Taxation and Regulatory Issues for

1. Taxation and Regulatory Issues for NON REDIDENT INDIAS - NRI

2. Who is Non Resident Indian under Indian Income Tax Act ? • NRI means an individual, being a citizen of India or person of Indian origin who is not a resident Individual: • Physical presence ≥ 182 days in a F.Y.-----------------------------------or---------------------------------------------------Physical presence ≥ 365 days in four preceding F.Y. and ≥ 60 days in the F.Y.-----------------------------------or---------------------------------------------------If a Citizen of India who is on a visit to India or leaving for employment outside India, or leaving India as a member of crew of Indian ship then the period of 60 days for the above shall be relaxed to 182 days.

3. Who is Non Resident Indian under FEMA (Foreign Exchange Management Act)? • Non Resident Indian is known as a "person resident outside India" under FEMA. • Person resident in India means a person residing in India for more than 182 days during the course of preceding financial year but does not include • A person who has gone out of India or who stays outside India for or on taking up employment outside India, or for carrying on outside India a business or vacation or for any other purpose which indicates his intention to stay outside India for an uncertain period • A person who has come to or stays in India, otherwise than for employment, carrying on business or vocation or for any other purpose, in such circumstances as would indicate his intention to stay in India for uncertain period • Indian Students studying abroad

4. Simple examples of 2 Indians being treated as Non Resident Indian under Income Tax Act and under FEMA • Hinduja, being a foreign citizen of Indian Origin visits India for personal reasons or for examining business opportunities, and stays for 360 days in a Financial Year , he will continue to be a Non-Resident under FEMA but under the IT Act he will be covered by the definition of "Resident" . • But if M.S. Dhoni travels out of India and stays abroad for all the 365 days of a year, hitting out sixes and fours although a "Non-Resident" under Income Tax Act, 1961, he will continue to be a "Resident" under Foreign Exchange Management Act [FEMA], 1999.

5. Basic difference in the definition of resident • Number of Days • Under Income Tax minimum stay 182 days of more in India • Under FEMA minimum presence 183 days or more in India • Physical presence • Under income tax physical presence in the current financial year • Under FEMA physical presence in preceding financial year • Intention • Under income tax intention to stay outside India is not relevant • Under FEMA intention of stay for uncertain periods is relevant

6. Income taxable in India to a NRI • All income which accrues or arises or deemed to accrue or arise in India. • Income From business connection in India • Income From any property, asset, or source of income in India • Capital Gain on transfer of capital asset situated in India • Salary if services rendered in India • Dividend paid by Indian company • Interest received from a person resident in India • Royalty/fees for technical services

7. Income not taxable in India • Income accrued or arises out of India or deemed to accrue or arise out of India. • Interest on money's standing to his credit in non-resident (external) a/c in any bank in India. • Long term capital gain on transfer of capital asset being equity share in company or unit of an equity oriented fund where such transactions is chargeable to securities transaction tax.

8. Deemed Income • An NRI receiving in any previous year from any person or persons on or after 1st October, 2009 • Any money without consideration in excess of Rs.50,000 • Any immovable property without consideration in excess of Rs.50,000 • Any other property such as shares / securities / jewellery, paintings, bullion etc without consideration. • Hence the above receipts will be taxed as deemed income u/s56(viii) of I T Act • The above may not attract tax, if it is received from Relatives i.e. (a) spouse (b) brother or sister (c) brother or sister of the spouse (d) brother or sister of either of the parents (e) any lineal ascendant or descendant (f) any lineal ascendant or descendant of the spouse (g) spouse of the person referred to in (b) to (f) • On Occasion of Marriage of the NRI

9. Investment / Disinvestment by NRI in Portfolio Management Services • NRI's are Permitted to Invest under PMS either on Repatriable or Non-Repatriable basis. • Investment should be through Registered Broker and Recognised Stock Exchange • Investment can be made out of Direct Remittance or out of funds held in NRE and/or FCNR Account, if Invested on Repatriable Basis • Non- Repatriable Investment can be made out of funds held in NRO Account • Aggregate Investment should not exceed 5% of total Capital by one NRI and Overall Cap is 10% in aggregation for all NRI. • There are no maximum permissible limit of the investment on non reparitable basis. • Transfer of Shares / Convertible Debentures possible by way of Gift or Sale

10. Investment in Real Estate • NRI or PIO can acquire by way of purchase of immovable property in India other than followings: • Agricultural land, Plantation property and Farm house • NRI can sell / transfer any immovable property only to a citizen of India. • NRI can receive any immovable property other than agricultural land, plantation property and farm house by way of gift from a person resident in Indian or other NRI or a PIO. However, such immovable property can be sold only to person resident in India • A non resident can inherit immovable property in India from any person who has acquired the same in accordance with applicable rules and regulation • The payment for acquisition of property can be made out of funds received in India by way of inward remittance or funds held in NRE / NRO account

11. Taxation of capital gains earned by NRI under the domestic law and under DTAA • Under Income Tax Act:Calculation of Capital Gains • Full value of consideration received on transfer reduced by • Expenses on transfer and cost of acquisition or improvement including index cost • Foreign exchange fluctuation adjustment • Adjustment for inflation of cost • Rate of Taxes Applicable: • In case of short term capital gain on shares in company on which is STT paid- @15% • In case of short term capital gains on other capital asset tax at the maximum marginal rate. • In case of long term capital gains tax rate is @20% • Long term capital gains arising from transfer from capital asset being unlisted securities @10%

12. Special provisions relating to certain Income of Non Resident Under Chapter XIIA • Acquisition of Specified Assets via convertible foreign exchange: • No deduction or allowance shall be allowed in computing the investment income i. e. any income derived from foreign exchange asset other than dividend. • In case of the non resident Indian the indexation is not allowed on the investment income • Tax on any income from investment other than specified asset i.e. shares in an Indian company, debentures issued by an Indian company which is not a private company and deposit with an Indian company which is not a private company at the rate of 20% and long term capital gains on investment other than specified asset as above at the rate of 10% • Capital gains on transfer of foreign exchange assets i.e. the specified assets as above which are acquired or purchase with convertible foreign exchange shall not be charged to tax if the amount of capital gain is invested in specified assets.

13. Withholding taxes on Income earned by NRI (Procedure) • Section 195 requires withholding of tax on income chargeable to tax in India. Only income element involved is subject to withholding tax. • Before remitting any amount out of India the bank insists on a certificate from a Chartered Accountant regarding taxability of income in India in form No 15CB. • The remitter need to file form No 15CA with the income tax authorities in India. • Even transfer from NRO Account to NRE Account one needs to file Form No. 15CA and 15CB. • PAN is mandatory. If no PAN is available, tax is deductable at higher of applicable rate or 20%.

14. Facilities available on Return to India • NRE account is to be re-designated as resident account immediately upon return, or Funds be transferred to Resident Foreign Currency (RFC) Account immediately upon return • Returning NRI’s/PIO’s may continue to hold, own, transfer, or invest in foreign currency or any security or any immoveable property situated outside India, if such currency, security or property was acquired, held or owned when resident outside India. • The income and sale proceeds of assets held abroad need not be repatriated. • Tax Planning • If a NRI wants to stay for more than 182 days he should plan his stay in two financial years • On return he should be cautious that he is not more than 365 days in India for preceding 4 years and not more than 60 days in the relevant financial year