Non Resident Taxation Basics

Front 1

Sec 9(1) ROYALTY point 8

Back 1

Same as Interest

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Individual

Back 2

182 or more

Check if 60 days - yes - 4 yrs imm pre PY stay 365 days or more

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HUF, AOP, BOI

Back 3

Affairs - place of control is wholly / partly in India

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Companies - Resident

Back 4

All Indian companies

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Other than Indian company

Back 5

Refer to POEM

If POEM in India - Resident

Outside India - Non Resident

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If POEM is outside India - NR

Back 6

Active business outside India

+ majority of board meetings held outside India

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POEM CBDT CIRCULAR

Back 7

Active business outside India

Front 8

Active business is outside India - IF 4 tests are satisfied

Back 8

Test 1. Passive income not exceed 50% of total income

Other than business income

Purchase and sale of G/S from/to Associate Enterprise

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Test 2 and 3 -Employees test

Back 9

2. No of employees resident in India - not exceed 50% of total no of employees

3. Salary to Indian employees - not exceed 50% of total salary

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Test 4

Back 10

Assets in India - not exceed 50% of total assets

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Tax liability of NR is determined by

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Time and place of receipt in India

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1. Income Received in India

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1st place of receipt in India

Don't consider subsequent transfer

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2. Income deemed to be received in India during PY

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Employer contribution to RPF - in excess of 12% is income

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3. Income accrued in India

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Ordinary commercial principles

1. Salary - accrued in place where service is rendered

2. Business income - business is conducted

3. Interest income - money is actually lent

4. Profit on sale of goods - place ownership was transferred to buyer

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4. Income deemed to accrue in India

Back 15

Sec 9

V Imp!

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5. Accrued and received outside India

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Later

Front 17

Sec 9 - Income deemed to accrue or arise in India

Back 17

7 points

Front 18

Sec 9(1) Point 1

Back 18

Profit arising from transfer of a CAPITAL ASSET situated IN INDIA

Incl profit from transfer of shares of Foreign co having substantial investment in India /

substantial value is derived from assets in India - Value of assets > 10 cr + repr at least 50% or more of value of ALL assets

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1. Transfer of CA in India - Penalty

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Penalty if such transfer is not communicated to IT authorities

Transfer of mgt and control of Indian co - 2% of value of transaction

Other cases - 5 lakhs

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Sec 9(1) point 2

Back 20

Income arising through or from any property/ asset/ source of income in India

Eg 1 - amt from business in India given to person in Gulf

Eg 2 - HP in India given on rent. Both parties situated in Gulf and payment made there

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Difference between 1 and 2

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1. Transfer of ownership

2. Other than transfer

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Sec 9(1) point 3

Back 22

Income accruing to a NON RESIDENT outside India

through or from any BUSINESS CONNECTION in India

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Business connection

Back 23

Agent 3 points

Business connection includes Professional connection

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Agent Point 1

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Agent has

1. Authority to conclude contracts or

2. No exclusive authority but habitually concludes contracts or

3. Key/ major / principal role

(Amendment)

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Agent point 2

Back 25

Agent has

No authority but

habitually delivers goods

on behalf of Non Resident

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Agent Point 3

Back 26

Agent habitually SECURES orders for Non Resident

Secures - canvas orders + co accepts the order

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Activities NOT a business connection

- no income shall be deemed to accrue/arise in India, hence not taxable

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1. Activities confined to

Purchase of goods in India

for Export

2. Activities confined to

mere collection of news or views in India

for transmission outside India

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Not a business connection (contd) 3

Back 28

3. Shooting of any cinematograph film in India

provided producer is not an Indian citizen or resident of India

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Not a business connection (contd) 4

Back 29

4. Commission received by foreign agents outside India

For service rendered outside India

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Bonus card - TDS

Back 30

Sec 195 - TDS is deductible on

any payment to Non Resident IF

it is taxable in India

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Not a business connection (contd) 5

Back 31

5. Sale of plant and machinery

to Indian importers

on installments

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Not a business connection (contd) 6

Back 32

6. Fund management activity carried out through an eligible fund manager

acting on eligible investment fund

Do not constitute business connection

Only because fund manager is in India - investment fund should not be treated as Resident in India

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Not a business connection (contd) 7

Back 33

7. Foreign COMPANY engaged in mining of diamonds - if activities are confined to display of uncut and unassorted diamonds in any notified special zone.

If assessee is other than foreign company - business connection - deemed to accrue in India

Bold points are mandatory

Front 34

Sec 9(1) - Point 4

Back 34

Salary for service rendered in India

Salary for work period and leave/ rest period is considered

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Sec 9(1) Point 5

Back 35

Salary payable abroad

By Govt of India TO citizens of India

For rendering service outside India

Sec 10(7) - allowances and perquisites outside India is exempt

Eg - salary paid to Indian ambassadors outside India

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Sec 9(1) Point 6

Back 36

6. Dividend paid by Indian company outside India subject to 10(34) and 115BBDA

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115BBDA

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In hands of

Resident assessee other than company and charitable institutions

- Dividend in excess of 10 lakhs is taxable @ 10%

Section not applicable to NR

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Sec 9(1) - Point 7

Back 38

Interest payable outside India

PAYER is

1. Govt of India

2. Non resident

3. Resident

(Only payer is relevant)

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1. Payer is GOI

Back 39

Interest payable is deemed to accrue in India - Taxable in India

Irrelevant-

- who receives it

- where it is received

Eg- Kerala Govt takes loan from WTO and pays interest to WTO. Since payer is GOI, interest is deemed to accrue in India, hence WTO's interest income is taxable in India

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2. Payer is Non Resident

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Interest payable is deemed to accrue in India ONLY if

Money borrowed by NR is

used for the purpose of B/P carried on *IN* India

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Payer is NR - special points

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1. Foreign bank and its Indian branch are deemed Distinct persons. Interest received by Foreign bank is deemed to accrue in India - since taxable in India - deduct TDS before paying interest.

2. Int payable by NR in respect of money borrowed and used for earning income from other than B/P in India *not deemed* to accrue in India.

Eg- NR A borrows money from NR B and invests in shares of Indian co - int payable by A to B *not deemed* to accrue in India

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3. Payer is Resident

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Interest payable is deemed to accrue in India

Except when

Money borrowed by R is used for the purpose of B/P/*any source of income* OUTSIDE India

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Interest - summary

Back 43

Payer is

Non Resident - B/P

Resident - B/P/source of income

Front 44

Sec 9(1) ROYALTY point 8 - definition

Income from TRANSFER of Intangible Assets - patent, invention, design, trademarks or similar property

Back 44

Consideration for

1. Transfer of rights in asset

2. Use of any asset

3. Imparting of information reg working of use of IA

4. Imparting of information reg technical, industrial, commercial, scientific knowledge, experience or skill

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Royalty - definition (contd)

Back 45

5. Use of I/C/S equipments *other than* extraction/production of mineral oil.

6. Transfer of rights in any artistic/scientific work incl FILMs for broadcasting - royalty; for sale/ distr of films - not royalty, but Bs income

7. Rendering of any service in conn with activities mentioned above.

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Sec 9(1) Point 9

Fee for Technical Service

Common points for Royalty and FTS

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PAYER is

1. Govt of India

2. Non resident - B/P/source of income

3. Resident - B/P/source of income

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Explanation to sec 9(1) Royalty

Back 47

1. Payments by Indian to NR for use of SERVERS and SATELLITES of NR is royalty.

2. Hardware in which SW is embedded and SW does not have independent existence - not royalty

Front 48

Sec 9(1) - Point 10

Back 48

Gift by R to NR outside India - taxable

Subject to normal exemptions -

- relative

- death bed

- marriage

- received from charitable institutions

Front 49

Explanation to Sec 9 - Royalty/FTS

Back 49

If know-how or service is UTILIZED in India - deemed to accrue/arise in India - taxable

Irrelevant -

- where it is rendered

- whether NR has permanent residence/ place of bs in India