Non Resident Taxation Flashcards
What are the differences between residence based and source based taxation? what are the sections dealing with these issues under the income tax act, 1961?
Residence Based - asserts that natural persons or individuals are taxable in the country or tax jurisdiction in which they establish their residence or domicile, regardless of the source of income. In case of companies, the place of incorporation or the place of effective management is generally considered as its place of residence.
Source Based - According to this concept, a country considers certain income as taxable income, if such income arises within its jurisdiction. Such income is taxed in the country of source regardless of the residence of the taxpayer.
The overview of residence and source rules in India may largely be gathered from sections 5, 6 & 9 of the Income-tax Act, 1961
What is the meaning of Place of Effective management? what are the guiding principles that goes into determining POEM?
- means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made [Explanation to section 6(3)].
- Place of effective management’ (POEM) is an internationally recognised test for determination of residence of a company incorporated in a foreign jurisdiction.
- The POEM concept is one of substance over form. It may be noted that an entity may have more than one place of management, but it can have only one place of effective management at any point of time.
- The process of determination of POEM would be primarily based on the fact as to whether or not the company is engaged in active business outside India?
- For the purpose of determining whether the company is engaged in active business outside India, the average of the data of the previous year and two years prior to that shall be considered.
- The place where these management decisions are taken would be more important than the place where such decisions are implemented. For the purpose of determination of POEM, it is the substance which would be conclusive rather than the form.
- ALL the conditions of the ABOI test has to be satisfied. Even where one of them fails, the opposite view has to be considered.
Once we get to know the first layer of POEM by using the test of ABOI, what are further points required to be tested to really nail down the POEM?
- POEM of a company engaged in active business shall be presumed to be outside India if the majority of the board meeting are held outside India.
- However, in case the Board is not exercising its powers of management and such powers are being exercised by either the holding company or any other person, resident in India, then POEM shall be considered to be in India.
- CBDT Circular No. 25/2017, dated 23.10.2017 clarifies that so long as the Regional Headquarter operates for subsidiaries/ group companies in a region within the general and objective principles of global policy of the group laid down by the parent entity in the field of Payroll functions, Accounting, HR functions, IT infrastructure and network platforms, Supply chain functions, Routine banking operational procedures, and not being specific to any entity or group of entities per se; it would, in itself, not constitute a case of BoD of companies standing aside and such activities of Regional Headquarter in India alone will not be a basis for establishment of POEM for such subsidiaries/ group companies.
What is the meaning of Passive Income in relation to finding POEM? what are it’s components?
(i) Income from the transactions where both the purchase and sale of goods is from/ to its associated enterprises; and
(ii) income by way of royalty, dividend, capital gains, interest (except for banking companies and public financial institutions) or rental income whether or not involving associated enterprises.
Note: Interest will not be considered as a passive income if it related to a banking company.
What are certain miscellaneous guidelines to be kept in mind when determining the POEM?
- Location where the Board of Directors meet and makes decisions - It may be mentioned that mere formal holding of board meetings at a place would by itself not be conclusive for determination of POEM being located at that place. If the key decisions by the directors are in fact being taken in a place other than the place where the formal meetings are held then such other place would be relevant for POEM.
- Location of Executive Committee in case powers are delegated by the Board: the location where the members of the executive committee are based and where that committee develops and formulates the key strategies and policies for mere formal approval by the full board will often be considered to be the company’s place of effective management.(Also see De jure control vs De facto control - by conduct).
- Location of Head Office: If the company’s senior management and their support staff are based in a single location and that location is held out to the public as the company’s principal place of business or headquarters then that location is the place where head office is located.
- In situations where the senior management is so decentralized that it is not possible to determine the company’s head office with a reasonable degree of certainty, the location of a company’s head office would not be of much relevance in determining that company’s place of effective management.
- Use of modern technology: In such cases the place where the directors or the persons taking the decisions or majority of them usually reside may also be a relevant factor.
- Decision via circular resolution or round robin voting: It cannot be said that proposer of decision alone would be relevant but based on past practices and general conduct; it would be required to determine the person who has the authority and who exercises the authority to take decisions. The place of location of such person would be more important.
- Decisions made by Shareholders are not relevant factor in determination of POEM: Except in such situations where they have usurped the powers of the board or senior management for making key decisions by themselves.
- Day to day routine operational decisions are not relevant for determination of POEM: If the above factors do not lead to clear identification of POEM, then the final guidelines provide that following secondary factors may be considered:
• Place where main and substantial activity of the company is carried out; or
• Place where the accounting records of the company are kept
What is the situation if it is determined that during the previous year the POEM is in India and also outside India?
then POEM shall be presumed to be in India if it has been mainly /predominantly in India
Does assessing officer need to seek any prior approval before initiating any proceedings of the company?
- The CBDT also clarified that the Assessing Officer (AO) shall, before initiating any proceedings for holding a company incorporated outside India, on the basis of its POEM, as being resident in India, seek prior approval of the Principal Commissioner or the Commissioner, as the case may be.
- AO after seeking prior approval of the collegium of three members consisting of the Principal Commissioners or the Commissioners, as the case may be, to be constituted by the Principal Chief Commissioner of the region concerned,(Provide OBH to the assessee)
Is there any threshold limit for applying the POEM provisions?
the CBDT vide Circular no. 8/2017 dated 23.02.2017 also clarified that POEM guidelines shall not apply to a company having turnover or gross receipts of ` 50 crores or less in a financial year.
Where during the previous year the benefit, exemption or relief has been claimed and granted to the foreign company in accordance with Transition Mechanism for a company incorporated outside India and has not been assessed to tax earlier [Chapter XII-BC – Section 115JH]and subsequently, there is failure to comply with any of the conditions specified therein, what actions need to be taken on the Non resident here?
- the benefit, exemption or relief shall be deemed to have been wrongly allowed.
- the Assessing Officer may re-compute the total income of the assessee for the said previous year and make the necessary amendment as if the exceptions, modifications, and adaptations as per the notification does not apply; and
- the provisions of section 154 shall, so far as may be, apply thereto and the period of four years for rectification of mistake apparent from the record has to be reckoned from the end of the previous year in which the failure to comply with the condition stipulated in the notification takes place.
What are the various exceptions, modifications and adaptions subject to which, the provisions of the Act relating to computation of income, treatment of unabsorbed depreciation, set-off or carry forward and set off of losses, special provision relating to avoidance of tax and the collection and recovery of taxes shall apply in a case where a foreign company is said to be resident in India in any previous year on account of its POEM being in India and the such foreign company has not been resident in India before the said previous year? vide notification No. 29/2018,
- Determination of opening WDV - Based on the tax records in the foreign jurisdiction or WDV shall be calculated assuming that the asset was installed, utilized and the depreciation was actually allowed as per the provisions of the laws of that foreign jurisdiction. or based on the value of depreciable assets as per the books of accounts as on the 1st day of the previous year.
- Brought forward loss and unabsorbed depreciation : Tax records or as per BOA or shall be deemed as loss and unabsorbed depreciation brought forward as on the 1st day of the said previous year. shall be allowed to be set off only against such income of the foreign company which has become chargeable to tax in India on account of it becoming resident in India due to application of POEM.
- Period of profit and loss account and balance sheet in cases where accounting year of foreign company does not end on 31st March: upto 31st March of the year immediately preceding the period beginning with 1st April and ending on 31st March during which the foreign company has become resident(Where this period is less than 6 months, the PL and BS has to be prepared for 15 months in our example) and(If the period is more than 6 months, it has to be treated as a separate accounting year) and
- The foreign company is also required to prepare profit and loss account and balance sheet for succeeding periods of twelve months, beginning from 1st April and ending on 31st March.
- Applicability of provisions of Chapter XVII-B (TDS provisions): Compliance to those provisions of Chapter XVII-B of the Act as are applicable to the foreign company prior to it becoming Indian resident shall be considered sufficient compliance to the provisions of said Chapter
- Availability of deduction under section 90 or 91 (Foreign tax credit): Where income on which foreign tax has been paid(Tax under 90 or 91) or deducted, is offered to tax in more than one year, credit of foreign tax shall be allowed across those years in the same proportion in which the income is offered to tax or assessed to tax in India.
- Applicability of the notification where foreign company becomes resident in the subsequent previous year also: In general cases, we would take the numbers of WDV and Unabsorbed Dep from Tax records, but here to be adopted on the 1st day of the previous year shall be those which have been arrived at on the last day of the preceding previous year in accordance with the provisions of this notification.
- Applicability of other provisions relating to foreign company: Subject to the above, the the foreign company shall continue to be treated as a foreign company even if it is said to be resident in India and all the provisions of the Act shall apply accordingly.
- Applicability of tax rate on foreign company - Therefore, the rate of tax in case of foreign company i.e., 40% shall remain the same, i.e., rate of income-tax applicable to the foreign
company even though residency status of the foreign company changes from non-resident to resident on the basis of POEM.
How to determine the residential status of an Individual?
This chart has already been seen in Module 1 of the same study material.
What is the residential status of of HUF/ Firm/ AOP/ BOI/Local Authority/ Artificial Juridical Person/Company?
This chart was already read as part of Module 1.
What is the income that will be deemed to accrue or arise in India as per the provisions of section 9?
Already seen as part of Module 1
What is the scope of total Income as per the provisions of Section 5?
The last box of the table is an exception where global income is exempt in the hands of R+OR, even though where the same is remitted to India during the relevant previous year.
What is the meaning of business connection? when will it be deemed to accrue or arise in India? Name all the circumstances in which we can analyze the above points?
- ‘Business connection’ shall include any business activity carried out through a person acting on behalf of the non-resident [Explanation 2 to section 9(1)(i)]
- must have an authority, which is habitually exercised in India, to conclude contracts on behalf of the non-resident or(transfer of ownership or provision of services etc.
- in a case, where he has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident, or
- habitually secures orders in India, mainly or wholly for the non-resident.
What are/may be situations when the person acting on behalf of the non-resident secure order for other non-residents. In such situation, business connection for other non-residents is established if, when?
- such other non-resident controls the non-resident or
- such other non-resident is controlled by the non-resident or
- such other non-resident is subject to same control as that of non-resident.
What are the situations where we can dictate that there is no business connection?
Hint: Agent having an independent status
- where the non-resident carries on business through a broker, general commission agent or any other agent having an independent status, if such a
person is acting in the ordinary course of his business. - He will, however, not be considered to have an independent status in the three situations explained above, where he is employed by such a non-resident.
- the income of the business deemed to accrue or arise in India shall be only such part of income as is reasonably attributable to the operations carried out in India.(There the remaining part which cannot be attributed shall be not deemed to accrue or arise in India).
*
What are certain other situations where Income shall not be deemed / not deemed to accrue or arise in India?
- Purchase of goods in India for export [Explanation 1(b) to section 9(1)(i)]: no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export.
- Collection of news and views in India for transmission out of India [Explanation 1(c) to section 9(1)(i)]: no income shall be deemed to : accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India.
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Shooting of cinematograph films in India [Explanation 1(d) to section 9(1)(i)]: no income shall be deemed to accrue or arise in India through or from operations which are confined to the shooting of any cinematograph film in India, if such non-resident is :
• an individual, who is not a citizen of India or
• a firm which does not have any partner who is a citizen of India or who is resident in India; or
• a company which does not have any shareholder who is a citizen of India or who is resident in India. - Activities confined to display of rough diamonds in SNZs [Explanation 1(e) to section 9(1)(i)]: diamonds, no income shall be deemed to accrue or arise in India, if are confined to display of uncut and unassorted diamonds in any special zone notified by the Central Government in the Official Gazette in this behalf.
- Income from property, asset or source of income in India - Any income which arises from any property in India (movable, immovable, tangible and intangible property) would be deemed to accrue or arise in India.
What are the provisions in relation to transfer of Capital assets situated in India? will it be deemed to accrue or arise in India as per the respective provisions?
- Capital gains arising through or from the transfer of a capital asset situated in India would be deemed to accrue or arise in India in all cases irrespective of the fact whether
• The capital asset is movable or immovable, tangible or intangible;
• The place of registration of the document of transfer etc., is in India or outside; and
• The place of payment of the consideration for the transfer is within India or outside. - Further, an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India [Explanation 5 to section 9(1)(i)].
What are the cases where an asset or capital asset held by a non-resident is not deemed to be situated in India?
[Third proviso to Explanation 5 to section 9(1)(i)]
An asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in Category-I or Category-II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 prior to their repeal, made under the Securities and Exchange Board of India Act, 1992 or on the basis of regulations made under the 2019 act(Transaction between 2014 and 2019 will not be covered unless it is a retrospective amendment)
What are some specific treatment when it comes to redemption or buy back of Non resident share or interest through an investment fund? and what is the scenario where dividend is declared by a foreign company?
- provisions of section 9(1)(i) read with Explanation 5, shall not apply in respect of income accruing or arising to a non-resident on account of redemption or buyback of its share or interest held indirectly (i.e. through upstream entities registered or incorporated outside India) in the specified funds (namely, investment funds, venture capital company and venture capital funds)
- if such income accrues or arises from or in consequence of transfer of shares or securities held in India by the specified funds and such income is chargeable to tax in India.
- proceeds of redemption or buyback arising to the non-resident do not exceed the pro-rata share of the non-resident in the total consideration realized by the specified funds from the said transfer of shares or securities in India.
- It is further clarified that a non-resident investing directly in the specified funds shall continue to be taxed as per the extant provisions of the Act.
- the dividends declared and paid by a foreign company outside India in respect of shares which derive their value substantially from assets situated in India would NOT be deemed to be income accruing or arising in India by virtue of the provisions of section 9(1)(i).
When shall the share or interest in a company or entity registered or incorporated outside India, shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if on the specified date, the value of Indian assets, -?
- Should exceeds the amount of ` 10 crore; and
- represents at least 50% of the value of all the assets owned by the company or entity, as the case may be;
What is the sum and substance of the detail tried to be communicated under Explanation 7 to section 9(1)(i)?
- no income shall be deemed to accrue or arise to a non-resident from transfer, outside India, of any share of, or interest in, a company or an entity, registered or incorporated outside India, in the following cases;
- In effect, the exemption shall be available to the transferor of a share of, or interest in, a foreign entity if he along with its associated enterprises, -
• neither holds the right of control or management,
• nor holds voting power or share capital or interest exceeding 5% of the total voting power or total share capital or total interest,
in the foreign company or entity directly holding the Indian assets (direct holding company). - In case the transfer is of shares or interest in a foreign entity which does not hold the Indian assets directly(Owns Indirectly) then the exemption shall be available to the transferor if he along with its associated enterprises,-
• neither holds the right of management or control in relation to such company or the entity,
• nor holds any rights in such company which would entitle it to either exercise control or management of the direct holding company or entity or entitle it to voting power or share capital or total interest exceeding 5% in the direct holding company or entity. - Further, where all the assets owned, directly or indirectly, by a company or, as the case may be, an entity registered or incorporated outside India, are not located in India, the income of the non-resident transferor, from transfer outside India of a share of, or interest in the foreign company or entity, deemed to accrue or arise in India under this clause, shall be only such part of the income as is reasonably attributable to assets located in India and determined in the prescribed manner.
What is the taxability of Income from salaries earned in India as per Section 9(1)(ii)?
- Income, which falls under the head “Salaries”, deemed to accrue or arise in India, if it is earned in India. Salary payable for service rendered in India would be treated as earned in India.
- Salaries” payable for rest period or leave period which is preceded and succeeded by services rendered in India, and forms part of the service contract of employment, shall be regarded as income earned in India.
What is the taxability of Income from salaries payable by the Government for services rendered outside India [Section 9(1)(iii)].
- Income from ‘Salaries’ which is payable by the Government to a citizen of India for services rendered outside India would be deemed to accrue or arise in India.
- However, allowances and perquisites paid or allowed outside India by the Government to an Indian citizen for services rendered outside India is exempt, by virtue of section 10(7).
What is the taxability of dividend paid by an Indian company outside India -Section 9(1)(iv)?
Dividend paid by an Indian company outside India is deemed to be accrue or arise in India and would be taxable in India in the hands of non-resident shareholders.
What is the taxability of Interest under Section 9(1)(v)?
Under section 9(1)(v), an interest is deemed to accrue or arise in India if it is payable by -
(i) the Government;
(ii) a person resident in India;
a non-resident, when it is payable in respect of any debt incurred or moneys borrowed and used, for the purpose of a business or profession carried on in India by him.(See Chart) - Exception: Interest on money borrowed by the non-resident for any purpose other than a business or profession, will not be deemed to accrue or arise in India.
What is the Taxability of interest payable by the Permanent Establishment of a non-resident engaged in banking business to the head office?
- Explanation has been inserted in section 9(1)(v). Accordingly, in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the PE in India of such non-resident to the head office or any PE or any other part of such non-resident outside India, shall be deemed to accrue or arise in India.
- Also, the PE in India has to deduct tax at source on any interest payable to either the head office or any other branch or PE, etc. of the non-resident outside India.
What are certain crucial points to be noted in relation to Royalty under Section 9(1)(vi)?
- Lumpsum royalty not deemed to accrue arise in India - along with computer hardware under any scheme approved by the government under the policy on computer software export, software development and training, 1986 shall not be deemed to accrue or arise in India.
- The term ‘royalty’ means consideration (including any lumpsum consideration but excluding any consideration which would be the income of the recipient chargeable under the head ‘capital gains’)
- Consideration for use or right to use of computer software is royalty within the meaning of section 9(1)(vi) - right to use a computer software (including granting of a license) irrespective of the medium through which such right is transferred [Explanation 4].
- Consequently, the provisions of tax deduction at source under section 194J and section 195 would be attracted in respect of consideration for use or right to use computer software since the same falls within the definition of royalty.(See exception in image)
What is the taxability for Fee for technical services in accordance with Section 9(1)(vii)?
- See Initial Introduction
- Meaning of FTS -consideration (including any lumpsum consideration) for the rendering of any managerial, technical or consultancy services (including providing the services of technical or other personnel).
- However, it does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘Salaries’.
- Income deemed to accrue or arise in India to a non-resident by way of interest, royalty and fee for technical services to be taxed irrespective of territorial nexus [Explanation to section 9] - See Image
What is the taxability of sum of money paid by a resident Indian to a non-corporate non-resident or foreign company [Section 9(1)(viii)]?
- Income arising outside India, being any sum of money paid without consideration, by a Indian resident person to a non-corporate non-resident or foreign company would be deemed to accrue or arise in India, if the same is chargeable to tax under section 56(2)(x) i.e., if the aggregate of such sum received by a non-corporate non-resident or foreign company exceeds ` 50,000.
- not in respect of property, movable or immovable, transferred outside India without consideration or for inadequate consideration to a non-corporate non-resident or foreign company.
What are certain important provisions in relation to Presence of Eligible Fund Manager in India not to constitute Business Connection in India of such Eligible Investment Fund on behalf of which he undertakes Fund Management Activity [Section 9A]
- Fund Management Activity through an eligible fund manager not to constitute business connection
- Location of Fund Manager in India not to affect residential status of an eligible investment fund:
- See Full conditions in 2.38 and 2.39 - Important conditions are as follows:
- the fund should not be a person resident in India;
- the aggregate participation or investment in the fund, directly or indirectly, by 0persons being resident in India should not exceed 5% of the corpus of the fund; However, for the purposes of calculation of aggregate participation or investment in the fund, any contribution made by the eligible fund manager during the first 3 years of operation of the fund, not exceeding ` 25 crore, would not be taken into account.
(e) the fund should have a minimum of 25 members who are, directly or indirectly, not connected persons;
(f) any member of the fund along with connected persons shall not have any participation interest, directly or indirectly, in the fund exceeding 10%;
(g) the aggregate participation interest, directly or indirectly, of ten or less members along with their connected persons in the fund, shall be less than 50%; - Certain conditions not to apply to investment fund set up by the Government or the Central Bank of a foreign State or a Sovereign Fund or other notified fund [Proviso to Section 9A(3)] E,F and G condition above not to apply.
What are the exemption provisions in relation to Income of a specified fund on transfer of certain asset [Section 10(4D)]?
- Meaning of specified Fund(Very important definition)
A fund established or incorporated in India in the form of a trust or a company or a LLP or a body corporate, –
(i) which has been granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the SEBI (Alternative Investment Fund) Regulation, 2012, made under the SEBI Act, 1992
(ii) which is located in any IFSC
(iii) of which all the units are held by non-residents other than units held by a sponsor or manager
What are the exemption provisions in relation to Remuneration received by individuals, who are not citizens of India [Section 10(6)]?
Remuneration received by officials of Embassies etc. of Foreign States [Section 10(6)(ii)]:
The remuneration received by an individual, who is not a citizen of India, for services as an official by whatever name called of an embassy, high commission, legation, commission, consulate or trade representation of foreign state, or a member of staff of any of these official is exempt.
- *Conditions**
(a) The remuneration received by our corresponding Government officials resident in such foreign countries should be exempt.
(b) The above-mentioned member of the staff of such officials should be the subjects of the respective countries and should not be engaged in any other business or profession or employment in India.
Remuneration received for services rendered in India by a Foreign National employed by foreign enterprise [Section 10(6)(vi)]:
The remuneration received by a foreign national as an employee of a foreign enterprises, for services rendered by him during his stay in India is exempt from tax.
- *Conditions**
(a) The foreign enterprise is not engaged in any business or trade in India:
(b) The employee’s stay in India does not exceed in the aggregate a period of 90 days in such previous year, and
(c) The remuneration is not liable to be deducted from the income of the employer chargeable under the Income-tax Act, 1961.
Salary received by a non-citizen for services rendered in connection with employment on foreign ship [Section 10(6)(viii)] - For any Income which is chargeable under the head salary . The period of stay in India should not exceed 90 days during the previous year.
Remuneration received by Foreign Government employees during their stay in India for specified training [Section 10(6)(xi)]:
Any remuneration received by employee of the Government of a foreign state from their respective Government during his stay in India, is exempt from tax, if remuneration is received in connection with training in any establishment or office of or in any undertaking owned by,- See Image
What is the meaning of A wholly owned subsidiary of Abu Dhabi Investment Authority, A sovereign wealth fund and A pension Fund?
Taxability on failure to satisfy the conditions: Where any income has not been included in the total income of the specified person due to the aforesaid provisions, and subsequently during any previous year the specified person fails to satisfy any of the conditions mentioned so that the said income would not have been eligible for such non-inclusion, such income shall be chargeable to income-tax as the income of the specified person of that previous year
What are some important provisions in relation computing the profits and gains of shipping business in the case of non-residents [Section 44B]? and how does it compare to section 172, which also deals with shipping business income?
The amounts referred to in (i) and (ii) shall include demurrage charges or handling charges or any other amount of similar nature.
But no deduction would be allowed for any expenditure, (i.e. the provisions of section 28 to 43A are not to be taken into account) however carried forward losses would be allowed to be set off from such income.
Who is the assessee eligible to be covered under Special provision for computing profits and gains in connection with the business of exploration etc. of mineral oils [Section 44BB]? and what is the presumptive rate to be charged?
- Eligible Assessee - Section 44BB provides for determination of income of taxpayer being a non-resident engaged in the business of providing services and facilities in connection with, or supplying plant and machinery on hire used or to be used in the prospecting for, or extraction or production of mineral oils.
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Presumptive rate: In such case, the profits and gains shall be deemed to be equal to 10% of the following amounts:
• paid or payable to the taxpayer or to any person on his behalf whether in or out of India, on account of the provision of such services or facilities or supply of plant & machinery for the aforesaid purposes in India; and
• received or deemed to be received in India by or on behalf of the assessee on account of such service or facilities or supply of plant and machinery used or to be used in prospecting for, or extraction or production of mineral oils outside India. - Non-applicability of presumptive taxation under section 44BB: The provisions of section 44BB shall not apply to any income to which the provisions of section 42 or section 44DA, 115A or 293A apply for the purpose of computing profit or gains or any other income referred to in these sections.
What are Special provision for computing profits and gains of the business of operation of aircraft in the case of non-residents [Section 44BBA]?
- *Eligible assessee:** Section 44BBA provides presumptive rate in case of a non-resident engaged in the business of operation of aircraft.
(ii) Presumptive rate: Income from such business is calculated at a flat rate of 5% of the following:
(a) amount paid or payable, in or out of India, to the tax payer or to any person on his behalf on account or carriage of passenger, livestock, mail or goods from any place in India and
(b) amount received or deemed to be received in India by or on behalf of the taxpayer on account of carriage of passenger, livestock, mail or goods from any place outside India.
section 44BBA does not distinguish corporate and non-corporate taxpayers who operate aircraft provided their residential status is that of non-resident.
What are the provisions for deduction of head office expenses in case on Non residents as per section 44C?
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Deduction in respect of head office expenditure is restricted to the least of the following:
(a) an amount equal to 5% of “adjusted total income” or in the case of loss, 5% of the “average” adjusted total income; or
(b) the amount of so much of the expenditure in the nature of head office expenditure incurred by the assessee as is attributable to the business or profession of the assessee in India. - What is Average Adjusted Total Income -
(a) The total income of the assessee, assessable for each of the three assessment years immediately preceding the relevant assessment year, one third of the aggregate amount of the adjusted total income in respect of previous years relevant to the aforesaid three assessment years is average adjusted total income.
(b) When the total income of the assessee is assessable only for two of the aforesaid three assessment years, one half of the aggregate amount of the adjusted total income in respect of the previous year’s relevant to the aforesaid two assessment years is taken on average adjusted total income.
(c) Where the total income of the assessee is assessable only for one of the aforesaid three assessment years, the amount of the adjusted total income in respect of the previous year relevant to that assessment year is average adjusted total income.
What are the special provisions for computing income by way of royalties etc. in case of non-residents [Section 44DA]?
Mandatory requirement to maintain BOA?
- the non-resident is mandatorily required to keep and maintain the books of account under section 44AA and get them audited before the date one month prior to the due date for furnishing the return of income under section 139(1) and furnish by that date a report of such audit.
What are the rules in relation to capital gains, in relation to Non resident taxation under first proviso to section 48 read with Rule 115A?
- There are basically two distinctions that can be made here. One is with respect to company not listed in RSE vs the one listed in RSE.
- Knowing when section111A and 1112A will apply and when first proviso to section 48 will apply.
- How to find out the TTBR and what rate to be used for different events based on the table.
What is the meaning of foreign exchange assets and the meaning of specified assets in relation to the above as per the provisions of XII-A - Sections 115D to 115F?
- Foreign Exchange asset - Any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange.
- Specified asset - Image
What are the types of Income that are covered under this section 115D to 115F? and what is the capital gain on transfer of these specified foreign exchange assets?
- What is the meaning of Proportionate capital gains - Capital gains * Cost of acquisition of New asset / Net consideration(after Expenses in relation to transfer)
What are the special provisions for computing tax on income by way of royalty, fees for technical service, interest etc. [Section 115A] - as per Chapter XII?
The tax rate for dividends and Interest are to be recalled carefully, since it is different for different situations and the period for which the rates are applicable are also important to be noted down.
What are the special provisions in relation total income of a foreign company or a non-corporate non-resident includes any income by way of royalty or fees for technical services (FTS) other than the income referred to in section 44DA - Chapter XII?
- Received from the Government in pursuance of an agreement made by the non-resident/foreign company with the Government
- Received from the Indian concern in pursuance of an agreement made by the non-resident/foreign company with the Indian concern and the agreement is approved by the Central Government or where it relates to industrial policy of Government of India, the agreement in accordance with that policy.
- In both the above scenario, tax rate will be as follows - 10% of such royalty or FTS. However, if DTAA provides for a rate lower than 10%, then, the provisions of DTAA would apply(In this scenario, no exemption from filing of ROI will be available when a lower rate is chosen)
- Chapter VI-A is not available in respect of dividend and interest referred to in (i)(Previous card and not this one) above. However, this condition would not be applicable to deduction allowed to a unit of an International Financial Services Centre (IFSC) under section 80LA i.e. a unit of an IFSC can claim deduction under section 80LA against dividend and interest referred to in (i) above.
- No deduction in respect of any expenditure or allowance shall be allowed to the assessee under sections 28 to 44C and section 57 in computing the above income.
- It shall not be necessary for the assessee to furnish a return of income if the following conditions are satisfied:
(a) The total income consists of only the interest or dividend income referred to in (i) above or royalty or fees for technical services referred to in (ii) above; and
(b) Tax deductible at source has been deducted from such income and the rate of such deduction is not less than the rate specified in (i) or the rate of 10% specified in (ii).
What are some provisions for computing tax on income from units purchased in foreign currency or capital gains arising from their transfer in case of offshore fund [Section 115AB]?
- Where the total income of an overseas financial organization (Offshore Fund) includes the following incomes namely-
(i) Income received in respect of units purchased in foreign currency or
(ii) by way of long-term capital gains arising from the transfer of units of a mutual fund specified under section 10(23D) or units of UTI purchased in foreign currency, - Then, the income tax payable shall be the aggregate of the following:
(a) 10% on income referred to above
(b) the amount of income-tax with which the Offshore Fund would have been chargeable had its total income been reduced by the amount of Long term Capital Gains and income received referred to above.
What are the special rates of tax that is applicable for computing tax on income of Specified Fund or Foreign Institutional Investors from securities or capital gains arising from their transfer [Section 115AD]
- In case of specified fund, the provision of this section would apply only to the extent of income that is attributable to units held by non-resident (not being a permanent establishment of a non-resident in India) calculated in the prescribed manner.
- Means to say that if the Non resident has a PE in India, then these special tax rates shall not apply.
What are the provisions of surcharge applicable to on tax on total income of individuals/AOPs/BOIs/ Artificial
Juridical Persons (having any income under section 115AD) for payment of advance tax for
A.Y.2021-22–
Who are the types of eligible assessee’s eligible for computing tax on non-resident sportsmen or sports associations [Section 115BBA] and what is the tax rate that will be charged?
- Note: Umpires and match referees can be described as professionals or technical persons who render professional or technical services, but they cannot be said to be either non-resident sportsmen (including an athlete) or non-resident sports association or institution so as to attract the provisions of section 115BBA and consequently, the provisions of tax deduction at source under section 194E are can not be attracted.
- But, It may be noted that since income has accrued and arisen in India to the non-resident umpires and match referees, the TDS provisions under section 195 would be attracted and tax would be deductible at the rates in force.
Case law : Relating to PILCOM and INDCOM and issuing of guarantee by BCCI to ICC, which is Income deemed to accrue or arise in India to a non resident sports association or Institution?
- Board of Control for Cricket in Sri Lanka v. DIT (International Taxation) & Pilcom v. CIT (2020) 425 ITR 312 (SC)
What are the provisions relating to capital gains exemption for Conversion of an Indian branch of foreign company into subsidiary Indian company [Section 115JG(1)]? - CHAPTER XII-BB?
- The provisions of this section apply to a foreign company engaged in banking business in India through its branch situated in India, which is converted into an Indian subsidiary company in accordance with the scheme framed by RBI.
- If the conditions notified by the Central Government in this behalf are satisfied, then capital gains arising from such conversion would not be chargeable to tax in the assessment year relevant to the previous year in which such conversion takes place.
What are the provisions which shall be adopted with such modifications or exceptions as necessary under the Income tax act, 1961 as per [Section 115JG(1)]?
What are the withholding tax provisions in relation to Income from units 196B?Income from foreign currency bonds or shares of Indian company [Section 196C]?Income of foreign institutional investors from securities [Section 196D]
Carefully see the Non applicability of TDS provisions under section 196D.
