Foreign Taxation

Withholding tax - Introduction (Nothing but TDS)

Withholding Tax is an obligation on the payer to withhold tax at the time of making payment under specified head such as rent, commission, salary, professional services, contract etc. at the rates specified in tax regime

The Withholding tax provisions are in the nature of machinery provisions applicable to the payer of the income to enable easy collection and recovery of tax and are independent of the charging provisions which are applicable to the recipient of the company.

Direct Tax Provision

Where any payment is to be made to a non resident, the payer is obliged to deduct at source. As per Section 195 of the Income Tax Act, an obligation on the person responsible for payment to deduct tax at source at the time of payment or at the time of the credit of the income to the account of the non resident.

If the payment would not be taxable, the person responsible for making such payment may make an application to the accessing officer to determine appropriate proportion which shall be chargeable to tax. The tax is required to be deducted only on the chargeable proportion.

The tax is to be deducted at the rate prescribed in the Act or rate specified in Double Taxation Avoidance Agreement whichever is beneficial to the assessee.

Any person making a payment to any non-resident shall be liable to deduct tax at the rates specified.

Rates of Withholding Tax

Current rates for withholding tax for payment to non-residents are:-


Nature of Payment (Income by way of interest)

Recipient is non-resident or foreign companies

Individual/HUF/AOP/BOI/Artificial Juridical Person

Non-Resident Co-operative Society Firm

Non-Domestic company

  • Interest received from government or Indian concern on money borrowed in foreign currency {Section 115A(1)(a)(ii)} (TDS through section 195)

20%

20%

20%

  • Interest referred to in section 194LB received from an Infrastructure debt fund referred to in section 10(47) on money borrowed by infrastructure debt fund in foreign currency {Section 115A(1)(a)(iia)}

5%

5%

5%

  • Interest referred to in section 194LC received from an Indian Company- {Section 115(1)A(a)(iiaa)}

(i) In respect of monies borrowed by it in foreign currency, from source outside India,-

  • Under loan agreement at any time on or after 01.07.2012 but before 01.07.2017
  • By way of issue long term bonds at any time on or after 01.07.2012 but before 01.07.2017
  • By way of issue long term infrastructure bond at any time on or after 1.07.2012 to 01.10.2014

              As approved by the Central    Government in this behalf; and

            (ia) in respect of monies borrowed        by it from a source outside India by way of issue of rupee denominated bond at any time 01.07.2020

           (ii) to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf having regard to the terms of the loan or the bond and its repayment.

5%

5%

5%

  • Interest referred to in section 194LD received by Foreign Institutional Investor or Qualified Foreign Investor from an Indian company or Indian Government where such interest is payable on or after 01-06-2013 but before 01-06-2015 on Investment made by Foreign Institutional Investor or Qualified Foreign Investor in foreign currency in: {Section 115A(1)(a)(iiab)}
  1. Rupee denominated bond of an Indian Company; or
  2. Government security.

Provided that the rate of interest in respect of bond referred to in (a) shall not exceed the rate notified by the Central Government

5%

5%

5%


No deduction allowed in case of above incomes.

No need to file return u/s 139(1) by assessee if total income consists only above interest income and TDS has been deducted from such incomes.

The provision of Chapter VI, i.e. set off, Carry forward and set off of losses, are applicable. The unabsorbed deprecation of current year as well as brought forward not allowed because depreciation governed by section 32 and from section 28 to 44C and section 57 not allowed against above income.

Infrastructure debt fund lend the investor’s money in Infrastructure project company.

A rupee denominated bond is a bond issued by an Indian entity in foreign markets and the interest payments and principal reimbursement are denominated (express) in rupee.


Nature of Payment (Income by royalty or fees for technical services other than income referred to in section 44DA)

Recipient is non-resident or foreign companies

Individual/HUF/AOP/BOI/Artificial Juridical Person

Non-Resident Co-operative Society Firm

Non-Domestic company

Received from the Government/Indian Concern in pursuance of agreement.

Agreement approved by Government, not approval require if matter included in the industrial policy, for the time being in force and agreement accordance with that policy.{115A(1)(b)} 

10%

10%

10%


Deduction allowed in case of above incomes.

Need to file return u/s 139(1) by assessee if total income consists only above royalty income and TDS has been deducted from such incomes.

The provision of Chapter VI, i.e. set off, Carry forward and set off of losses, are applicable. The unabsorbed deprecation of current year as well as brought forward not allowed because depreciation governed by section 32 and from section 28 to 44C and section 57 not allowed against above income.

Explanation 2 to Sec 9(1)(vi) Royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for-

- the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property

- the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property

- the use of any patent, invention, model, design, secret formula or process or trade mark or similar property

- the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill

(iva)   the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB (sec 44BB contains special provisions pertaining to the business of exploration of minerals, oils etc - dealt with in the chapter “ Profits and gains of business or profession)

the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or

the rendering of any services in connection with the activities referred to in the above clauses.

Explanation 4.-For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred.

Analysis: Therefore, if a resident imports a software from abroad/get a license to use the software from abroad, then the payment received by foreigner shall be treated as royalty. Since the software is to be used in India, the royalty shall be taxable in the hands of foreigner in India and the Indian making the payment shall deduct TDS under section 195 @ 25% as given in section 115A

Section 40(a)(i) and section 40(a)(ia) provides that deduction for any expenditure by way of royalty paid to nonresident and resident respectively, shall be allowed if TDS is deducted/paid as the conditions specified therein.

Section 40(a)(i) and section 40(a)(ia) provide that royalty shall have the same meaning as given in section 9. Now after the amendment by Finance Act, 2012, royalty includes payment for computer software. Therefore, amount paid for purchase of computer software is royalty and shall be allowed as deduction under section 37(1).

Income Tax Rules, 1962 provides that computer software will be include in block of assets of computer and will be eligible for 60% depreciation but Income Tax Act’ 1961 provides that payment made for computer software is royalty. Income Tax Rules, cannot override the Income Tax Act. Therefore, after the amendment by Finance Act 2012, amount paid to obtain the computer software will be treated as Revenue Expenditure under section 37(1) subject to section 40(a)(ia) and shall not be added to block of assets of computers.

Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not-

  • the possession or control of such right, property or information is with the payer;
  • such right, property or information is used directly by the payer;
  • the location of such right, property or information is in India.

Analysis: Indian banks make use of servers of foreigners for credit card transitions. For any credit card transaction where a swipe is made, the swipe transaction is verified by server of foreigner which is located outside India. Indian banks make payment to this foreigner for all such swipes. Now, the foreigner argues that this income received by him is not taxable in India, because:

  • Possession of server is not with Indian bank.
  • Server is not used directly by Indian bank.
  • The location of server is outside India.

Finance Act, 2012 clarifies the payment made to foreigner shall be treated as royalty even if:

  • Possession of server is not within India
  • Server is not used directly by Indian bank
  • The location of server outside India.

Explanation 6.-For the removal of doubts, it is hereby clarified that the expression “process” includes and shall be deemed to have always included transmission by satellite (including uplinking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret”

Analysis: Indian T.V. channels make use of satellite of foreigner to transmit their programs. Now the payment made to foreigner for transmission of programs by satellite is treated as royalty liable to tax deduction under section 195.

Explanation 2 to Sec 9(1)(vii) Fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel). However, it does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.

Section 44DA. Special provision for computing income by way of royal­ties, etc., in case of non-residents.-

The income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Govern­ment or the Indian concern after the 31st day of March, 2003, where such non-resident (not being a company) or a foreign compa­ny carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effec­tively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head "Profits and gains of business or profession"

In accordance with the provisions of this Act:

- that no deduction shall be allowed,-

- in respect of any expenditure or allowance which is not wholly and exclusively incurred for the business of such perma­nent establishment or fixed place of profession in India; or

- in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent estab­lishment to its head office or to any of its other offices.

Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this section.

Every non-resident (not being a company) or a foreign company shall keep and maintain books of account and other documents in accordance with the provisions contained in section 44AA and get his accounts audited by an accountant as defined in the Explana­tion below sub-section (2) of section 288 and furnish along with the return of income, the report of such audit in the prescribed form duly signed and verified by such accountant.

For the purposes of this section,-

  • "fees for technical services" shall have the same mean­ing as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
  • "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;
  • "permanent establishment" shall have the same meaning as in clause (iiia ) of section 92F.’.

Section 115AB

Tax on income from units purchased in foreign currency or capital gains arising from their transfer.-

Where the total income of an assessee, being an overseas financial organization

(hereinafter referred to as Offshore Fund) includes-

  • income received in respect of units purchased in foreign currency; or
  • income by way of long-term capital gains arising from the transfer of units purchased in foreign currency,

the income-tax payable shall be the aggregate of-

  • the amount of income-tax calculated on the income in respect of units referred to in clause (a), if any, included in the total income, at the rate of ten per cent.;
  • the amount of income-tax calculated on the income by way of long-term capital gains referred to in clause (b), if any, included in the total income, at the rate of ten per cent.; and
  • the amount of income-tax with which the Offshore Fund would have been chargeable had its total income been reduced by the amount of income referred to in clause (a) and clause (b).

Where the gross total income of the Offshore Fund,-

a. consists only of income from units or income by way of long-term capital gains arising from the transfer of units, or both, no deduction shall be allowed to the assessee under sections 28 to 44C or sub-section (2) of section 48 or clause (i) or clause (iii) of section 57 or under Chapter VI-A;

b. includes any income referred to in clause (a), the gross total income shall be reduced by the amount bf such income and the deduction under Chapter VI-A shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.

Explanation.-For the purposes of this section,-

"overseas financial organisation" means any fund, institution, association or body, whether incorporated or not, established under the laws of a country outside India, which has entered into an arrangement for investment in India with any public sector bank or public financial institution or a mutual fund specified under clause (23D) of section 10 and such arrangement is approved by the Central Government for this purpose;

"unit" means unit of a mutual fund specified under clause (23D) of section 10 or of the Unit Trust of India;

"foreign currency" shall have the meaning as in the Foreign Exchange Regulation Act, 1973 (46 of 1973);

"public sector bank" shall have the meaning assigned to it in clause (23D) of section 10;

"public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);

"Unit Trust of India" means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963).'.

Section 115AC

'115AC. Tax on income from bonds or Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.-

Where the total income of an assessee, being a non-resident, includes-

income by way of interest on bonds of an Indian company issued in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf, or on bonds of a public sector company sold by the Gov­ernment, and purchased by him in foreign currency; or

income by way of dividends, other than dividends re­ferred to in section 115-O, on Global Depository Receipts-

issued in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf, against the initial issue of shares of an Indian company and purchased by him in foreign currency through an approved intermediary; or

issued against the shares of a public sector company sold by the Government and purchased by him in foreign currency through an approved intermediary; or

re-issued in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf, against the existing shares of an Indian company purchased by him in foreign currency through an approved intermediary; or

issued in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf, and purchased by him in foreign currency through an approved intermediary, against the shares of an Indian company arising out of disinvestment by such company in its subsidiary company, and the shares of both such Indian companies are listed in a recognised stock exchange in India; or

income by way of long-term capital gains arising from the transfer of bonds referred to in clause (a) or, as the case may be, Global Depository Receipts referred to in clause (b), the income-tax payable shall be the aggregate of-

the amount of income-tax calculated on the income by way of interest or dividends other than dividends referred to in section 115-O, as the case may be, in respect of bonds referred to in clause (a) or Global Depository Receipts referred to in clause (b), if any, included in the total income, at the rate of ten per cent;

the amount of income-tax calculated on the income by way of long-term capital gains referred to in clause (c), if any, at the rate of ten per cent; and

the amount of income-tax with which the non-resi­dent would have been chargeable had his total income been reduced by the amount of income referred to in clauses (a), ( b) and (c).

Where the gross total income of the non-resident-

- consists only of income by way of interest or dividends other than dividends referred to in section 115-O in respect of bonds referred to in clause (a) of sub-section (1) or, as the case may be, Global Depository Receipts referred to in clause (b) of that sub-section, no deduction shall be allowed to him under sections 28 to 44C or clause (i) or clause (iii) of section 57 or under Chapter VI-A;

- includes any income referred to in clause (a) or clause (b) or clause (c) of sub-section (1), the gross total income shall be reduced by the amount of such income and the deduction under Chapter VI-A shall be allowed as if the gross total income as so reduced, were the gross total income of the assessee.

Nothing contained in the first and second provisos to section 48 shall apply for the computation of long-term capital gains arising out of the transfer of long-term capital asset, being bonds or Global Depository Receipts referred to in clause (c) of sub-section (1).

It shall not be necessary for a non-resident to furnish under sub-section (1) of section 139 a return of his income if-

- his total income in respect of which he is assessable under this Act during the previous year consisted only of income referred to in clauses (a) and (b) of sub-section (1); and

- the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.

Where the assessee acquired Global Depository Receipts or bonds in an amalgamated or resulting company by virtue of his holding Global Depository Receipts or bonds in the amalgamating or demerged company, as the case may be, in accordance with the provisions of sub-section (1), the provisions of that sub-section shall apply to such Global Depository Receipts or bonds.

For the purposes of this section,-

"approved intermediary" means an intermediary who is approved in accordance with such scheme as may be notified by the Central Government in the Official Gazette;

"Global Depository Receipts" shall have the same mean­ing as in clause (a) of the Explanation to section 115ACA.’.

"Global Depository Receipts" means any instrument in the form  of a depository receipt or certificate (by whatever name called) created by the Overseas Depository Bank outside India and issued to non-resident investors against the issue of ordinary shares or foreign currency convertible bonds of issuing company;

No Deduction under chapter VI-A shall be allowed

No Deduction shall be allowed under section 28 to 44C or section 57

No need to file return if TDS deducted from payment

As per section 47 if GDR are transferred by non-resident to nonresident outside India, then capital gain will no attract income tax.

The provisions of set off, carry forward and set off of losses are applicable.

Section 115AD

Where the total income of a Foreign Institutional Investor includes-

Income other than income by way of dividends referred to in section 115-O received in respect of securities (other than units referred to in section 115AB); or

income by way of short-term or long-term capital gains arising from the transfer of such securities, the income-tax payable shall be the aggregate of-

the amount of income-tax calculated on the income in respect of securities referred to in clause (a), if any, included in the total income, at the rate of twenty per cent :

Provided that the amount of income-tax calculated on the income by way of interest referred to in section 194LD shall be at the rate of five per cent;

the amount of income-tax calculated on the income by way of short-term capital gains referred to in clause (b), if any, included in the total income, at the rate of thirty per cent :

Provided that the amount of income-tax calculated on the income by way of short-term capital gains referred to in section 111A shall be at the rate of fifteen per cent;

the amount of income-tax calculated on the income by way of long-term capital gains referred to in clause (b), if any, included in the total income, at the rate of ten per cent; and

the amount of income-tax with which the Foreign Institutional Investor would have been chargeable had its total income been reduced by the amount of income referred to in clause (a) and clause (b).

Where the gross total income of the Foreign Institutional Investor-

consists only of income in respect of securities referred to in clause (a) of sub-section (1), no deduction shall be allowed to it under sections 28 to 44C or clause (i) or clause (iii) of section 57 or under Chapter VI-A;

includes any income referred to in clause (a) or clause (b) of sub-section (1), the gross total income shall be reduced by the amount of such income and the deduction under Chapter VI-A shall be allowed as if the gross total income as so reduced, were the gross total income of the Foreign Institutional Investor.

Nothing contained in the first and second provisos to section 48 shall apply for the computation of capital gains arising out of the transfer of securities referred to in clause (b) of sub-section (1).

Explanation.-For the purposes of this section,-

  1. the expression "Foreign Institutional Investor" means such investor as the Central Government may, by notification in the Official Gazette, specify in this behalf;
  2. the expression "securities" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

Section 115C. In this Chapter, unless the context otherwise requires,-

"convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made there under;

"foreign exchange asset" means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange;

"investment income" means any income derived other than dividends referred to in section 115-O from a foreign exchange asset;

"long-term capital gains" means income chargeable under the head "Capital gains" relating to a capital asset, being a foreign exchange asset which is not a short-term capital asset.

"non-resident Indian" means an individual, being a citizen of India or a person of Indian origin who is not a "resident" .

Explanation.-A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India;

  1. "specified asset" means any of the following assets, namely :-
  1. shares in an Indian company;
  2. debentures issued by an Indian company which is not a private company as defined in the Companies Act, 1956 (1 of 1956);
  3. deposits with an Indian company which is not a private com-pany as defined in the Companies Act, 1956 (1 of 1956);
  4. any security of the Central Government as defined in clause (2) of section 245 of the Public Debt Act, 1944 (18 of 1944);
  5. such other assets as the Central Government may specify in this behalf by notification in the Official Gazette.

Section 115D

No deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the investment income of a non-resident Indian.

Where in the case of an assessee, being a non-resident Indian,-

the gross total income consists only of investment income or income by way of long-term capital gains or both, no deduction shall be allowed to the assessee under Chapter VI-A and nothing contained in the provisions of the second proviso to section 48 shall apply to income chargeable under the head "Capital gains"

the gross total income includes any income referred to in clause (a), the gross total income shall be reduced by the amount of such income and the deductions under Chapter VI-A shall be allowed as if the gross total income as so reduced were the gross total income of the assessee. (i.e. deduction under Chapter VI-A allowed on remaining income)

Summary

Particulars

Investment Income

LTCG on transfer of Foreign exchange asset

Expenditure Incurred to earn Income

No

Yes (Transfer Expenses)

Indexation (Second Proviso to Section 48)

Not Applicable

No

Basic Exemption Limit

No

No

Deduction under Chapter VI-A

No

No

Section 115E. 

Where the total income of an assessee, being a non-resident Indian, includes-

  • any income from investment or income from long-term capital gains of an asset other than a specified asset;
  • income by way of long-term capital gains, the tax payable by him shall be the aggregate of-
  • the amount of income-tax calculated on the income in respect of investment income referred to in clause (a), if any, included in the total income, at the rate of twenty per cent;
  • the amount of income-tax calculated on the income by way of long-term capital gains referred to in clause (b), if any, included in the total income, at the rate of ten per cent; and
  • the amount of income-tax with which he would have been chargeable had his total income been reduced by the amount of income referred to in clauses (a) and (b).

Section 115F. 

Where, in the case of an assessee being a non-resident Indian, any long-term capital gains arise from the transfer of a foreign exchange asset (the asset so transferred being hereafter in this section referred to as the original asset), and the assessee has, within a period of six months after the date of such transfer, invested  the whole or any part of the net consideration in any specified asset, or in any savings certificates referred to in clause (4B) of section 10 (such specified asset, or such savings certificates being hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,-

- if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

- if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the new asset bears to the net consideration shall not be charged under section 45.

Explanation.-For the purposes of this sub-section,-

"cost", in relation to any new asset, being a deposit referred to in sub-clause (iii), or specified under sub-clause (v), of clause (f) of section 115C, means the amount of such deposit;

"net consideration", in relation to the transfer of the original asset, means the full value of the consideration received or accruing as a result of the transfer of such asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

Where the new asset is transferred or converted (otherwise than by transfer) into money, within a period of three years from the date of its acquisition, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to capital assets other than short-term capital assets of the previous year in which the new asset is transferred or converted (otherwise than by transfer) into money.

Section 115G. 

It shall not be necessary for a non-resident Indian to furnish under sub-section (1) of section 139 a return of his income 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.

Section 115H. 

Where a person, who is a non-resident Indian in any previous year, becomes assessable as resident in India in respect of the total income of any subsequent year, he may furnish to the Assessing Officer a declaration in writing along with his return of income under section 139 for the assessment year for which he is so assessable, to the effect that the provisions of this Chapter shall continue to apply to him in relation to the investment income derived from any foreign exchange asset being an asset of the nature referred to in sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) of clause (f) of section 115C; and if he does so, the provisions of this Chapter shall continue to apply to him in relation to such income for that assessment year and for every subsequent assessment year until the transfer or conversion otherwise than by transfer into money of such assets.

Section 115-I. 

A non-resident Indian may elect not to be governed by the provisions of this Chapter for any assessment year by furnishing his return of income for that assessment year under section 139 declaring therein that the provisions of this Chapter shall not apply to him for that assessment year and if he does so, the provisions of this Chapter shall not apply to him for that assessment year and his total income for that assessment year shall be computed and tax on such total income shall be charged in accordance with the other provisions of this Act.

Section 115BB

Tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whosoever.-

Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of-

the amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of thirty per cent.; and the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).

Explanation.-For the purposes of this section, ''horse race" shall have the same meaning as in section 74A.

Section 115BBA. Tax on non- resident sportsmen or sports associations

Where the total income of an assessee,-

- being a sportsman (including an athlete), who is not a citizen of India and is a non- resident, includes any income received or receivable by way of-

- participation in India in any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport; or advertisement; or

- contribution of articles relating to any game or sport in India in newspapers, magazines or journals; or

- being a non- resident sports association or institution, includes any amount guaranteed to be paid or payable to such association or institution in relation to any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport played in India, the income- tax payable by the assessee shall be the aggregate of-

- he amount of income- tax calculated on income referred to in clause (a) or clause (b) at the rate of  twenty percent; and

- the amount of income- tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount of income referred to in clause (a) or clause (b): Provided that no deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the income referred to in clause (a) or clause (b).

It shall not be necessary for the assessee to furnish under subsection (1) of section 139 a return of his income if-

  • his total income in respect of which he is assessable under this Act during the previous year consisted only of income referred to in clause (a) or clause (b) of sub- section (1); and
  • the tax deductible at source under the provisions of Chapter XVIIB has been deducted from such income.

Section 10(48) In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included

any income received in India in Indian currency by a foreign company on account of sale of crude oil, any other goods or rendering of services, as may be notified by the Central Government in this behalf, to any person in India:

Provided that-

  • receipt of such income in India by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government;
  • having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf; and
  • the foreign company is not engaged in any activity, other than receipt of such income, in India;

Memorandum Explaining Finance Bill, 2012

Section 10 of Income Tax Act provides for certain incomes which are not included in the total income of a person subject to the conditions specified in the relevant clauses of the section.

In the national interest, a mechanism has been devised to make payment to certain foreign companies in India in Indian currency for import of crude oil. The current provisions of the Income Tax Act would render such payment taxable in India because payment is being received by these foreign companies in India in Indian currency. This would not be justified when such payment is based on national interest and particularly when no other activity is being carried out in India by these foreign companies except receipt of payment in Indian currency.

It is therefore proposed to insert a new clause (48) in section 10 of Income Tax Act to provide for exemption in respect of any income of a foreign company received in India in Indian currency on account of sale of crude oil to any person in India subject to the following conditions.

  • The receipt of money is under an agreement or an arrangement which is either entered into by the Central Government or approved by it.
  • The foreign company, and the arrangement or agreement has been notified by the Central Government having regard to the national interest in this behalf.
  • The receipt of the money is the only activity carried out by the foreign company in India.

NOTIFICATION NO. 27/2014 [F. NO. 196/20/2014-ITA-1], DATED 23-5-2014

In exercise of the powers conferred by clause (48) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government, having regard to the national interest, hereby notifies for the purposes of the said clause-

M/s Temad, 28th Km Karaj Makhsous Road, Iran, as the foreign company; Codeine Phosphate as the goods; and the Memorandum of Understanding entered into between the Government Opium and Alkaloid Factories (GOAF) and M/s Temad, Iran on the 21st September, 2013, duly approved by the Central Government, as the agreement:

Provided that the said foreign company shall not engage in any activity in India, other than the receipt of income in India under the agreement aforesaid on account of the sale of Codeine Phosphate. 2. This Notification shall be deemed to have come into effect from the 1st day of April, 2014.

Section 115JG. 

Where a foreign company is engaged in the business of banking in India through its branch situate in India and such branch is converted into a subsidiary company thereof, being an Indian company (hereafter referred to as an Indian subsidiary company) in accordance with the scheme framed by the Reserve Bank of India, then, notwithstanding anything contained in the Act and subject to the conditions as may be notified by the Central Government in this behalf,-

- the capital gains arising from such conversion shall not be chargeable to tax in the assessment year relevant to the previous year in which such conversion takes place;

- the provisions of this Act relating to treatment of unabsorbed depreciation, set off or carry forward and set off of losses, tax credit in respect of tax paid on deemed income relating to certain companies and the computation of income in the case of the foreign company and Indian subsidiary company shall apply with such exceptions, modifications and adaptations as may be specified in that notification.

In case of failure to comply with any of the conditions specified in the scheme or in the notification issued under sub-section (1), all the provisions of this Act shall apply to the foreign company and the said Indian subsidiary company without any benefit, exemption or relief under sub-section (1).

Where, in a previous year, any benefit, exemption or relief has been claimed and granted to the foreign company or the Indian subsidiary company in accordance with the provisions of sub-section (1) and, subsequently, there is failure to comply with any of the conditions specified in the scheme or in the notification issued under sub-section (1), then,-

- such benefit, exemption or relief shall be deemed to have been wrongly allowed;

- the Assessing Officer may, notwithstanding anything contained in this Act, re-compute the total income of the assessee for the said previous year and make the necessary amendment; and

- the provisions of section 154 shall, so far as may be, apply thereto and the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the failure to comply with the condition referred to in sub-section (1) takes place.

Every notification issued under this section shall be laid before each House of Parliament.

Analysis:- A foreign company namely Bank of Germany is operating banking business in India through its branch. Such branch is converted into an Indian subsidiary company of Bank of Germany on 10.01.2015

Bank of Germany transfer all its assets of Indian branch to the Indian subsidiary company on 25.01.2015. Now as per provision of section 115JG, in the previous year 31.03.2015

  • No Capital Gain will arise to Bank of Germany when it transfer the assets of Indian branch to its Indian Subsidiary Company.
  • The brought forward losses and unabsorbed depreciation of branch shall be allowed to be carried forward and set off by the Indian Subsidiary diary company.
  • Mat credit available to Bank of Germany under section 115JAA shall be allowed to be carried forward and set off by Indian subsidiary company.

The above benefits are available if conversion of branch into India Company took place as per the scheme notified by Government

If later on, let us say in previous year 31.03.2017, any of the conditions of the scheme notified are violated, then the above three benefit shall be withdrawn. Assessee Officer shall re-computer the total income of relevant Assessment Year 2015-2016 and make rectification under section 154 upto 31.03.2021.

DOUBLE TAXATION RELIEF

To avoid the double taxation of the same income, there is two ways

Bilateral Relief: Countries are entering into Double Taxation Avoidance agreement (DTAA) with each other. (Section 90 and 90A).

Unilateral Relief: When there is no agreement between two countries, country of the residence itself provide relief. (Section 91)

Section - 90.

The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India, for the granting of relief in respect of-

- income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or

- income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or

- for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, or

- for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or

- for recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be, and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.

Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. (i.e. If Income beneficial for asseesee then he go for Income Tax Act and if DTAA beneficial for assessee then he will go gor DTAA)

(2A) Notwithstanding anything contained in sub-section (2), the provisions of Chapter X-A of the Act shall apply to the assessee even if such provisions are not beneficial to him. (For General Anti Avoidance Rule)

Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf.

An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless a certificate of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory. (i.e. no relief if no TRC)

Analysis: It is noticed that in many instances the taxpayers, who are no tax resident of a contracting country do claim benefit under DTAA entered into by the Government with that country. Thereby, even third party residents claim unintended treaty benefits.

Therefore, it is proposed to amend Section 90 and Section 90A of the Act to make submission of Tax Residency Certificate containing prescribed particulars, as a necessary but not sufficient condition for availing benefits of the agreements referred to in these Sections.

The assessee referred to in sub-section (4) shall also provide such other documents and information, as may be prescribed16.

Explanation 1.-For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company.

Explanation 2.-For the purposes of this section, "specified territory" means any area outside India which may be notified as such by the Central Government.

Explanation 3.-For the removal of doubts, it is hereby declared that where any term is used in any agreement entered into under sub-section (1) and not defined under the said agreement or the Act, but is assigned a meaning to it in the notification issued under sub-section (3) and the notification issued thereunder being in force, then, the meaning assigned to such term shall be deemed to have effect from the date on which the said agreement came into force.

Following Explanation 4 shall be inserted after Explanation 3 to section 90 by the Finance Act, 2017, w.e.f. 1-4-2018 :

Explanation 4.-For the removal of doubts, it is hereby declared that where any term used in an agreement entered into under sub-section (1) is defined under the said agreement, the said term shall have the same meaning as assigned to it in the agreement; and where the term is not defined in the said agreement, but defined in the Act, it shall have the same meaning as assigned to it in the Act and explanation, if any, given to it by the Central Government.

Rule -21AB. 

Subject to the provisions of sub-rule (2), for the purposes of sub-section (5) of section 90 and sub-section (5) of section 90A, the following information shall be provided by an assessee in Form No. 10F, namely:-


(i)

 

Status (individual, company, firm etc.) of the assessee;

(ii)

 

Nationality (in case of an individual) or country or specified territory of incorporation or registration (in case of others);

(iii)

 

Assessee's tax identification number in the country or specified territory of residence and in case there is no such number, then, a unique number on the basis of which the person is identified by the Government of the country or the specified territory of which the asseessee claims to be a resident;

(iv)

 

Period for which the residential status, as mentioned in the certificate referred to in sub-section (4) of section 90 or sub-section (4) of section 90A, is applicable; and

(v)

 

Address of the assessee in the country or specified territory outside India, during the period for which the certificate, as mentioned in (iv) above, is applicable.


The assessee may not be required to provide the information or any part thereof referred to in sub-rule (1) if the information or the part thereof, as the case may be, is contained in the certificate referred to in sub-section (4) of section 90 or sub-section (4) of section 90A.

(2A)The assessee shall keep and maintain such documents as are necessary to substantiate the information provided under sub-rule (1) and an income-tax authority may require the assessee to provide the said documents in relation to a claim by the said assessee of any relief under an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A, as the case may be.

An assessee, being a resident in India, shall, for obtaining a certificate of residence for the purposes of an agreement referred to in section 90 and section 90A, make an application in Form No. 10FA to the Assessing Officer.

The Assessing Officer on receipt of an application referred to in sub-rule (3) and being satisfied in this behalf, shall issue a certificate of residence in respect of the assessee in Form No. 10FB.

CLARIFICATION ON TRC - PRESS RELEASE DATED 01.03.2013

Concern has been expressed regarding the clause in the Finance Bill that amends section 90 of the Income-tax Act that deals with Double Taxation Avoidance Agreements. Sub-section (4) of section 90 was introduced last year by Finance Act, 2012. That sub-section requires an assessee to produce a Tax Residency Certificate (TRC) in order to claim the benefit under DTAA.

In the explanatory memorandum to the Finance Act, 2012, it was stated that the Tax Residency Certificate containing prescribed particulars is a necessary but not sufficient condition for availing benefits of the DTAA.

However, it has been pointed out that the language of the proposed sub-section (5) of section 90 could mean that the Tax Residency Certificate produced by a resident of a contracting state could be questioned by the Income Tax Authorities in India. The government wishes to make it clear that that is not the intention of the proposed sub-section (5) of section 90. The Tax Residency Certificate produced by a resident of a contracting state will be accepted as evidence that he is a resident of that contracting state and the Income Tax Authorities in India will not go behind the TRC and question his resident status.

SECTION-90A ADOPTION BY CENTRAL GOVERNMENT OF AGREEMENTS BETWEEN SPECIFIED ASSOCIATIONS FOR DOUBLE TAXATION RELIEF

** Same as Section 90

Section 91. 

If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal.

If any person who is resident in India in any previous year proves that in respect of his income which accrued or arose to him during that previous year in Pakistan he has paid in that country, by deduction or otherwise, tax payable to the Government under any law for the time being in force in that country relating to taxation of agricultural income, he shall be entitled to a deduction from the Indian income-tax payable by him-

of the amount of the tax paid in Pakistan under any law aforesaid on such income which is liable to tax under this Act also; or
of a sum calculated on that income at the Indian rate of tax; whichever is less.

If any non-resident person is assessed on his share in the income of a registered firm assessed as resident in India in any previous year and such share includes any income accruing or arising outside India during that previous year (and which is not deemed to accrue or arise in India) in a country with which there is no agreement under section 90 for the relief or avoidance of double taxation and he proves that he has paid income-tax by deduction or otherwise under the law in force in that country in respect of the income so included he shall be entitled to a deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income so included at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal.

Explanation.-In this section,-

the expression "Indian income-tax" means income-tax charged in accordance with the provisions of this Act;

the expression "Indian rate of tax" means the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the provisions of this Act but before deduction of any relief due under this Chapter, by the total income;

the expression "rate of tax of the said country" means income-tax and super-tax actually paid in the said country in accordance with the corresponding laws in force in the said country after deduction of all relief due, but before deduction of any relief due in the said country in respect of double taxation, divided by the whole amount of the income as assessed in the said country;

the expression "income-tax" in relation to any country includes any excess profits tax or business profits tax charged on the profits by the Government of any part of that country or a local authority in that country.

Section 5

Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which-

  • is received or is deemed to be received in India in such year by or on behalf of such person ; or
  • accrues or arises or is deemed to accrue or arise to him in India during such year ; or
  • accrues or arises to him outside India during such year :

Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6)* of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.

Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which-

  • is received or is deemed to be received in India in such year by or on behalf of such person ; or
  • accrues or arises or is deemed to accrue or arise to him in India during such year.

Explanation 1.-Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.

Explanation 2.-For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.

Section 9. 

  • The following incomes shall be deemed to accrue or arise in India :-
  • all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India.

Explanation 1.-For the purposes of this clause-

in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India ; (Exemption)

in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export ; (Exemption)

in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India ; (Exemption)

in the case of a non-resident, being-(Exemption)

  • an individual who is not a citizen of India ; or
  • a firm which does not have any partner who is a citizen of India or who is resident in India ; or
  • a company which does not have any shareholder who is a citizen of India or who is resident in India,

no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations which are confined to the shooting of any cinematograph film in India.

  • in the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to the display of uncut and un assorted diamond in any special zone notified by the Central Government in the Official Gazette in this behalf.

Explanation 2.-For the removal of doubts, it is hereby declared that "business connection" shall include any business activity carried out through a person who, acting on behalf of the non-resident,-

  • has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or
  • has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or
  • habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:

Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business :

Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status.

Explanation 3.-Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India.

Explanation 4.-For the removal of doubts, it is hereby clarified that the expression "through" shall mean and include and shall be deemed to have always meant and included "by means of", "in consequence of" or "by reason of".

Explanation 5.-For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India;

Analysis: Like Telecom Company which is registered outside and its business (Value of share) effects mostly business of within India.

Provided that nothing contained in this Explanation shall apply to an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in a Foreign Institutional Investor as referred to in clause (a) of the Explanation to section 115AD for an assessment year commencing on or after the 1st day of April, 2012 but before the 1st day of April, 2015

Provided further that nothing contained in this Explanation shall apply to an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in Category-I or Category-II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992)

Explanation 6.-For the purposes of this clause, it is hereby declared that-

the share or interest, referred to in Explanation 5, shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if, on the specified date, the value of such assets-

  1. exceeds the amount of ten crore rupees; and
  2. represents at least fifty per cent of the value of all the assets owned by the company or entity, as the case may be;

the value of an asset shall be the fair market value as on the specified date, of such asset without reduction of liabilities, if any, in respect of the asset, determined in such manner as may be prescribed

"accounting period" means each period of twelve months ending with the 31st day of March:

Provided that where a company or an entity, referred to in Explanation 5, regularly adopts a period of twelve months ending on a day other than the 31st day of March for the purpose of-

  • complying with the provisions of the tax laws of the territory, of which it is a resident, for tax purposes; or
  • reporting to persons holding the share or interest,

then, the period of twelve months ending with the other day shall be the accounting period of the company or, as the case may be, the entity:

Provided further that the first accounting period of the company or, as the case may be, the entity shall begin from the date of its registration or incorporation and end with the 31st day of March or such other day, as the case may be, following the date of such registration or incorporation, and the later accounting period shall be the successive periods of twelve months:

Provided also that if the company or the entity ceases to exist before the end of accounting period, as aforesaid, then, the accounting period shall end immediately before the company or, as the case may be, the entity, ceases to exist;

"Specified date" means the-

- date on which the accounting period of the company or, as the case may be, the entity ends preceding the date of transfer of a share or an interest; or

- date of transfer, if the book value of the assets of the company or, as the case may be, the entity on the date of transfer exceeds the book value of the assets as on the date referred to in sub-clause (i), by fifteen per cent:

Explanation 7.- For the purposes of this clause,-

No income shall be deemed to accrue or arise to a non-resident from transfer, outside India, of any share of, or interest in, a company or an entity, registered or incorporated outside India, referred to in the Explanation 5,-

If such company or entity directly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer, neither holds the right of management or control in relation to such company or entity, nor holds voting power or share capital or interest exceeding five per cent of the total voting power or total share capital or total interest, as the case may be, of such company or entity; or

If such company or entity indirectly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer, neither holds the right of management or control in relation to such company or entity, nor holds any right in, or in relation to, such company or entity which would entitle him to the right of management or control in the company or entity that directly owns the assets situated in India, nor holds such percentage of voting power or share capital or interest in such company or entity which results in holding of (either individually or along with associated enterprises) a voting power or share capital or interest exceeding five per cent of the total voting power or total share capital or total interest, as the case may be, of the company or entity that directly owns the assets situated in India;

In a case where all the assets owned, directly or indirectly, by a company or, as the case may be, an entity referred to in the Explanation 5, are not located in India, the income of the non-resident transferor, from transfer outside India of a share of, or interest in, such company or entity, deemed to accrue or arise in India under this clause, shall be only such part of the income as is reasonably attributable to assets located in India and determined in such manner as may be prescribed

"Associated enterprise" shall have the meaning assigned to it in section 92A; income which falls under the head "Salaries", if it is earned in India.

Explanation.-For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for-

(a) service rendered in India; and

(b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, (i.e leave period or balance period if part of service contract then it also considers income in India) shall be regarded as income earned in India ;

(c) income chargeable under the head "Salaries" payable by the Government to a citizen of India for service outside India ;

(d) a dividend paid by an Indian company outside India ;

Income by way of interest payable by-

(a)  the Government ; or

(b)  a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or

(c)  a person who is a non-resident, where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India ;

Following Explanation shall be inserted after sub-clause (c) of clause (v) of sub-section (1) of section 9 by the Finance Act, 2015, w.e.f. 1-4-2016 :

Explanation.-For the purposes of this clause,-

it is hereby declared that in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the permanent establishment in India of such non-resident to the head office or any permanent establishment or any other part of such non-resident outside India shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to the permanent establishment in India and the permanent establishment in India shall be deemed to be a person separate and independent of the non-resident person of which it is a permanent establishment and the provisions of the Act relating to computation of total income, determination of tax and collection and recovery shall apply accordingly;

"permanent establishment" shall have the meaning assigned to it in clause (iiia) of section 92F.

Income by way of royalty payable by-

(a)  the Government ; or

(b)  a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or

(c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :

Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government :

Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.

Explanation 1.-For the purposes of the first proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the Assessing Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976.

Explanation 2.-For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for-

- the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;

- the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;

- the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;

- the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;

- (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;

- the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or

- the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v).

Explanation 3.-For the purposes of this clause, "computer software" means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data.

Explanation 4.-For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred.

Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not-

(a) the possession or control of such right, property or information is with the payer;

(b) such right, property or information is used directly by the payer;

(c) the location of such right, property or information is in India.

Explanation 6.-For the removal of doubts, it is hereby clarified that the expression "process" includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret;

Income by way of fees for technical services payable by-

(a) the Government ; or

(b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or

(c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :

Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.

Explanation 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.

Explanation 2.-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".

Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India.

Explanation.-For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,-

  • the non-resident has a residence or place of business or business connection in India; or
  • the non-resident has rendered services in India.

TAX RATE OF NON RESIDENT


Status

Income Tax Rate

Surcharge

EC

SHEC

Individual

Upto 250000       -  Nil

2.5 Lac to 5 Lac  -   10%

5 Lac to 10 Lac   -   20%

10 Lac to 1Cr      -   30%

Above 1 Crore     -   30%

Nil

Nil

Nil

Nil

15%

Nil

2%

2%

2%

2%

Nil

1%

1%

1%

1%

Company

Upto 1 Crore    -   40%

1 Cr -10 Cr   -   40%

Above 10 Cr       -   40%

Nil

2%

5%

2%

2%

2%

1%

1%

1%


.Non Resident Relief under 87A (100% of tax or 5000 whichever is lower) is not available.

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CA Pradeep Sharma 
on 20 April 2017
Published in Income Tax
Views : 1293
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