It is understood that the income of a non-resident from property, investment, business or profession in India should attract liability to Indian tax. Foreign income of a non-resident is not taxable in India. But I am informed by my auditors that I will be liable even on my foreign income, if it is received or deemed to be received in India. Since I propose to bring my savings to India from time to time, should I await transfer of my savings till the date of cessation of my employment abroad and I come back permanently to India?
The reader's inference that the income which accrues or arises in India should be taxable in the hands of a non-resident is correct. Sec. 5(2), however, provides that a non-resident would not only be taxed on income accruing or arising in India but also what is received or deemed to be received in India.
What is deemed to be received is only amount received from provident fund schemes and pension schemes, where they are taxable. But what is received in India is receipt of income as income. An income is received only once. What is remitted out of income received abroad cannot be treated as receipt of income in India.
To take an illustration, if an Indian citizen takes employment abroad and wants 50 per cent of his salary to be paid to him abroad and the balance of 50 per cent directly remitted by the employer to his family in India, the amount remitted by the employer to India would become receipt of income taxable in employee's hands in India, even if he were a non-resident. Sec. 5(2) covers not only what is received by an assessee directly but also what is received on his behalf. If, however, he receives the entire salary abroad and makes remittances either monthly or periodically to his family members, no part of the income is taxable in India. What is received in India in such a case is only a remittance and not a receipt of income. This law is well-established.
Double Tax Avoidance Agreements do not recognise receipt as a basis of taxation so that where the non-resident derives income from salary in a country with which India has Double Tax Avoidance Agreement, relief is possible in respect of tax on income levied solely on receipt basis with reference to such Agreement.
TDS for depositor without PAN
I saw Tax Forum published in The Hindu dated March 22, 2010. There is a reference to splitting up of the investments in order to avoid tax deduction at source ‘by having income from each such investment below tax deductible limit'. In view of cumulative limit under Sec. 194A(3) splitting up with the same investee would not help.
Sec. 206AA(1), which commences with a non-obstante clause in the following words: ‘notwithstanding anything contained in any other provisions of this Act', provides for tax deduction at 20 per cent, if the deductor has not furnished his Permanent Account Number (PAN) to the deductee, while sub-section (2) and (3) would render a declaration without the number invalid so that the deductor shall be obliged to deduct tax at source on “any sum or income or amount on which tax is deductible under Chapter XVII-B”. Does it mean that PAN is required for all payments falling within the purview of tax deduction at source irrespective of the limit, either for single or cumulative payments? If the answer is in the affirmative, correction is required.
The above doubt expressed by G. Sarangan, Senior Counsel, Bangalore, is based on literal interpretation of Sec. 206AA as a self-contained provision starting with a non-obstante clause and is a mandate to deductor. Even so, it applies for any sum “deductible under Chapter XVII-B” so that payments below the cumulative or the higher limit under Sec. 194A or a similar limit under Sec. 194C should not be vulnerable. Meanwhile, the Madras High Court has issued injunction on a writ petition filed by a deductee against a deductor for proposed deductions, if PAN is not made available, pending disposal of the petition, which has also been short-listed for hearing. Notice has also been issued to the Income-tax Department. Though Sec. 206AA inserted by the Finance (No. 2) Act, 2009 has become law with effect from August 19, 2009, its serious impact is felt now, when it is becoming effective from April 1, 2010. To avoid the inconvenience to both deductors and deductees, it is better to drop or at least postpone the application of this provision to await more mature consideration of this proposal till the new Code.
How residential status of NRIs inferred in India
I have been in employment in UAE with a resident visa. I come to India quite frequently to attend to some personal and family matters. During the financial year 2009-10, I had to come and stay in India for 178 days, since there was a break in my employment shifting to another job. I was not in any employment, business or profession in India during my stay in India. Should it make a difference to my residential status for this year?
The reader satisfies the condition that he was not in India for 182 days during the year so that he could be a non-resident by the first test in the definition under Sec. 6(1)(a) of the Act. The reader has not, however, stated, whether he has been in India for 365 days or more during the immediately preceding four years.
If he were, he would be a resident in view of the alternate test under Sec. 6(1)(c) of the Act, since his stay in India exceeds 60 days. But if the reader is vulnerable because of this alternate base for inference of residential status in India, there are two exceptions to such inference. The first exception is for citizens of India for the financial year during which he leaves for employment and his stay during that year in India was less than 182 days so that he is entitled to the status of non-resident for the year under the Explanation (a) to Sec. 6(1) in view of relaxation of 60 days to 182 days.
The other exception applicable for citizens of India or a non-resident Indian provides that the period of stay in India on a visit could be for 181 days or below without losing his right to be a non-resident so that his stay could exceed 60 days, which stands relaxed to 182 days by substituting 60 days. Either or both the exceptions should come to the help of the reader for the claim to the status as a non-resident.
The fact that there was a break in employment should not ordinarily make any difference, because there could be a visit to India during such break so that the second exception for visits will apply. If it is understood that the break makes a difference, the first exception covering departure for employment will be available.
S. RAJARATNAM
