TAXATION OF NON-RESIDENT PERSONS
Introduction
A non-resident is taxed in India only on income that is received, deemed received, accrued, or deemed accrued in India. Taxability is also influenced by Double Taxation Avoidance Agreements (DTAAs) between India and other countries.
Determination of Non-Resident Status
A person is classified as a non-resident under Section 6 of the Income-tax Act if he does not meet the criteria for residency based on his physical stay in India. The residential status of entities depends on the location of control, management, or effective place of business.
Taxable Income of Non-Residents
The following categories of income are taxable in India for non-residents:
- Salary: Taxable if services are rendered in India, regardless of the place of receipt. Certain exemptions apply underSection 10(6).
- House Property: Income from properties in India is taxable, even if received outside India.
- Business or Profession: Taxable if the business has a permanent establishment in India or if it has a business connection in India.
- Capital Gains: Taxable if the asset is located in India. Shares in a foreign entity deriving substantial value from Indian assets are also taxable. DTAA provisions may provide relief.
- Other Sources: Passive income like dividends, interest, royalties, and fees for technical services (FTS) is taxable in India if deemed to accrue or arise in India.
Computation of Total Income
Total income is determined as follows:
- Calculate income under five heads(Salary, House Property, Business/Profession, Capital Gains, Other Sources).
- Apply clubbing provisionsif applicable.
- Set off and carry forward lossesas per tax provisions.
- Apply deductions under Chapter VI-Ato compute Gross Total Income.
- Determine total taxable incomeafter deductions.
Tax Computation for Non-Residents
- Tax is levied at normal rates for regular income and special rates for specific incomes.
- Minimum Alternate Tax (MAT)applies to foreign companies with a permanent establishment in India. Certain incomes like dividends, royalties, and capital gains may be excluded if taxed at lower rates.
- Alternate Minimum Tax (AMT)applies to non-corporate assessees at 18.5% on adjusted total income.
Compliance Requirements for Non-Residents
- Permanent Account Number (PAN): PAN is required for all communications with the Income-tax Department and for specified financial transactions. However, a non-resident is not required to have a PAN in the following cases:
Income from investment in Category I or II AIFs located in IFSC (if TDS is deducted and foreign residency details are given).
Receipt of passive income like interest, dividend, royalty, FTS, or capital gains (if foreign residency details are furnished).
Opening a bank account with an IFSC banking unit (if no taxable income in India and Form 60 is submitted).
- Filing of Return: Non-residents are required to file income-tax return unless they have only specified incomes (e.g., underSection 115A) with tax already deducted.
- Tax Residency Certificate (TRC): Required to claim DTAA benefits.
- Tax Clearance Certificate: Non-residents may need this certificate before leaving India to confirm tax compliance.