Digitisation has helped make India’s tax administration and compliance more efficient and simpler.
Online tax return forms with pre-filled data have been made possible with the use of technology by way of information gathering (annual information summary and taxpayer information summary) and also by making it available for taxpayers in a single place, ie the tax portal.
Taxpayers have also witnessed the benefits of leveraging technology in the form of faster processing of tax returns and quicker receipt of refunds. While these have improved taxpayers’ experience, the list of asks still stands out, especially from non-resident Indians (NRIs).
NRIs have been investing in India for several reasons and are required to file their tax returns. Until last year, NRI investors were required to file Form ITR-2, since they were precluded from using ITR-1,which is applicable only to resident taxpayers.
However, tax authorities had introduced the common ITR forms in 2022 which could be used by NRI investors by filling in only the relevant sections. Budget 2023 could also bring in a few changes from a taxation/practical perspective for NRIs.
Tax withholding
Where NRI investors have long-term capital gains, for instance, from sale of immovable property, the buyer of the property is required to deduct tax at 20% on the sale value. While long-term capital gains are taxable at 20%, the TDS is required on the entire sale value, resulting in higher TDS than the tax liability, thereby resulting in refund. To address this, NRI investors apply for the lower tax deduction certificate which provides some relief in reducing the rate at which tax is deducted by the buyer.
NRI investors can apply to the tax office for a lower rate of TDS by applying online in the tax portal. From the time of application to the availability of the lower TDS certificate, it could take about 2-4 weeks. This process could be further automated for using information already available in the tax portal and make the lower TDS certificate available within a shorter time-frame.
However, Budget 2023 could also consider reducing the rate of TDS from 20% to 10%,which would help reduce the wide gap between the tax liability and taxes withheld.
The tax authorities accept certificates issued by chartered accountants (CA) for various purposes including Form 15CB for payments to non-residents. Similarly, the authorities could consider providing a lower TDS certificate based on capital gains computation (arising from the sale of property) certified by a CA in a format that can be prescribed by the tax authorities. Further, the format (Form 13) could also be simplified to include details of sale consideration, cost of acquisition, indexation benefit in arriving at the capital gains and in order to determine the lower rate of TDS.
Holding period
Classification of an asset as short-term or long-term would depend on the threshold/holding period for each type of asset. For example, debentures listed in India need to be held only for 12 months to be classified as long-term capital asset and resulting capital gain is taxable at 20%. However, debt-oriented mutual funds need to be held for 36 months for the gains to be taxed at 20%.
In order to encourage investments and to bring out parity it is suggested to revise the period of holding even in respect of debt-oriented mutual funds.
Basic exemptions
Where NRI investors have only incomes that are taxable at specific rates (such as long-term capital gains), they lose the benefit from basic exemption limits available for resident individuals. However, where a resident individual has LTCG (taxable at 20%) as his only income, he is entitled to adjust LTCG against basic exemption limit and the balance LTCG is taxed.
Considering that surcharge and education cess increase the tax outgo even if the long-term capital gain is taxed at 20%, the benefit of adjustment of these incomes against basic exemption limit could be extended to NRI investors as well.
(The writers are Sudhakar Sethuraman, Partner, Deloitte India, and Vijayalakshmi Kartik, Manager, Deloitte Haskins & Sells LLP)
