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Tax Concessions To NRIs

Extent of Tax Liability:

Based on the residential status of a tax payer and the place where the income is earned, the income that is included in the total income is as under:-

Residential Status:


All incomes whether earned in India or outside India

Not Ordinarily Resident:

All incomes:

• Earned in India, and

• All incomes earned outside India if the same is derived from a business which is controlled in India or from a profession which is set up in India.

Non Resident:

All incomes earned in India

Double Taxation Avoidance:

Since a resident is liable to pay tax in India on his 'total world income', it is possible that he may have to pay tax on his foreign income in that country also. To avoid such a situation the Government of India has entered into agreements for avoidance of 'double taxation' with different countries.

Special Provisions Applicable to NRIs: With a view to attract investment by Non Resident Indians (NRIs), certain reliefs, exemptions and incentives have been provided.

The following incomes are qualified for special provisions relating to NRIs:

• Investment income derived from foreign exchange assets

• Long term capital gains on sale or transfer of foreign exchange assets For the above provision, foreign exchange assets mean specified assets which have been purchased with or subscribed to in convertible foreign exchange, being any of the following:

• Shares of public or private Indian company;

• Debentures issued by a non-private Indian company;

• Deposits with a non-private Indian company, including a banking company;

• Any Central Government security;

• Any other assets specified by the Central Government

• Any other assets specified by the Central Government

• Any other assets specified by the Central Government

• Any other assets specified by the Central Government

Long Term Capital Gains on sale or transfer of Specified Foreign Exchange Assets:

NRIs are chargeable to tax on long term capital gain at a flat rate of 10% on the sale or transfer of any specified foreign exchange assets except shares as referred to above. Minimum holding period for allowing this rate is one year for shares and other securities listed in stock exchanges in India and units of specified mutual funds. For other assets the minimum holding period is 36 months.

If the proceeds are reinvested within six months of such transfer in any of the following and the new assets are retained for 3 years, then the capital gains are exempted from payment of Income Tax.

Where the NRI has income from only foreign exchange assets or income by way of long term capital gains from foreign exchange assets or both, and tax deductible at source from such income has been deducted he is not required to file return of income as otherwise required under the Income Tax Act.

The special provisions in relation to investment income from foreign exchange assets (other than shares of an Indian company) will continue, even after the NRI becomes resident till transfer or conversions of such assets into money, if the NRI so wishes.

Advance Rulings:

NRIs/OCBs desirous of obtaining advance ruling may make an application stating the question on which the ruling is sought.

The question which could be of law or fact should relate to a transaction undertaken or proposed to be undertaken by the applicant.