The first step is to determine tax residence of an individual. The Indian tax laws provide that an individual qualifies as a ‘non-resident’ if he is present in India for a period less than 60 days during the relevant tax year. In case of Indian citizens who leave India on account of employment outside India, this limit of 60 days is increased to 182 days for that particular financial year.
Additionally, the tax laws define a ‘resident but not ordinarily resident’ to be an individual who is a resident Indian and has been a ‘non-resident’ in 9 out of 10 financial years preceding the relevant tax year, or has been in India for a period less than 729 days during the seven financial years preceding the relevant tax year.
It is pertinent to note that individuals who are tax resident in India shall be taxable with respect to their global income. Non-residents are liable to pay tax on income earned from sources in India or in case of income received in India. A person resident of a country with which India has a tax treaty can seek benefit of restrictive taxation terms given in the treaty. In the current article, where relevant we have referred to tax treaty between India and Singapore.
Income earned during a fiscal
The next step is to determine whether there is any source of income in India. The various types of income and their tax incidence in the hands of non-residents are discussed below:
• Salary income received by a non-resident is taxable in India, if the employment is exercised in India. A short stay exemption may be sought as per the provisions under the tax treaty where the non-resident’s period of stay in India during the financial year does not exceed 183.
• Rental income from any property situated in India shall be subject to tax in India.
• Professional or business income of a non-resident individual is taxable in India, if the business or profession is carried on in India through a fixed base in India.
• Capital gains arising on transfer of a capital asset situated in India is liable to tax, irrespective of the residential status of the individual or the place of receiving the consideration. The quantum of capital gain and the rate of tax thereon shall depend on the type of capital asset and the period of holding the asset.
Deductions from total income
After ascertaining the taxable income, the next step would be to check the eligibility for any deductions. Like resident taxpayers, non-residents can also claim deduction with respect to certain specified investments or expenses such as deduction of up to `150,000 for investments in equity-linked saving schemes, life insurance premium on the life of the non-resident or their spouse or children, unit-linked insurance plan, etc. or a deduction of up to `25,000 is allowed for health insurance premium, etc.
Income such as rent, interest or capital gains, etc earned in India during the year may have been subject to tax withholding. It is advisable to obtain the certificate of any taxes withheld i.e. Form 16A for any income other than salary or Form 16 for salary from the Indian payer, to ensure that the taxes withheld have been appropriately deducted and deposited. Details of taxes withheld during the year is also reflected in the Form 26AS available on the tax department’s portal in the taxpayer’s e-filing account. The e-filing account can be accessed. It is important to check and reconcile the taxes withheld so that credit for the same can be claimed.
Like all resident Indians, non-residents are also required to deposit quarterly advance tax on income earned during the financial year (other than on salary income). Advance tax is payable if the tax payable during the year, after credit for tax withheld, exceeds `10,000. For the financial year 2018-19, 100% of the applicable tax are required to be deposited on or before 31 March 2019. The last instalment of advance tax is payable on or before 15 March 2019. Non-Residents who earned income in India in the first three quarters of the current fiscal but could not deposit any advance should ensure that the same is deposited along with interest for late deposit. The advance tax can be paid online on the official website of the Tax Information Network.
• Obtaining a Permanent Account Number (PAN)
Any person, including a non-resident, with a total income above the basic exemption limit of `250,000 is required to obtain a Permanent Account Number (PAN) in India, which is the tax registration number issued by the Indian tax authorities.
The tax authorities have extended the requirement to obtain PAN to individuals, including non-residents, who are engaged in the capacity of a managing director, partner, trustee, author, founder, karta, CEO, principal officer or office bearer of any resident Indian entity that has entered into a financial transaction aggregating to `250,000 or more in a given financial year. Non-residents who meet this criteria during the financial year 2018-19 will be required to apply for PAN on or before 31 May 2019, even if they do not have any taxable income from any source in India.
• Filing of income tax return
Non-Residents are required to file a tax return in the applicable form where the taxable income exceeds the basic limit amount not subject to tax. The due date for filing the tax return for financial year 2018-19 for taxpayers who are not required to get their books of account audited is 31 July 2019. The due date for other taxpayers is 30 September 2019. The tax return can be filed online on the e-filing website of the Indian tax department.
Over the last few years the Indian tax authorities have taken various initiatives to simplify the tax compliances and expand the taxpayer base. Most of the tax filings, processing of income-tax returns and issue of refunds are now online and e-assessments of tax returns has also been introduced. It is therefore imperative that Indian income and/ or investments are duly reported and compliances met with.
1. In case a non-resident had missed filing the tax return for financial year 2017-18, can the same still be filed?
The tax return for the financial year 2017-18 can be filed till 31 March 2019. However, there is a late fee amounting to ₹10,000, which the taxpayer will be liable to pay along with any applicable tax and interest.
2. Can a return for financial year 2017-18 filed within due date be revised and by when?
The tax return for financial year 2017-18 filed within the due date can be revised. The revised return would need to be filed on or before 31 March 2019.
Siddhartha Sangal and Archana Kumar contributed to this story.
Vikas Vasal is national leader tax–Grant Thornton India LLP. You can send your queries to firstname.lastname@example.org.