Gift Tax

Wealth Tax

Return of Income

Provision after change of status

Taxation on investment income

Exemption from PAN

Filing of returns

Computation of capital gains

Income not part of total income

Gift Tax

There is no Gift Tax for the time being in India and therefore the question of application of Gift Tax in respect of gifts made by a non-resident Indian does not arise.

Wealth Tax

First and foremost, Wealth Tax is now applicable only in respect of specified assets as defined in section 2(ea) of the Wealth Tax Act, 1957, which inter alia includes any building or land subject to certain conditions, motor cars, jewellery, bullion, furniture etc., yachts, boats, air crafts, urban land, cash in hand subject to certain restrictions etc.

Even in respect of these assets exemption is provided in accordance with section 5(v) of the Wealth Tax Act in the case of an assessee being a person of Indian origin or a citizen of India residing in a foreign country has returned to India with the intention of permanently residing in India. The assets qualifying for this exemption are moneys and value of assets brought to him into India or any assets acquired by him out of such moneys brought into India within one year immediately preceding the date of his return to India. There is also a qualifying condition that this exemption shall apply for a period of seven successive assessment years commencing with the assessment year following the date on which such person returned to India.

Return of Income

If an NRI's income consists only of investment income or long term capital gains or both and the relevant tax deductible on such income has been deducted at source, it is not necessary for him to file a return of income under section 139(1) of the Income-tax Act (the Act). This is a concessional treatment given to NRIs in accordance with section 115G of the Act.

Provision after change of status

Where an NRI becomes a resident in India at a later date, he can declare to the Assessing Officer in writing along with return of income stating that the concessional treatment applicable for NRIs under Chapter XIIB can continue to apply to him in respect of investment income derived from any foreign exchange asset. This facility is available under section 115H of the Act and the NRI in question can continue to avail of the facility for every subsequent assessment year until the transfer or conversion into money of such foreign exchange asset.

Taxation on investment income

In accordance with the special provision for computing the total income for non-residents contained in section 115D of the Act, where the non-resident income has only investment or income by way of long term capital gains or both, he will not be entitled to any deduction under chapter VIA of the Act and he will also not be eligible to claim indexed cost of acquisition / improvement (as per second proviso to section 48) in computing the long term capital gain. Where the gross total income of an NRI includes investment income or long term capital gain and also includes other components of income, then the gross total income shall be reduced by the amount of such income and deductions relatable to Chapter VIA shall be allowed as if the gross total income as so reduced were the gross total income of the NRI. On the rate of income-tax applicable in respect of investment income, the non-resident has to pay tax at twenty per cent and in respect of long term capital gains, he has to pay tax at ten per cent. These amounts will have to be increased by surcharge as applicable.

Exemption from PAN

Where a non-resident receives income from which tax has been deducted in accordance with Chapter XVIIB of the Act, he shall intimate his Permanent Account Number to the person responsible for deducting such tax. If PAN is not available, such NRI shall intimate General Index Registration (GIR) number till the PAN is allotted. The only exception from quoting PAN available is in respect of NRIs referred to in section 115AC of the Act, which deals with tax on income from bonds or GDRs purchased in foreign currency or capital gains arising from their transfer. Exemption is also available from quoting PAN for non-resident sportsman, sport associations etc.

Filing of returns

A non-resident India can now file his return of income with the International Taxation Circle specified in each region or place.

Computation of capital gains

Proviso to section 48

The capital gains for NRIs in the case of transfer of shares and debentures is computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so however, that the aforesaid manner of computation of capital gains be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company.

Income not part of total income

In the case of NRIs, the categories of income, which is not includable in total income exempt under Chapter III of the Act, are

(i).Interest on securities or bonds issued by Central Government and notified.

(ii).Interest on moneys standing in Non-resident (External) account.

(iii).Interest on saving certificate issued before 01/06/2003 by the Central Government

These exemptions have to be read in the context of various schemes / notifications issued by the Central Government from time to time.