Special Provision of Taxation of NRI individuals

Special Provision of Taxation of NRI individuals

Foreign Exchange Assets are defined as specified securities acquired by an NRI in convertible foreign exchange. The specified securities include shares of Indian companies, deposits and debentures of Indian public limited companies, Central Government securities etc. NRI’s will get tax incentives in the form of lower rate of tax in respect of income earned out of these investments.

Any person who is not stayed in India for a period of 182 days or more is called ‘Non Resident” for taxation purposes. Income from Foreign Exchange Assets includes Interest, Dividend and profit/loss on sale of such assets. If shares are held for a period of more than 12 months and other assets for more than 36 months, the profit on sale of such assets is called as Long Term Capital Gains (LTCG). Others are called Short Term Capital Gains (STCG)

In the case of  Non-Residents:

• ·         Any investment income like interest is taxable at a flat rate of 20%
• ·         Dividend income is totally exempt from tax
• ·         The LTCG from sale of Foreign Exchange Assets is taxable at a flat Rate of 10%. However, if you invest the entire sale proceeds in any other Foreign Exchange Assets or NSC, then you don’t have to pay any tax. Investment should be done within 6 months from the date of sale. But such investment will have a lock in period of 3 years.
• ·         LTCG on sale of listed company shares and mutual fund units, on the sale of which you have paid Securities Transaction Tax, is fully exempt.
• ·         Interest on your NRE account is exempt.

NRI’s are not required to file income tax return if their income consists only investment income and LTCG for foreign exchange assets and tax is deducted from such income (TDS).

However, you have the option to pay tax on regular method applicable to residents, if you find that the indexation benefit and the slab rates applicable to individuals are more beneficial than the special provisions for NRI. However, in this case, you will have to file the income tax returns in India.