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Income tax and FEMA

Income tax and FEMA. Some important provisions. Preview of Income tax and FEMA provisions. Information in this presentation is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions.

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Income tax and FEMA

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  1. Income taxandFEMA Some important provisions

  2. Preview of Income tax and FEMA provisions • Information in this presentation is intended to provide only a general outline of the subjects covered. • It should neither be regarded as comprehensive nor sufficient for making decisions. • As Rules are subject to change, please consult your tax advisor or call us .

  3. Part 1- Taxation of Non residents NonResident individuals are taxable on the following: • Income ‘sourced’ from India ; • Income received in India; • Income accruing and arising in India.

  4. Basic tax Laws in India • The Income Tax Act, 1961. It deals with the levy, assessment, collection of tax, appeals etc. It is supplemented by the Income Tax Rules, 1962. • The Wealth Tax Act, 1957. It regulates the levy and collection of Wealth-tax of individuals, HUF and companies. It is also supplemented by the Wealth Tax Rules, 1957.

  5. Enactment of Tax laws in India • Finance Act: Every year, Parliament passes a Finance Act which lays down the rates of Income-tax, Wealth-tax for a particular financial year or the assessment year. • Circulars: The Central Board of Direct Taxes, New Delhi, is the apex administrative body for the different tax laws. It often issues circulars interpreting the provisions of the laws, giving relief and granting tax concessions. • Notifications: The Government of India issues notifications which are published in the Official Gazette e.g. granting special exemptions etc.

  6. PREVIOUS / ASSESSMENT YEAR • Income of a financial year is liable to income-tax in India every year, i.e.from 1st April to March 31. • The financial year precedes the relevant assessment year. • Thus, for the Financial year 2011-12, the assessment year is 2012-13. • The due dateto file the Income tax return for Financial year 2011-12 is 31st July 2012. • In some cases, where audit is compulsory by law, the due date is 30th September 2012.

  7. Check your residential status : Mr. P was out of India in financial year 2011-12 for 200 days. This was his first ever visit outside India. He will be resident for the said financial year as he was present in India for more than 365 days in the four years preceding financial year 2011-12.

  8. Check your residential status You could be a : • Resident ; • Resident and ordinarily resident; • Resident but not ordinarily resident ; 4.Non resident . Your income tax liability depends on your status.

  9. Summary of taxability Status Indian income Foreign income • Resident Taxable Taxable • Resident and ordinarily resident Taxable Taxable • Resident and not ordinarily resident Taxable Not taxable* • Non- resident Taxable Not taxable *Where, it is from a business controlled or a profession set up outside India.

  10. Heads of Income : liable to tax in India (a)Salaries ; (b)Income from house property ;  (c)Profits and gains of business or profession ;  (d)Capital gains ; (e)Income from other sources 

  11. Tax rates for Financial Year 2011-12 INCOME TAX RATES • where the total income: • does not exceed Rs. 1,80,000 • exceeds Rs. 1,80,000 but does • not exceed Rs. 5,00,000 • exceeds Rs. 5.00,000 but does • not exceed Rs. 8,00,000 • exceeds Rs. 8,00,000 • NIL • 10 per cent of the amount by which the total income exceeds Rs. 1,80,000 • Rs. 32,000 plus 20 per cent of the amount by which the total income exceeds Rs. 5,00,000 • Rs. 92,000 plus 30 per cent of the amount by which the total income exceeds Rs. 8,00,000/-

  12. Education Cess B. Education Cess and higher education cess : @3% on (applicable in all cases)Income tax payable

  13. “Gift Tax” :from Financial year 2005-06 on wards Amount received in aggregate exceeding Rs. 25,000 in a year. Some Exceptions: Sum received by an individual out of natural love and affection from a relative, which includes: • spouse of the individual; • brother or sister of the individual; •  brother or sister of the spouse of the individual; • brother or sister of either of the parents; • lineal ascendants or descendents of the individual; • any sum received under a will or inheritance etc.

  14. Capital Gains tax: A .on property: Rate of tax a)long term capital gains tax: 20% b)short term capital gains tax: 30% B. on shares : • a)Long term [held for more than 12 months] • where Securities Transactions Tax [STT] is paid NIL • b)Short term, [held for less than 12 months] • Where STT paid 10% • Other long term gains 20% • [held for more than 36 months] • d)Other short term gains 30% • [held for less than 36 months]

  15. INDEXATION TABLE FOR CAPITAL GAINSFinancial year Index Financial year Index

  16. WEALTH-TAX • Wealth tax for Non Resident Indians is payable only on assets located in India • Productive assets are not taxable. • Shares / securities not liable to wealth tax. • Assets cover : Building or land appurtenant thereto, Motor Cars, Jewellery, bullion, furniture, utensils of gold, silver, etc, Yatchs, boats and aircrafts, Urban land and Cash in hand • Rate of tax is 1 percent of net wealth in excess of Rs 30,00,000 • Certain exemptions are available to returning Indians

  17. Penal provisions 1. Failure to apply for / correctly quote Permanent Account Number - Penalty of Rs 10,000 2. Failure to file a return of income - Penalty of RS 5,000 3. Concealment of income or furnishing inaccurate particulars of income - Penalty of 100 percent to 300 percent of the income-tax sought to be avoided 4. Failure to file an annual information Penalty of Rs 100/- return where applicable– per day

  18. Part - 2 FEMA FEMA is applicable to all branches, offices and agencies outside India owned or controlled by a person resident in India. Residential status under FEMA is not to be confused with that under the Income tax laws. It is possible you may be an NRI under FEMA yet be a resident under the Income tax laws.

  19. FEMA : RESIDENTIAL STATUS is applicable to : • an individual, a Hindu undivided family, • a company, • a firm, • an association of persons or a body of individuals, whether incorporated or not, • every artificial juridical person, not falling within any of the preceding sub-clauses, and • any agency, office or branch owned or controlled by such person .

  20. Individual leaving India: Conditions for residence 1. Did he reside in India for less than 182 days during the preceding financial year ? or 2. Purpose for leaving India • employment • business/vocation • any other purpose indicating his intention to stay in India for uncertain period , -------------------------------------------------- If answer of 1. or 2. above is yes, then he is a Non resident.

  21. employment Individual coming to India: Conditions for residence 1. Did he reside in India for more than 182 days during the preceding financial year ? or 2.Purpose for coming to India: • employment • business/vocation • any other purpose indicating his intention to stay in India for uncertain period , • ----------------------------------------------------- If answer of any of the above is yes, then he is a resident for the year.

  22. Investments in India by NRIs / PIOs Investments: Types of: • Repatriable: Amount invested and capital appreciation can be repatriated abroad in some cases. • Non repatriable: Amount invested and capital appreciation cannot be repatriated.

  23. Where Residents can remit money outside India in Dollars : some instances: 1Private Visit Abroad  Upto US$ 10,000 or its equivalent in one calendar year. 2. Business Visits Upto US $ 25,000 3. Medical Expense for treatment abroad  US $ 100,000 4. Maintenance of close relatives abroad  Upto US$ 100,000 per year   5. Studies abroad  US$ 100,000 or estimates from the Institution abroad per academic year whichever is higher. 6. Commission to agents abroad for  Upto 5% of the Inward sale of residential flats/commercial remittances or USD 25,000 plots in India whichever is higher. 7. Architectural/Consultancy services Upto US$ 10,00,000/- 8. Reimbursement of Incorporation  expenses Upto US$ 100,000/ 9. Small Value Remittances Upto US$ 5,000/- 10. Gifts US$ 5,000 per remitter/donor per annum. 11. Donation  US $ 5,000 per remitter/donor per annum 12. Emigration  Upto US $ 1,00,000 or amount prescribed by country of emigration. 13. Employment abroad  Upto USD 1,00,000/-

  24. Investments in India by NRIs / PIOs (Foreign Direct Investment (FDI) Route • Automatic Route (within Sectoral Caps) • Government Approval Route • Acquisition of existing shares by NRIs • Rights/Bonus shares on original shares held • Portfolio Investment Scheme • Investment in Other securities (without any limit) • Government dated securities (other than bearer securities) • Treasury Bills • Units of Domestic Mutual Funds • Bonds issued by PSUs in India • Shares in PSEs being disinvested by the Government of India

  25. Investment by NRIs in Proprietary concerns / Partnerships Contribution to the capital of Proprietary concerns / Partnership in India • NRI / PIOs are permitted to invest on a Non repatriable basis. • Current Income like profit, interest, remuneration are repatriable. • Investment not permitted where the concern is engaged in agriculture, plantation or real estate business (dealing in land and immovable property with a view to earning profit) and print media.

  26. FOREIGN INVESTMENT PROHIBITIONS for NRIs: • Business of Chit Fund • Nidhi Company • Agricultural or Plantation activities • Housing and Real Estate business • Construction of farm houses • Retail Trading: now permitted • Atomic Energy • Lottery Business • Gambling and Betting However it is clarified by RBI that • Housing and Real Estate business does not include development of township, construction of residential / commercial premises, road or bridges.

  27. Benefits of Person of Indian Origin (PIO) Card Scheme • No requirement of visa to visit India. •  No separate "Student Visa" or "Employment Visa" required for admissions in Colleges/ Institutions or for taking up employment respectively. •  No requirement to register with the Foreigners Registration Officer if continuous stay does not exceed 180 days. • Parity with Non-Resident Indians in respect of facilities available to the latter in economic, financial, educational fields etc. These facilities will include; (a) Acquisition, holding, transfer and disposal of immovable properties in India except for agricultural/ plantation properties. (b) Admission of children in educational institutions in India under the general category quota for NRIs including medical/ engineering colleges, IIMs etc.

  28. LENDING BY NRI TO RESIDENTS Non-residents can lend to residents either in foreign exchange or in rupees either on repatriable basis or non-repatriable basis. (1)Repatriable Basis: (a) Lending in Foreign exchange to resident individual. (b) Lending in rupees to Indian companies by issue of Non-Convertible Debentures. (2) Non-Repatriable Basis: (a) Lending in rupees to residents. (b) Lending in rupees to Indian companies by issue of Non-Convertible Debentures. Lending by NRIs on Repatriable Basis. Lending in foreign exchange to resident individual. Non-residents can lend money to resident close relatives (as defined under section 6 of the Companies Act, 1956) in foreign exchange up to us $ 2,50,000 or its equivalents subject to the following conditions: (1) Loan is interest-free. (2) Minimum maturity period of loan is one year.

  29. REPATRIATION OF INCOME from INDIA Dividends or Interest:- Dividends or Interest on shares or convertible debentures held by “Non - Residents ” under Automatic Route are permitted to be repatriated outside India after payment of Indian Income Tax. Sale Proceeds:- Sale proceeds of share or convertible debentures held by “Non - Residents” under “Automatic Route” is permitted to be repatriated outside India after payment of local Indian Income Tax. 

  30. STATUS OF NRI BANK ACCOUNTS IN INDIA ON RETURN (a) Ordinary Non-Resident Accounts These have to be converted to resident accounts by banks on return of the account holders to India and consequently becoming resident in India. (b) Non-resident (External) Rupee Accounts:These can be converted to resident rupee accounts or RFC (Resident Foreign Currency) accounts on becoming resident in India. In case of NR(E) fixed deposits, the accounts will continue to earn agreed higher rates of interest till maturity, even after being converted to resident account. (c) FCNR (Banks) Account:These deposits can be converted to resident rupee account or RFC account at the option of the account holder on his return to India and becoming resident in India. (d) Resident Foreign Currency Account: The returning NRI being the citizen of India or a PIO who has permanently settled in India and is in India for a period of more than one year can open an RFC account.

  31. Remittance Scheme of USD 25,000OUTSIDE INDIA • Under this scheme, resident individuals may freely remit upto USD 25,000 per calendar year for any permissible current or capital account transactions or a combination of both - • Acquire and hold immovable property or shares or any other asset outside India without the prior approval of Reserve Bank. • Open, hold and maintain foreign currency account with a bank outside India for making remittances under the scheme without the permission of Reserve Bank. • The foreign currency accounts may be used for putting through all transactions connected with or arising from remittances eligible under the scheme.

  32. FACILITY OF BANK ACCOUNTS ABROAD by INDIAN ENTITIES A firm or a company or body corporate registered or incorporated in India, ie an "Indian entity" may open, hold and maintain in the name of its office (trading or non-trading) or its branch set up outside India or its representative posted outside India, a foreign currency account with a bank outside India by making remittances from India for the purpose of normal business of operations of the office/branch or representative.

  33. FEMA: Illustration-1 • Person leaving India: - Mr. Ram has boarded the flight to London on 25th December 2011 for taking up employment as Software Engineer. This is his first visit abroad.  His residential status for the financial year 2011-2012 is as under:   Mr. Ram resided in India for more than 182 days during the financial year 2011-2012. Though he satisfied the basic threshold condition the first exception in clause A [S. 2(v)(i)(A)] would be applicable since he is leaving India for taking up employment. Accordingly, Mr. Ram will be person resident outside India for the financial year 2011 - 2012.

  34. Illustration-2 2 .Foreign Branch/Subsidiary of an Indian Corporate:- X Ltd. an Indian Company, has opened a Branch in Singapore to service its clients on 20th March 2011. It also setup a 100% wholly owned Subsidiary in Tokyo on 20th March 2011 as an Independent Company under the name of M/s. X Japan Ltd. and subscribed to 100% of the equity. The residential status of both the Branches is as under: A. Singapore Branch:- The Singapore Branch of X Ltd will be a “person resident in India” from 20th March 2011. Accordingly, for the financial year 2010-2011 the Singapore Branch of X ltd. is a “person resident in India”. B. [Independent Company]: X Japan Ltd X Japan Ltd. is an independent limited liability Company incorporated outside India. X Japan Ltd. cannot be regarded as an office, branch or agency of X and therefore X Japan Ltd. is totally outside the purview of FEMA. Hence the residential status under FEMA of X Japan Ltd. for the financial year 2010 – 2011would be person resident outside India.

  35. THANK YOU www.nritaxindia.com 1-3-29/4/A Street No 4 , Habsiguda, Hyderabad 500-007. Call on 98490-02275

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