Special Provisions of non-resident taxation are the provisions given under the income tax act for the taxability of the non resident person in our country. Non-resident can compute their tax liability as per the tax rate prescribed under the income tax Act.
Mr. kevin o Lerry a resident of united states of America has made some investments in India. From that investment he receives some dividend income. So the question arises whether this dividend income which kevin o Lerry earned from India is taxable in India?
Well the answer is yessss !!!
He is taxable under the Non-resident taxation provisions.
These provisions are explained in detail in the upcoming paragraphs.
What’s in it for me?
- Sec 115A :- Special provisions for computation of royalty, fees for technical services, interest, etc
- Sec115AB:- Special provisions for units purchasing in foreign currency or capital gains arising from their transfer in case of offshore fund.
- SEC115AC:- Special provisions for Bonds or Global depository receipts purchased in foreign currency or capital gains arising from their transfer.
- SEC115AD :- Special provisions for computing tax in case of foreign institutional investor from securities or capital gains arising from their transfer.
- SEC115BBA :- Special provisions for computing tax in case of non-resident sportsman or sports association.
- SEC115D:- Computation of total income of non-residents.
- SEC115E:- Tax rate on investment income and long term capital gains.
- SEC115F :- Exemption for long term capital gains.
Sec 115A:- Special provisions for computation of royalty, fees for technical services, interest, etc for Non-resident taxation:-
Where the total income of a non-residents or of a foreign company is from,
| Sources of income | Tax rates |
| Dividend income | 20% |
| Interest received from goverment | 20% |
| Interest received from infrastructurs debt fund | 5% |
| Interest received u/s 194LC | 5% |
| Interest received u/s 194LD | 5% |
| Interest received u/s 194LBA | 5% |
| Income received u/s 10(23D) | 20% |
Tax for royalty and fees for technical services is,
10%
OR
RATE PRESCRIBED IN DTAA
Whichever is lower.
Important points for Non-resident taxation are,
- No deduction is allowed from section 28 to 44C and section 57 in computing the above income.
- Deduction under chapter-VIA is not applicable .
- It shall not be necessary for the assessee to furnish the return of income.
SEC 115AB:- Special provisions for units purchasing in foreign currency or capital gains arising from their transfer in case of offshore fund of Non-resident:-
Where the total income of the overseas financial organization is from ,
- Income received is from units purchased in foreign currency or,
- By way of long term capital gains arising from transfer of units the the tax rate will be 10%.
Important points of Non-resident taxation to be noted :-
- Benefit of indexation is not available.
- Deduction under chapter-VIA is not applicable .
- Short term capital gain is taxable @15%.
- Long term capital gain upto Rs.100000 is exempt.
SEC 115AC:- Special provisions of Non-resident for Bonds or Global depository receipts purchased in foreign currency or capital gains arising from their transfer : –
Where the total income of the non-residents includes,
- Interest received from bonds of an Indian company or,
- Dividend received from global depository receipts other than dividend of section 115O
Than tax rate of charging the income is 10%.
Important points for Non-resident taxation are,
- No deduction is allowed from section 28 to 44C and section 57 in computing the above income.
- Deduction under chapter-VIA is not applicable.
It shall not be necessary for the assessee to furnish the return of income.
SEC 115AD:- Special provisions of Non-resident for computing tax in case of foreign institutional investor from securities or capital gains arising from their transfer:-
| No. | Income | Tax rate | Exception |
| 1 | Income received in respect of securities. | 20% | Interest refered to in section 194LD tax rate 5%. |
| 2 | Income by way of short term capital gains. | 30% | Short term Capital gain refered to section 111A tax rate will be 15%. |
| 3 | Income by way of long term capital gains. | 10% | Long term capital gain refereed to in section 112A will be 10% if income exceeds Rs.100000 |
| 4 | Other income of FII’s | At normal tax rates. |
Important points for Non-resident taxation are,
- No deduction is allowed from section 28 to 44C and section 57 in computing the above income.
- Deduction under chapter-VIA is not applicable .
- No indexation benefit is available.
It shall not be necessary for the assessee to furnish the return of income.
SEC 115BBA:- Special provisions of Non-resident for computing tax in case of non-resident sportsman or sports association:-
| Sno. | Assessee | Income |
| 1 | A sports man who is not a citizen of india and is a non resident. | 1.Income from game in which he has participated. 2. income from advertisement. 3. income from contribution relatin to any game or sport in articles, newspapers, magazines,etc. |
| 2 | A non resident sports association or institution. | Any amount guaranteed to be paid to such institution. |
| 3 | An entertainer who is not a citizen of india and is a non resident. | Any income received from his performance. |
Important points for Non-resident taxation are,
- No deduction is allowed from section 28 to 44C and section 57 in computing the above income.
- Deduction under chapter-VIA is not applicable .
- No filing of return is compulsory.
It shall not be necessary for the assessee to furnish the return of income.
SEC-115D:- Computation of total income of non-residents:-
Computation of total income of non-resident should be on Gross basis.
No deduction under any section is to be given to non residents.
No indexation benefit is to be given to any non-resident on long term capital gains and on any investment income.
SEC-115E:- Tax rate on investment income and long term capital gains of Non-resident:-
Under this section investment income and long term capital gain of the non residents should be created as a separate block and chargeable to tax at a flat rate.
Tax payable should be aggregate of,
- Income tax on investment income at 20%.
- Income tax on long term capital gains is 10%.
SEC-115F:- Exemption for long term capital gains of Non-resident: –
When a non-resident has transferred a long term capital asset and within a period of 6 months such income is again invested than the calculation of capital gains for Non-resident taxation will be,
Capital gains*cost of acquisition/net consideration.
Important points of Non-resident taxation are: –
- Net consideration means full value of consideration less expenses incurred on transfer of such asset.
When new asset purchased is transferred within a period of 3 years from the date of purchase than the amount which is exempted earlier is chargeable to capital gains.
For more provisions related to Non-resident taxation refer the following websites given below,
https://www.incometaxindia.gov.in/Pages/international-taxation/provision-non-resident.aspx
You can also visit a video on Non-resident taxation ,
You can also visit my other Blogs for Non-resident taxation at,
https://indieseducation.com/?p=10522
Examples of Non-resident taxation: –
Q-1 Morgan and stanley a well known foreign institutional investor of united states of America has invested in equity of reliance industries ltd. From this investment Morgan and Stanley has earned a dividend income of Rs.1 crore. whether this dividend income earned is taxable in the hands of Morgan and Stanley? If yes than at what tax rate?
A-1 As per section 115 AD, if an foreign institutional investor earns any dividend income from India than the tax rate of such dividend income is 20%. All the Income earned by foreign institutional investor is taxable in their hands under the provisions of the income tax act.
Q-2 Kevin Peterson a cricketer of England came to India for playing a cricket match. He earns from the game Rs.1000000. besides this he also appears in one of the advertisments of britannia ltd. From their he earns an income of Rs. 5000000. He also incurs an expense of Rs.700000 for his lodging and travelling. How much income of kevin Peterson is taxable in India? And at what tax rate such income is taxable?
A-2 As per section 115 BBA any income earned by a foreign sports person in India by playing any game or by appearing in any advertisments than such income is taxable in his hands.
Tax rate for such an income is 20%.
Any expenses incurred by a person for his travelling and lodging are not to be allowed for deduction.
Q-3 If in the income tax, rate of certain income is low for Indian citizen and the same income tax rate is high for non residents under the special provisions of the income tax act. Whether non residents are allowed to claim the benefit of lower tax rates?
A-3 No. Non residents have to pay tax as per the special provisions of the act only. They don’t have to pay tax at normal tax rate. Even the tax rate in the special provisions are higher than normal tax rate, than also the non residents have to pay tax at such higher rate only.
They will not get the benefit of normal tax rates.
Conclusion of Non-resident taxation: –
So by explaining the provisions of an income tax act, we can say that all the non-resident individuals as well as body corporates have to pay tax in India. For them special tax rate are also been prepared by our tax authorities.
FAQ’s of Non-resident taxation:-
A-1 There are different tax rates for non-residents. All of them are properly mentioned from section115A to section 115I.
A-2 Non resident individual can take a benefit of slab rate which are given in the income tax act,1961.
