Taxation of non residents
This query is : Resolved
17 July 2013
Please anyone clarify my doubt....
Chapter XII A of IT Act provides that investment income outof specified asset is taxable at a flat rate of 20% with out including it in gross total income .
Does it is given excemption U/S 10(34),10(35) and 10(4B)?
Please anyone clarify my doubt....
Chapter XII A of IT Act provides that investment income outof specified asset is taxable at a flat rate of 20% with out including it in gross total income .
Does it is given excemption U/S 10(34),10(35) and 10(4B)?
26 July 2025
Good question on the tax treatment of non-residents and investment income under Chapter XII-A!
Here’s a detailed explanation:
---
### Taxation of Investment Income for Non-Residents under Chapter XII-A
* **Chapter XII-A** (Sections 115A, 115AB, 115AC, 115AD, etc.) provides **special tax rates for certain types of income** earned by non-residents or foreign companies.
* For **specified assets** (like dividends, interest on certain bonds, capital gains from foreign currency bonds, etc.), **tax is levied at a flat rate (usually 20%)** without including such income in the gross total income.
* This is called a **"special rate" or "withholding tax rate"** and is usually a **final tax**.
---
### Now about exemptions under Sections 10(34), 10(35), and 10(4B):
| Section | What it covers | Applicability to non-resident investment income under Chapter XII-A? |
| ------- | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10(34) | Exemption for dividend income received by residents from Indian companies (dividend is exempt in hands of recipient) | **No**, because for non-residents, dividend income is taxable at special rates under Section 115A/115AC. So exemption under 10(34) does **not** apply. |
| 10(35) | Exemption for interest income on government securities or certain bonds to residents | **No**, for non-residents, interest income on specified securities is taxable under Chapter XII-A and **not exempt under 10(35)**. |
| 10(4B) | Exemption for interest on certain infrastructure bonds | Similarly, for non-residents, the income is taxed under special provisions, so **not exempt under 10(4B)**. |
---
### In summary:
* **Investment income of non-residents under Chapter XII-A is NOT exempt under sections 10(34), 10(35), or 10(4B).**
* Instead, it is taxed at the **special flat rate prescribed (usually 20%) under the relevant section in Chapter XII-A**, and such tax is often final.
* Hence, **such income is taxed separately and not included in the gross total income**.
---
If you want, I can also explain how this applies practically for dividend income or interest income for a non-resident. Would you like that?
Here’s a detailed explanation:
---
### Taxation of Investment Income for Non-Residents under Chapter XII-A
* **Chapter XII-A** (Sections 115A, 115AB, 115AC, 115AD, etc.) provides **special tax rates for certain types of income** earned by non-residents or foreign companies.
* For **specified assets** (like dividends, interest on certain bonds, capital gains from foreign currency bonds, etc.), **tax is levied at a flat rate (usually 20%)** without including such income in the gross total income.
* This is called a **"special rate" or "withholding tax rate"** and is usually a **final tax**.
---
### Now about exemptions under Sections 10(34), 10(35), and 10(4B):
| Section | What it covers | Applicability to non-resident investment income under Chapter XII-A? |
| ------- | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10(34) | Exemption for dividend income received by residents from Indian companies (dividend is exempt in hands of recipient) | **No**, because for non-residents, dividend income is taxable at special rates under Section 115A/115AC. So exemption under 10(34) does **not** apply. |
| 10(35) | Exemption for interest income on government securities or certain bonds to residents | **No**, for non-residents, interest income on specified securities is taxable under Chapter XII-A and **not exempt under 10(35)**. |
| 10(4B) | Exemption for interest on certain infrastructure bonds | Similarly, for non-residents, the income is taxed under special provisions, so **not exempt under 10(4B)**. |
---
### In summary:
* **Investment income of non-residents under Chapter XII-A is NOT exempt under sections 10(34), 10(35), or 10(4B).**
* Instead, it is taxed at the **special flat rate prescribed (usually 20%) under the relevant section in Chapter XII-A**, and such tax is often final.
* Hence, **such income is taxed separately and not included in the gross total income**.
---
If you want, I can also explain how this applies practically for dividend income or interest income for a non-resident. Would you like that?
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