NRI Tax Returns – Special Provisions

To understand whether someone (including an NRI) is required to file a Return of Income read our blog post here https://blog.cleartax.in/are-you-required-to-file-an-it-return/

Besides above, for NRIs, the income tax act has laid out certain special provisions. (To find out your residential status read here https://blog.cleartax.in/nri-status-and-nri-taxation/).

NRI Tax Returns

What are those special provisions?

Investment Income as per details below is charged @ 20%

Long Term Capital Gains as per details below are charged @ 10% (including LTCG on transfer of bonus shares)

In case of NRI having ONLY these Investment Income or these Long Term Capital Gains AND where TDS has been deducted from such Incomes – Such an NRI is not required to file a Return of Income.

What is Investment Income that qualifies for Special Treatment

  • Investment Income are income derived (not dividends) from ‘Foreign Exchange Assets’. Foreign Exchange Assets are the assets mentioned below which have been acquired in convertible foreign exchange –
    • Shares in a public or private Indian Company
    • Debentures issued by an Indian company (not a private company)
    • Deposits with an Indian Company (not a private company). These are deposits made with Banks, Public Companies.
    • Any security of the Central Government
    • Other assets of the Central Government as specified for this purpose in the Official Gazette

How is this Investment Income Calculated

While calculating this Investment Income – no deduction is allowed for any expenses. Also no deductions are available under section 80.

What is Long Term Capital Gain that qualifies for Special Treatment

Long Term Capital Gain that arises from sale of transfer of ‘Foreign Exchange Asset’ (see above)

How are Long Term Capital Gains calculated?

Long Term Capital Gains on sale or transfer of Foreign Exchange Assets’ are calculated as below –

  • Benefit of Indexation is not available
  • Deductions under section 80 are not allowed
  • Exemption under section 115 F is available by investing sale proceeds in another asset. Section 115F states that – Where an NRI has transferred a ‘Specified Asset’ (see above) and such asset is a long term capital asset. And in 6 months of transfer the proceeds (consideration – expenses of transfer) of the original asset have been invested in

(a) Shares in an Indian Company

(b) Debentures of an Indian public company

(c) Deposits with an Indian Public Limited Co (including banks

(d) Central Govt Securities

(e) NSC VI & VII Issues

IN this case capital gains are exempt fully if cost of the new asset is more than net consideration. Capital Gains are exempt                                       proportionately if cost of the new asset is less than net consideration. Amt Invested X long term capital gain/amount of net                                   consideration.

  • If the new asset purchased as above is transferred or sold before 3 years the capital gains exempted will be added to income in the year this is sold or transferred.

Other Points

The benefits above may be available to the NRI even when he/she becomes a Resident – until such an asset is converted to money AND upon submission of a declaration for the application of the special provisions to the Assessing Officer by the NRI.

The NRI may choose to opt out of these special provisions and in that case the income (investment income & LTCG) will be charged to tax under the usual provisions of the Income Tax Act.

 

If you are an NRI and you have Taxable Income in India and you are looking for hassle free services – reach out to us support@cleartax.in know more about what we do for NRIs here http://cleartax.in/Meta/NRI

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