by Moiz Mannan
A recent ruling by India’s apex tax adjudicator is likely to lessen the income tax burden on hundreds of non-resident Indians and also go a long way in clearing confusion about income earned in a foreign country but deposited in India.
The Times News Network last week reported an interesting case of an Indian employee of a Singapore-based shipping company whose salary was earned abroad but the amount deposited in India. The Income Tax Appellate Tribunal (ITAT), which adjudicates tax matters, has held that merely because the salary was credited by the Singapore-based employer company to the employee’s NRE bank account in Mumbai, it will not trigger a tax incidence in India.
What is significant here and has long term implications is that the ITAT has distinguished between ‘income’ received in India and an ‘amount’ received in India. Under tax laws, the tax incidence is based on the concept of residence, which in turn depends on the number of days stayed in India. A tax resident of India is subject to tax on his global income. However, a non-resident is subject to tax in India only under two situations, one of them being that income received in India is taxable in India. In this case, the employee who was working on a ship plying on international routes was a non-resident as he had spent less than 182 days in India during the relevant financial years relating to the matter being heard by the ITAT.
ITAT rejected the contention of the tax department that the salary amount credited to the bank account in India should be subject to tax. It observed that the employee had a lawful right to receive the salary amount at the place of employment (which is the location of the foreign employer outside India). The ITAT held: “The connotation of an income having been received and an amount having being received are qualitatively different. The salary ‘amount’ is received in India in this case but the salary ‘income’ is received outside India”.
The decision is especially interesting for Indians working in or having links with entities in the Gulf because they have frequent transactions of varied types. According to data made available to the Lok Sabha last week by the Minister of Overseas Indians Affairs, Vayalar Ravi, Indians residing in the Gulf coutries remitted $24.93bn in 2013-13. This was the highest among all regions of the globe, with North America following suit at $23.22bn.
Over the years, Indian authorities have been trying to make taxation simpler for NRIs. Already, interest earned by an NRI on the balance in an NRE account is exempt from income tax if such an individual is a resident outside India as per the exchange control regulations issued by the Reserve Bank of India, i e, if he or she has been in India for less than 182 days during the preceding financial year or having spent more than 182 days in India for reasons other than taking up employment in India, carrying on business here or for any other purpose that indicates their intention to stay in India for an uncertain period. Here again, there is a large number of Indians with Gulf visas who alternate stays between their home and host countries.
In the process to streamline tax payment, the Income Tax Department last year lowered the limit to compuslory e-filing of tax returns from Rs1m to Rs 500,000. It means that all NRIs who have taxable income of Rs 500,000 or more in the assessment year will have to e-file their income tax returns.
Further, the IT authorities have also introduced a tax credit statement to tally deductions made or paid throughout the year with the actual tax returns. If the two do not match, the department proposes to send out ‘show cause’ notices to assessees. NRIs are liable to pay tax in India only on income earned in India. This includes any income from investment or income from long-term capital gains of an asset other than a specified asset and income by way of long-term capital gains.
In certain cases where investments are made in specified assets such as savings certificates, capital gains on transfer of foreign exchange assets is not charged. Similarly, in some cases it is not necessary for an NRI to furnish a return of his income. This happens if 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 the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.
Incomes of NRIs are exempt from income tax interest on various specified securities or bonds. NRIs enjoy tax exemptions from property investment and other assets including dividend income, interest income, and even gifts.
NRIs who pay health insurance premium in India for dependents can claim a deduction under section 80D. For health insurance taken for spouse and dependent children, a deduction of Rs15,000 can be claimed. A similar amount can be claimed for insurance premium paid on behalf of your parents. If either parent is over the age of 65, the additional deduction will be Rs 20,000 instead of Rs15,000. Deductions under section 80G are also available to NRIs donating to an approved charitable institution.
Some short and long term capital gains from sale of investments or assets are taxed in the case of NRIs even if the total income is below the basic exemption limit. These include short term capital gains on equity shares and equity mutual funds where tax rate is 15 per cent and long term capital gains on securities and assets where tax rate is either 20 per cent or 10 per cent without indexation.
As for the matching of tax credits and actual returns, the Income Tax department has introduced a statement they call Form 26AS. It contains details of tax deducted on behalf of the taxpayer by deductors, details of tax collected on behalf of the taxpayer by collectors, advance tax/self assessment tax/regular assessment tax, etc. deposited by the taxpayers, details of paid refund received during the financial year, and details of the high value transactions in respect of shares, mutual fund etc.
