Why it pays to be a resident tax payer

Income tax laws generally do not differentiate between a resident tax payer and a non-resident but there are certain tax benefits/concessions which are available to a resident individual but not to non-residents. Let us discuss some of the major provisions.

Differentiation based on age

A resident tax payer below 60 years enjoys full tax exemption for income up to ₹2.50 lakh every year. This limit is higher at ₹3 lakh for those aged between 60 and 80 years and ₹5 lakh for those aged over 80 years. However, for all the non-resident taxpayer there is only one basic exemption limit of ₹2.50 lakh irrespective of their age.

Likewise, a resident individual who is over 60 years of age, is entitled to deduction of up to ₹50,000 for interest received from banks, post office and cooperative banks during the year under Section 80TTB. However, non-residents can claim a deduction up to just ₹10,000 and that too only in respect of interest on savings bank account under Section 80TTA.

Rebate under Section 87A

All the Individual taxpayers whose total income after various deductions exceeds the basic exemption limit have to pay tax at the slab rates.

However, if an individual is a resident of India for the tax purposes and his taxable income does not exceed ₹5 lakh, he gets a rebate for the amount of his tax liability restricted to ₹12,500 under Section 87A.

This rebate is not available against tax liability in respect of long term capital gains arising on sale/redemption of listed shares/units of equity schemes of mutual funds. The rebate under Section 87A is not available to non-residents.

Set-off of capital gains

Long term capital gains of all nature as well as short term capital gains on equity products are taxed at flat rates in India. In case income – other than capital gains of above nature – is lower than the basic exemption, a resident is entitled to set off such shortfall against such capital gains and is liable to pay tax on the balance only. A non-resident individual does not enjoy this benefit to set off shortfall in the basic exemption against such capital gains even if his only source of income is capital gains of above nature.

TDS provisions

When a resident sells an immovable property, the buyer is required to deduct tax on at the rate of 1 per cent of the sale consideration in case sale consideration of the property exceed ₹50 lakh. However, in case the seller is a non-resident, the buyer has to deduct tax at higher rate of 20 per cent (if property was held by the non-resident for more than two years, else at 30 per cent) of the taxable income.

The seller usually provides the details of cost and date of purchase of the property to help buyer compute taxable capital gains. In case the non-resident seller does not provide such details, the buyer is under an obligation to deduct tax on the full consideration.

A resident individual can apply to the company to pay him the dividend without deduction of tax at source if his estimated tax liability on his income including the amount of dividends is nil. No such option is available to a non-resident tax payer to receive dividend without deduction of tax at source.

Likewise, a resident senior citizen is entitled to furnish a declaration to payer of various income to pay them income without deduction of tax at source if his estimated tax liability for the year is nil. No such option is available to a non-resident senior citizen in receipt of any income in India.

The author is an investment and tax expert and can be reached at jainbalwant@gmail.com

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