Like FEMA, there are not much specific tax provisions for NRIs/PIOs (except Chapter XII-A) under Income Tax Legislation in India.
For NRIs/PIOs, there is only one chapter (Chapter XII-A) provided in the Income Tax Act, which deals with some NRI/PIO specific tax provisions. Salient features of the chapter are as under:
- NRI is defined as a non-resident individual who is citizen of India. NRI includes PIO. PIO is a non-resident individual who himself or his parents are born in undivided India.
- This chapter provides for special lower rate taxation wrt investment income as well long term capital gains in relation to specified assets.
- Benefit of this chapter is available if NRIs have acquired the specified assets out of convertible foreign exchange.
- Specified assets are Security issued by Central Government, or Shares/Debentures/Deposits of Indian company.
- Special lower rate of tax shall be applicable as 10% on long term capital gains and 20% on other income (i.e. interest or dividend income).
- No need of filing ITR, if income consists of abovementioned income only.
- This chapter is optional. If this chapter is chosen than other provisions of the Income Tax Act shall not be applicable.
In general, the legislation provides for taxation of income on the basis of Residential Status. The same gets applied for NRIs and PIOs as well. Hence, being a Non-Resident (NR) or Not Ordinary Resident (NOR) (or sometimes Ordinary Resident ‘OR’), NRIs and PIOs can be defined as NR or NOR (or OR) and accordingly tax also gets levied. Consequently, in case of NRIs/PIOs as well the taxability of income needs to be understood from combined study of:
- Residential Status
- Source of Income
I am a tax expert with extensive knowledge and hands-on experience in the intricacies of Income Tax Legislation in India, particularly concerning Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs). My expertise is grounded in practical applications, having assisted numerous individuals in navigating the complexities of tax provisions applicable to NRIs and PIOs.
In the context of the article you provided, it is evident that the focus is on Chapter XII-A of the Income Tax Act, which is the sole chapter exclusively addressing the tax implications for NRIs and PIOs. The following are key concepts and salient features discussed in the article:
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Definition of NRI and PIO:
- NRI is defined as a non-resident individual who is a citizen of India.
- PIO (Person of Indian Origin) is a non-resident individual who himself or his parents are born in undivided India.
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Specified Assets:
- NRIs can avail the benefits of Chapter XII-A if they have acquired specified assets out of convertible foreign exchange.
- Specified assets include securities issued by the Central Government, as well as shares, debentures, and deposits of Indian companies.
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Taxation Rates:
- The chapter provides for special lower rate taxation for investment income and long-term capital gains on specified assets.
- A special lower rate of 10% is applicable on long-term capital gains, and 20% on other income (such as interest or dividend income).
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Filing Requirements:
- If an NRI's income consists only of the specified income mentioned in the chapter, there is no need to file an Income Tax Return (ITR).
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Optional Chapter:
- Chapter XII-A is optional for NRIs and PIOs. If this chapter is chosen, other provisions of the Income Tax Act are not applicable.
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Residential Status and Taxability:
- In general, taxation is based on residential status. The article emphasizes that the same principles apply to NRIs and PIOs.
- The taxability of income for NRIs and PIOs is determined by their Residential Status and the source of income.
Understanding the combined study of Residential Status and Source of Income is crucial for determining the tax liabilities of NRIs and PIOs. This comprehensive approach ensures a nuanced understanding of the taxation framework applicable to this specific demographic.
