Non Resident Income tax Return: Budget 2020
Existing Tax law governing the NRI Return
“Section 115A of the Act provides special rates of taxation for income in the nature of dividend, interest, royalty, and FTS earned by an NR (including foreign companies). Under the sub-section (5), such an NR is exempted from the requirement to file a return of income in India if its total income consists only of specified interest or dividend income and appropriate taxes have been withheld at source on such income.”
Although, those Non-residents who are earning royalty or fees for technical services (FTS) from India were, however, still required to file their return of income in India.
It is now intended that a non-resident would not be required to file his return of income in India if:
i) his or its total income contains only of dividend or interest income, or royalty or FTS income (i.e. not effectively connected to the permanent establishment); and
ii) the tax has already been deducted on such income at such rates which is prescribed under section 115A of the Act.
Interpretative View on the above:
It is important here to note that as per the proposed changes, the said benefit is available only if the tax is deducted at the rates as mentioned under section 115A of the Act [i.e. ten percent plus surcharge and an education cess in case of royalty or FTS].
Reading the above with Section 90 of the Income tax Act, 1961 :
However, as per Section 90 of the Income-tax Act, 1961 a taxpayer has an option to be complied by the provisions of the Act or the applicable tax treaty, whichever is beneficial to him. And many of the tax treaties, with which India has entered into, offer for the withholding tax rate in respect of income earned by way of royalty or FTS (i.e. not effectively connected to the permanent establishment) at 10% or less.
After analyzing on the above basis, we can say that the tax rate mentioned under the tax treaty could be lower if we compared it with the tax rate as provided in Section 115A of the Act. In the said situation, as the tax deducted at source (TDS) could be at the rate which is less than as provided under Section 115A of the Act, an opinion which arises is that the exemption of not filing the return of income in India may not be available in that case.
Consequently, the non-resident would be now required to file his return of income in India.
Further Explanation to it :
Analyzing the above, in case a non-resident who is availing the benefit under the tax treaty, a possible view may appear that the non-resident may be mandatory to file a tax return in India.
It may further notice that there has been no related change suggested in the transfer pricing provisions and hence if a non-resident who is receiving such income from an associated enterprise, may still be compulsory to undertake transfer pricing requirements in India.
Non-residents will, therefore, have to be mindful of the extra condition and their accurate position prior to making any conclusion in a manner of their India tax return.
by CA Abhijeet Mehra
Check out other article on Changes in Repo Rate & Moratorium by RBI
Please share with your peers, this will keep us going.