Major changes proposed by the Indian Budget 2019 that impact Non Resident Individuals (NRIs):
- Increase in effective tax rate for income above Rs. 2 crores
In case of an individual, it is proposed to levy enhanced surcharge of 25% on taxable income exceeding INR 2 crores upto INR 5 crores and 37% on taxable income exceeding INR 5 crores. This means that the effective tax rate shall increase from 35.88% to 39% for income between INR 2 crores to INR 5 crores and the effective tax rate shall increase from 35.88% to 42.744% for income above INR 5 crores.
Proposed changes related to Foreign Investment
- 100% FDI is proposed to be permitted for insurance intermediaries and opening up of FDI in aviation, media (animation, AVGC) and insurance sectors will also be examined.
- Current limit for investment under PIS route is as under:
- Individual NRI/OCI – Upto 5%
- Aggregate of all the NRIs/OCIs – Upto 10%
- Current limit for investment under foreign portfolio investor (FPI) route
- Individual FPI – Upto 10%
- Aggregate of all FPI – Upto 24%
NRI-PIS route is proposed to merge with the Foreign Portfolio Investment Route, which may increase investment by NRI/OCI under PIS route upto ‘24%’. Further, statutory limit for investment by FPI in a company is also proposed to increase from ‘24%’ to sectorial foreign investment limit.
A. DIRECT TAX PROPOSALS
- Deduction of tax by certain individuals or HUF
At present, there is no requirement for an individual or HUF to deduct tax at source on payments made to a resident contractor or professional when it is for personal use, or if the individual or HUF is not subjected to audit for his business or profession.
It is now proposed to make it obligatory for such individual or HUF to deduct tax at source at the rate of five per cent if the annual aggregate payment made to a contractor or professional exceeds Rs. 50 lakh. It is also proposed that a person deducting tax under this section shall be able to deposit TDS on the basis of the Permanent Account Number (PAN) only.
- Consideration for TDS on immovable property
At present, when an assessee purchases immovable property from Resident Seller, Builder and Developers, he is required to deduct tax at the rate of 1% of ‘consideration’ paid to the seller/builder/developer. However, the term ’consideration’ was not defined earlier.
It is now proposed to provide that ‘consideration’ shall include other charges in the nature of club membership fee, car parking fee, electricity and water facility fee, maintenance fee, advance fee or any other charges of similar nature which are incidental to the purchase of immovable property. Therefore, tax is now required to be deducted on all the aforesaid charges paid to the seller/builder/developer at rate of ‘1%’.
- Tax on income distributed to shareholders in case of buyback of shares of listed companies
At present, in case of buyback of shares of listed companies, the assessee is required to pay tax as capital gains on such buyback of shares. It is now proposed to provide that the listed companies shall be liable to pay additional tax at ’23.20%’ (Incl. Surcharge and Cess) in case of buy back of share. The consequential income arising in the hands of shareholders has been exempted from tax.
- Gifts to Non-residents by residents
Presently, a gift of money or property is taxed in the hands of recipient, except for certain exemptions. It has been reported that gifts are made by persons being residents in India to persons outside India (who are not from the exempted categories as a relative) and are claimed to be non-taxable in India as the income does not accrue or arise in India.
It is proposed to provide that gift of any sum of money, or property situated in India, by a person resident in India to a person outside India shall be income chargeable to tax in India.
However, existing exemptions for gifts from specified relatives and tax treaty benefits will continue to apply.
- Exemption of interest income from units located in IFSC
With a view to facilitate external borrowing by the units located in International Financial Services Centre (IFSC), it is proposed that any income by way of interest to a non-resident from an unit located in IFSC in respect of monies borrowed on or after 1st day of September, 2019, shall be exempt from tax.
- Filing of return of income made compulsory for certain category of persons
It is proposed to make return filing compulsory for persons, who have deposited more than Rs. 1 crore in a current account in a year, or who have expended more than Rs. 2 lakh on foreign travel or more than Rs. 1 lakh on electricity consumption in a year or who fulfils the prescribed conditions, in order to ensure that persons who enter into high value transactions also furnish return of income irrespective of the fact that their income falls below basic exemption limit.
- Other tax proposals for ease of compliance by tax payers
Pre-filled tax returns: It has been proposed to introduce Pre-filled tax return forms to reduce the time taken to file a tax return and to ensure accuracy of reporting of income and taxes. The pre-filled tax returns forms will contain details of salary income, bank interest, capital gain from securities and dividends etc collected from various institutions.
Faceless e-assessments: At present, the tax department has started conducting the Tax assessments online, however still this system involves a high level of personal interaction with Tax Department which leads to certain undesirable practices on the part of Tax officials. To eliminate suc h instances it has been proposed to launch a scheme of faceless e-assessment in this year in phased manner to reduce human intervention through random allocation of scrutiny assessments without disclosing the name, designation or location of the Assessing Officer.
- Interchangeability of PAN and AADHAAR: PAN and AADHAAR will be made interchangeable. This means that If PAN has been linked with AADHAAR then one can quote AADHAAR wherever they are required to quote PAN. Further taxpayers can file the tax returns quoting AADHAAR if the PAN has not been allotted.
B. Other proposals
- It is proposed to consider issuing Aadhaar Card for Non-Resident Indians (NRI) with Indian Passports after their arrival in India without waiting for 180 days.
C. The Black money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
The Black Money Act till now covered only ‘resident’ within the meaning of the Income-tax Act. It is proposed to be amended to include person being a ‘non-resident’ and ‘not ordinarily resident’ in India. The amendment will take effect retrospectively from 1 July 2015 when the law came into existence. This shall cover undeclared income and assets located outside India of the ‘Non-residents’ and ‘Not ordinary residents’ when it was acquired when such ‘Non-residents’ and ‘Not ordinary residents’ was a Resident of India.
D. Rates of Tax
For Non Resident Individuals
There has been no change in tax rates for Non-resident individuals. The basic rate of tax as well as surcharge has remained the same.
|Financial Year (April-2019 to March-2020)|
|Individual’s Total Income||Rate|
|Up to Rs.2,50,000/-||Nil**|
|Rs. 2,50,001/- to Rs.5,00,000/-||5% of the amount by which the total income exceeds Rs. 2,50,000/-|
|Rs. 5,00,001/- to Rs.10,00,000/-||Rs.12,500/- plus 20% of the amount
by which the total income exceeds
|Exceeds Rs.10,00,000/-||Rs.1,12,500/- plus 30% of the amount by which income exceeds Rs.10,00,000/- (Refer Note 1)|
|Note 1:- The amount shall be increased by a surcharge as follows –
**If NRI is having only Capital Gains (including Long term and Short term), there is no benefit of basic exemption slab available.
For Foreign Companies
- Foreign companies are taxable at 40%
- 2% surcharge is applicable if the total income exceeds Rs.1 Crore but does not exceed Rs.10 Crores
- 5% surcharge is applicable if the total income exceeds Rs.10 Crores
- 4% Health and Education cess is applicable on income tax (inclusive of surcharge, if any)
- Marginal Tax Rate relief is available.
F. Rates of Tax Deducted at Source (TDS)
The basic TDS Rates as applicable in case of NRI, subject to the DTAA relief, if any are as follows:-
|Particulars||Rate of TDS||Surcharge @ 37%**||Health and Education cess @ 4%||Effective Tax Rate|
|1) Capital Gains on Equity Oriented Mutual Fund Units and Equity Shares sold on Recognized Stock Exchange and STT paid thereon:|
|2) Capital Gain on Debt Mutual Fund & listed securities other than (1)|
|3) Capital gain on Other Assets|
|4) Interest on Bank Deposits (NRO A/c)||30%||11.10%||1.644%||42.744%|
|5) Income From Rent||30%||11.10%||1.644%||42.744%|
|6) Royalty & Fees for Technical Service (FTS)||10%||3.70%||0.548%||14.248%|
** considering the surcharge as per highest rate.
This document should not be considered as substitute for specialized professional advice and expert guidance should be sought before acting upon it.