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Business News/ Money / Calculators/  Taxes deducted at source for NRIs are subject to DTAA
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Taxes deducted at source for NRIs are subject to DTAA

Under the Income-tax Act, 1961, NRIs are subject to TDS, which is chargeable in India

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What are the tax deducted at source (TDS) provisions for non-resident Indians (NRIs) living in countries where there is no tax?

—M. Ganguly

Under the Income-tax Act, 1961, NRIs are subject to TDS, which is chargeable in India. However, if the NRI is a tax resident of a country with which India has entered into a double taxation avoidance agreement (DTAA), then the provisions of the Act or the DTAA, whichever is more beneficial, would apply. Accordingly, even if such income is taxable under the Act, if the DTAA provides relief from taxation on the income, then the provisions of the DTAA will prevail and the NRI will be able to claim the benefit under the DTAA. Having said this, if the NRI lives in a country where there is no tax and if the DTAA does not provide any additional relief, then the income of the NRI would be subject to taxes as detailed below:

a) Exempt income such as dividends and long-term capital gains (LTCG) on listed shares which suffer securities transaction tax (STT) would not be subject to TDS;

b) LTCG and short-term capital gains (STCG) are typically subject to TDS at the rate of 20% and 30%, respectively. But LTCG on shares of an Indian company, debentures issued by public companies, and securities of central government, which have been acquired or purchased with convertible foreign exchange is subject to TDS at 10%. STCG on securities that are subject to STT would be subject to tax deduction at the rate of 15%;

c) Royalty and fees for technical services are subject to TDS at the rate of 25%;

d) Interest income earned from debentures issued by or deposits with a public company, which the taxpayer has acquired or purchased with convertible foreign exchange, would be subject to tax deduction at 20% plus applicable surcharge and cess (all rates above are exclusive of applicable surcharge and cess).

Apart from the above, any interest on money borrowed by Indian companies or a business trust are subject to a beneficial tax rate of 5% subject to satisfaction of certain conditions. All other income is typically subject to withholding at 30%.

If I transfer funds from my non-resident external account to my non-resident ordinary account, what will be the tax implication?

—Shamsad

Income is taxable at the point where it accrues or arises or is received. Mere transfer of funds between two accounts held by the same person should not give rise to taxability.

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Published: 05 Feb 2015, 05:44 PM IST
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