Frequently Asked Questions About Non-Resident Taxation in India
Understanding Non-Resident Taxation in India
Non-resident taxation in India is a critical subject for individuals and businesses operating across borders. Understanding the nuances of taxation can help ensure compliance and optimize financial planning. In this post, we address some frequently asked questions about non-resident taxation in India.
Who is Considered a Non-Resident in India?
The term "non-resident" is defined under the Income Tax Act of India. An individual is classified as a non-resident if they do not meet the criteria for residency in a given financial year. The basic criteria include staying in India for less than 182 days during the current financial year or less than 365 days over four preceding years along with less than 60 days in the current year.
Corporations and entities are classified based on their place of effective management. If the control and management of a company are wholly outside India, it is classified as a non-resident.
What Income is Taxable for Non-Residents?
Non-residents are taxed only on income that is either received or accrued in India. This includes income from employment in India, capital gains from the sale of assets located in India, and income from business connections in India. It's crucial to understand that global income is not taxable for non-residents.
How is Tax Calculated for Non-Residents?
Non-residents are subject to the same tax slabs as residents, but only for income sourced from India. There are no exemptions on income from salaries, but certain allowances and benefits may apply. Capital gains are taxed at different rates depending on the asset type and holding period.
- Short-term capital gains on equity are taxed at 15%.
- Long-term capital gains exceeding INR 1 lakh are taxed at 10% without indexation.
What are the Compliance Requirements?
Non-residents must file an income tax return if their income in India exceeds the basic exemption limit. Additionally, they are required to provide supporting documentation, such as a Permanent Account Number (PAN) and details of income earned.
It's advisable for non-residents to seek professional advice to navigate the complexities of tax compliance in India. Understanding Double Taxation Avoidance Agreements (DTAAs) can also provide significant benefits, as these agreements help mitigate the risk of being taxed twice on the same income.
What is Double Taxation Avoidance Agreement (DTAA)?
DTAAs are treaties India has signed with several countries to avoid the double taxation of income. They provide relief by allowing tax credits, exemptions, or reduced tax rates on certain types of income. Non-residents should check if their country has a DTAA with India to optimize their tax liabilities.
In conclusion, navigating non-resident taxation in India requires a thorough understanding of laws and regulations. By staying informed and seeking expert advice, individuals and businesses can ensure compliance and make informed financial decisions.