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Tax Implications

The tax liability of a person under the Income Tax Act depends on the residential status in the financial year (1st April to 31st March) in which the income accrues or arises to him or is received by him. For income tax purposes the residential status of an individual generally depends on his physical presence or stay in India and not on his nationality or domicile.

What is double taxation avoidance?

Since a resident is liable to pay tax in India on his 'total world income', it is possible that he may have to pay tax on his foreign income in that country also. To avoid such a situation the Government of India has entered into agreements for avoidance of 'double taxation' with different countries.

What are the special provisions applicable to NRIs?

With a view to attract investment by Non-Resident Indians (NRIs), certain relieves, exemptions and incentives have been provided (Chapter XII A of Income Tax Act).

For Income Tax purposes, a Non-resident Indian has been defined as an individual being a citizen of India or a person of Indian origin who is not a resident. A person is considered to be of Indian Origin if he or either of his parents or his grand parents was born in undivided India.

What is 20% tax scheme?

Income from foreign exchange assets (any specified asset which the assessee has acquired or purchased or subscribed to in convertible foreign exchange) comprising of shares/debentures/deposits with Indian companies, Central Government securities or any other notified assets subscribed to or purchased in convertible foreign exchange can be charged at a flat rate of 20%.
No deduction, basic exemptions etc. will be available under the 20% scheme.

What are long-term capital gains?

Long term capital gains on specified foreign exchange assets such as Units/Bonds/Shares and listed securities as specified by the Government held by NRIs are taxable @ 10%.

Minimum holding period for allowing this rate is one year for shares and other securities listed in stock exchanges in India and units of specified mutual funds.
For other assets the minimum holding period is 36 months. If the proceeds are reinvested within six months of such transfer in any specified securities and new assets are retained for 3 years, the proceeds are exempted from payment of Income Tax.

Income from units of UTI are totally exempted from payment of Income Tax.
On short time capital gains, NRIs are liable to pay capital gains tax at the same rate that is applicable to residents i.e. @ 30%.

What are the tax exemptions for NRIs?

Income from following investments made by NRIs out of convertible foreign exchange is totally exempt from income tax.
Following bank accounts: NRE, FCNR. Units of UTI, Specified securities, bonds, saving certificates

The above exemptions will cease immediately on the NRI becoming a resident.

Where the NRI has income from only foreign exchange assets or income by way of long term capital gains from foreign exchange assets or both, and tax deductible at source from such income has been deducted, he is not required to file returns of income as otherwise required under the Income Tax Act.

The special provisions in relation to investment income from foreign exchange assets (other than shares of an Indian company) will continue, even after the NRI becomes a resident till transfer or conversions of such assets into money, if the NRI so wishes.

What is wealth tax?

Wealth Tax is levied only on non-productive assets like urban land, buildings (except one house property), jewelry, bullion, vehicles, cash over Rs.50,000 etc. Wealth Tax is levied @ 1% over aggregate value of chargeable assets in excess of Rs. 1.5 million.


	Disclaimer: The above information has been assimilated from various government sources and is subject to change by the respective government agency, from time to time.

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