The term ‘non-resident Indian’ has been defined in S. 115C-
1. an individual, being a citizen of India
2. A person of Indian origin, who is not a resident.
As Per Income Tax Act 1961 “Person of Indian origin” includes:
A person shall be deemed to be of Indian origin if he or either of his parents or any of his grandparents, was born in undivided India.
Mostly in case of Non-resident there are two incomes which we regularly come across, they are:
-Investment income and
-Long-term Capital gain
1. Investment income is the income which is derived from the investment on foreign exchange assets other than dividend income. Foreign exchange assets are those assets which are acquired /purchase in Convertible foreign exchange. This Investment income will be tax at the rate 20% as per S. 115E of Income tax Act, 1961.
Very important is that no deductions will be allowed under any of the provisions of the act against this investment income. Suppose if the assessee is having some other income apart from the income mentioned above, then investment income will be deducted from such income and deductions are allowed as per S. 115D of IT Act.
And the above investment income shall be liable to tax @ 20% as per S. 115E of IT Act.
If the assessee is assessable to income tax only for the above mentioned income and TDS is deducted against the income, then the assessee shall not require to file the return of income as per S. 115G of the act.
2. Long-term capital gains are the gains arising out of Capital assets being a foreign exchange asset which is not a short-term capital asset. No deductions shall be allowed on this income. Long-term capital gains will be taxed at 10% as per Income tax Act, 1961.
No deductions are allowed under any of the provisions of the act against this long term capital gain during the previous year and if the non-resident is having some other income apart from the above mentioned income, deductions will be allowed from such other income for the previous year as per S. 115D of the act.
The assessee is liable to pay the income tax @ 10% on the long term capital gain arising out of foreign exchange capital asset as per S. 115E of the act.
More specifically, if the non-resident utilize the long term capital gain by investing in specified assets or saving certificates as mentioned in IT Act, 1961 within the period of 6 months and the new asset value is equal to the net consideration of LTCG investment value, then the whole of the capital gain shall not be charged to income tax as per S. 115F.
If the cost of the new asset is less then net consideration as mentioned in the above point, then the difference will be the amount chargeable to income tax.
If the above mentioned income is only income of the non-resident and TDS deducted against the income, the assessee shall not require filing the return of income under IT Act as per S. 115G.
Apart from the above, the non-resident assessee becomes resident in India in respect of the total income of any subsequent year, if assessee wishes to continue to get the benefits under the provisions of IT Act for the investment income and LTCG arising out of the foreign exchange asset, then he/ she shall require to make a application in writing to AO and if he/ she does so, the provisions of the act will continue to apply until the transfer or conversion into money of such assets.
And, it is the sole consent of non-resident assessee after becomes a resident in India to not to continue with the provisions of IT Act for the above mentioned income. If assessee chooses to not to continue, then he/ she shall required to make a application in writing to AO and if he/ she does so, the provisions of the act will not apply not only to that AY and also for the subsequent AYs.
S. 115C, 115D, 115E & 115H of the IT Act, 1961—Non-resident—The income of the applicant arising from existing NRO deposits with SBI shall be taxed @ 20 per cent plus applicable surcharge and cess and after his return to India, the applicant can invoke the provisions of S. 115H until conversion of his NRO account into rupee account as per the extant RBI regulation/instruction and until conversion, income from NRO account shall be segregated from the income of the applicant and subjected to tax @ 20 per cent plus applicable surcharge and cess—Dr. Virindra Kumar Raina In re.
As Per Section 115C, of the Income Tax Act, 1961-
115C. In this Chapter, unless the context otherwise requires,—
(a) “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;
(b) “Foreign exchange asset” means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange;
(c) “Investment income” means any income derived [other than dividends referred to in section 115-O] from a foreign exchange asset;
(d) “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;
(e) “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;
(f) “Specified asset” means any of the following assets, namely:—
(i) shares in an Indian company;
(ii) Debentures issued by an Indian company which is not a private company as defined in the Companies Act, 1956 (1 of 1956);
(iii) deposits with an Indian company which is not a private company as defined in the Companies Act, 1956 (1 of 1956);
(iv) Any security of the Central Government as defined in clause (2) of section 2 of the Public Debt Act, 1944 (18 of 1944);
(v) Such other assets as the Central Government may specify in this behalf by notification in the Official Gazette.