B. HUF/FIRM/AOP

i. Resident - They are regarded as resident, even if some control and management is in India.

[Note: An HUF will be ‘Resident but not ordinarily resident’ if it is a resident and its manager fulfils any one of the conditions as mentioned in A (b) above]

ii. Non-resident – They will be regarded as non-resident, if control and management is wholly outside India.

C. Company

An Indian company is always treated as resident in India. Any other company would be a resident if control and management of its affairs is situated wholly in India.

1. Resident & Ordinarily Resident – Global Income is taxable.

2. Resident but not Ordinarily Resident – Income earned/ received in India; or income deemed to accrue in India or income arising abroad out of business controlled in India is taxable.

3. Non-resident – Only income earned/received in India and income deemed to accrue or arise in India is taxable.

2. Tax on overseas financial organization (approved by SEBI) in respect of income by way of long term capital gains arising on sale/ repurchase of units of mutual fund/ UTI purchased in foreign currency; is 10% subject to applicable surcharge & education cess. [Section 115AB]

3. Tax on non-resident in respect of interest on bonds of an Indian company issued in accordance with Central Government notification, on bonds of a public sector company sold by the Government, and purchased in foreign currency; dividends (other than dividends referred to in section 115-O) on Global Depository Receipts and long-term capital gains on sale of such bonds/ Global Depository Receipts is 10% subject to applicable surcharge & education cess. [Section 115AC]

4. Tax on approved Foreign Institutional Investor (FII) is as follows:

• Income by way of interest on securities – 20%

• Short term capital gain sale of other securities – 30%

• Short term capital gain sale of listed shares with STT, units – 15%

• Long term capital gain sale of other securities – 10%

• Long term capital gain sale of listed shares with STT, units – N I L [Section 115AD]

C. Income of non-resident sportsmen or sports association by way of participation in India in any game or sports; or advertisement; or contribution of articles in newspapers, magazines or journals is chargeable at 10% subject to applicable surcharge & education cess. [Section 115BBA]

Any remuneration received by foreign citizen as an employee of a foreign enterprise for services rendered by him in India is exempt, provided the following conditions are fulfilled—

1. the foreign enterprise is not engaged in any trade or business in India;

2. his stay in India does not exceed in the aggregate a period of 90 days in such previous year; and

3. such remuneration is not liable to be deducted from the income of the employer chargeable under the Income-tax Act. [Section 10(6)(vi)]

1. Income from business of operation of ship taxable at 7.5% of the gross receipts from such business. [Section 44B]

2. Income from business of providing services or facilities in connection with plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils including petroleum and natural gas is taxable at 10% of gross receipt from such business, unless the assessee claims lower profits and gains by maintaining proper books of account and other documents, get the same audited and file the audit report along with return of income. [Section 44BB]

3. Income from business of operation of aircraft taxable at 5% of the gross receipts from such business. [Section 44BBA]

4. Income of foreign company from business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government is chargeable at 10% of the gross receipts from such business, unless the assessee claims lower profits and gains by maintaining proper books of account and other documents, get the same audited and file the audit report along with return of income. Such income tax return will be subject to scrutiny assessment [Section 44BBB]

5. In any other case, for computing the business income of non-resident, expenditure in the nature of head office expenses is allowable at least of the:

• Up to 5% of the adjusted income as specified in section; or

• Actual expenditure attributable to business in India. [Section 44C]

6. For any other business, the present rate of tax for foreign companies is as follows:

Where the income of company from all sources exceeds Rs. 1 crore: 40% plus surcharge of 2%, education cess of 2% and secondary and higher education cess of 1%. (i.e., 42.02%).

Where the income of company from all sources does not exceed Rs. 1 crore: 40% plus education cess of 2% and secondary and higher education cess of 1%. (i.e., 41.20%).

TDS borne by the payer in case of all payments to non-residents would be taxable in the hands of the non-residents except in following cases-

1. Royalty or technical service fees payment in respect of agreements with foreign company after 1-4-1976 and before 1-6-2002. [Section 10(6A)]

2. Payment other than salary, royalty or technical services in respect of agreement made before 1-6-2002 between Central Government and international organization or government. [Section 10(6B)]

3. Tax on perquisites borne by the employer u/s 192(1A).

4. Payment of lease rent for aircraft or aircraft engine under agreement entered into after 31-3-1997 but before 1-4-1999 or entered into after 31-3-2007. [Section 10(6BB)]

1. For the purpose of computation of business income, actual cost of any asset brought in to India by non-resident would be computed as actual cost of acquisition to the non-resident as reduced by the notional depreciation as provided in the Income-tax Act, 1961 from the date of its acquisition as if the asset has been used in India. [Section 43 Expl. 11]

2. Where an imported capital asset is acquired on deferred payment terms or out of the foreign loan the actual cost would be after taking into account the fluctuation in exchange rate. For this purpose, actual payment will be considered. [Section 43A]

All provisions discussed above are subject to DTAA entered into with various countries or with any specified association in a specified territory outside India. The provision of the relevant tax treaty or domestic law provision whichever is beneficial to the tax payer would be applicable.

First proviso to section 48 provides that while computing capital gain/loss, if any, on sale of shares or debentures purchased by a non-resident in foreign currency, the sale proceeds, expenditure on transfer and cost of acquisition of such shares or debentures must be converted in the same currency in which the original investment was made. Resultant capital gains/loss then need to be reconverted into rupee to arrive at taxable capital gain/loss. The benefit of indexation will not be available in such cases.

The illustrations below further explain the first proviso to section 48:

A. Section 115C –

1. "Non-resident Indian" means an individual, being a citizen of India or a person of Indian origin who is not a "resident". A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India.

2. "Investment Income" means any income derived (other than dividends referred to in section 115-O) from a foreign exchange asset.

3. "Foreign Exchange Asset" means any specified asset which the assessee has acquired or purchased with, or subscribed to, in convertible foreign exchange.

4. "specified asset" means any of the following assets, namely :—

• shares in an Indian company;

• debentures or deposits with an Indian company, not being a private company;

• any security of the Central Government;

• Other notified assets (no such asset has yet been notified).

B. Section 115D & Section 115E – Computation of Income

Particulars	Investment Income	LTCG
Deduction for expenses	Not allowed	As per normal provision
Chapter VI-A deduction	Not allowed	Not allowed
Tax Rate	20%	10%
Exchange fluctuation provision whether applicable?
	Not applicable	No

The above rates are subject to applicable surcharge and education cess & provisions of Sec 206AA- enumerated at point no.12 hereunder)

C. Section 115F – Exemption of long term capital gains

Capital gain arise from transfer of foreign exchange asset, is exempt from tax if the following conditions are fulfilled:

(i) The asset transferred must be a long term capital asset;

(ii) Net consideration must be invested in certain specified assets [Ref. - Para 11(A)(iv)];

(iii) Investment to be made within 6 months of transfer;

(iv) If only a portion of the net consideration is reinvested, then proportionate exemption is allowed;

(v) New asset must be held for at least three years.

D. Section 115G – Option not to file income tax return

E. Section 115H – Continuation of benefit after NRI becomes resident Chapter XIIA shall continue to apply to investment income even after NRI becomes a resident, if he furnishes a declaration along with return of income to that effect. The benefit shall continue to apply to him in relation to such income until the transfer or conversion into money of such asset. This benefit does not apply to dividend income from shares, however, this doesn’t have any impact, since dividend (with DDT) is exempt.

F. Section 115I – NRI may opt out of Chapter XIIA

A non-resident Indian may elect not to be governed by the provisions of Chapter XIIA for any assessment year by furnishing a written declaration to Assessing Officer with his return of income. If he does so, his total income for that assessment year shall be computed and tax on such total income shall be charged in accordance with the other provisions of this Act.

The Finance Act, 2009 has introduced a new section 206AA in the Income-tax Act, 1961 ("the Act") making it mandatory for payers from India to withhold tax at a higher rate if the payee (including Non-resident) does not provide PAN. Condition of mandatory quoting of PAN if tax withholding is to be done at normal (prescribed) rate has become effective from April 1, 2010.

Provisions of Mandatory Requirement of PAN as per Section 206AA are as follows:

• The payee should furnish its PAN to the payer, failing which the payer would be liable to withhold tax at the higher of following rates –

(i) at the rate specified in the relevant provision of this Act; or

(ii) at the rate or rates in force; or

(iii) at the rate of 20%.

• The Revenue Officers are prohibited from issuing any certificate for NIL withholding or lower withholding of taxes if the application filed u/s 197 for this purpose does not contain the PAN of the payee.

• Declaration furnished u/s 197A shall not be valid unless the person furnishes his PAN in such declaration.

• The PAN of the payee must be referred in all correspondence, bills, vouchers and other documents exchanged between the parties.

Effective from April 1, 2010, a higher rate of withholding tax would apply if tax is deductible and the payees do not furnish their PAN, even if a normal (prescribed) rate is otherwise applicable as per the Act or the Tax Treaty. Taking a conservative view, this new provision therefore, may effectively override the rates prescribed under the Tax Treaties in cases where PAN of Non-resident is not available.