomes resident in India during the previous year, then by default, the normal provision of the Act, shall get attracted. But the assessee can still opt for these special rates if he found those provisions to be more beneficial. In such a case, he can file an application to A.O. opting for special provision for that Assessment Year and can file his ROI accordingly.