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Taxability of Income of a Non- Resident Individual

In the last article How to determine the residential status of an individual we spoke about how an Individual is determined as a NRI and taxability of income for a NRI .In this article we will take the concept forward and will discuss in brief about taxability of Income of a Non- Resident Individual.

Taxability of Income of a Non- Resident Individual

The different heads of income under which income can be taxable are as follows:

  • Income from Salary
  • Income from House Property
  • Income from Business or Profession
  • Income from Capital Gains
  • Income from Other Sources

Income from Salary:

A Salaried Individual being NRI will be liable to pay taxes in India based on the applicable Income Tax Slab on the amount of salary earned in India and also on the amount earned from Services rendered in India. However individual who is a citizen of India, and employed by Government of India his/her Income will be chargeable under the head salaries as per the Indian Tax Laws even though the services are rendered outside India.

Income from House Property:

NRIs who settle abroad generally let out there house property on rent which they own in India and earn rental income. The rental income earned by the NRI can be credited to NRE or NRO account and in the absence of such account the proceed can directly be remitted abroad by the tenant accompanied by an appropriate certificate from a Chartered Accountant declaring that all the taxes have been duly paid. Such an Income from House Property is chargeable under the head income from House property and is taxable in the same manner as a resident Individual. The way a Resident Claims a Standard deduction of 30% and takes a the benefit of Interest paid on home loan , NRI is also allowed to claim the same benefits along with Principal repayment of home loan which is allowed as deduction under section 80C.

Income from Business or Profession

Income earned by a non resident individual accruing or arising through or from a Business connection in India is taxable under the head Business or Profession. This term covers different business activities such as a branch office, a local subsidiary to sell imported products, an agent for buying or selling, building a factory for exports and a financial association between a resident and a non-resident company. However as per the provisions of income tax act business connection shall not be any business activity carried out through a broker, general commission agent or any other agent having an independent status.

Income from Capital Gains

If any Income is earned by a Non resident individual on transfer of an asset or sale of shares held in India then income earned on such transfer and sale is taxable under the Capital Gains.

Income from Other Sources

Interest income accrued from Savings Bank account and Fixed deposit held by a Non resident Individual are liable to taxed in India. Interest earned from a NRE account is exempted. However, interest on NRO account is fully taxable.  In certain cases the income in respect of interest is taxable in the hands of a non resident depending upon the use of the funds. Few situations are discussed here under.

  • Interest received from Government of India is always taxable in India for a Non resident Individual.
  • Interest earned from a resident is taxable in India only when the borrower uses the funds carrying out business or profession in India or for making or earning any income from any source in India
  • Similarly Interest earned from a non resident is treated as income to accrue or arise in India if such interest is earned in respect of funds borrowed by the nonresident for carrying on any business/profession in India.

Income by way of Royalty and fees for technical is taxable as special Income Under the head other sources and it also depends upon the purpose of the payment made. Following situations has to considered for the same:

  • Royalty and Fees for Technical Services received by a Non- Resident Individual from Government of India is always taxable in India.
  • Royalty/fees for technical services received from resident is treated as income deemed to accrue or arise in India in all cases, except where such royalty/fees relates to business/profession/other source of income carried on by the payer outside India. However If received from non-resident it will be taxable only if such royalty/fees are received for business/profession/other source of income carried on by the payer in India.

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