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Section 115 C to Section 115 I for Non Residents and Foreign Companies

In this part of our discussion, we will elaborate on special provisions relating to Taxation of Non Residents and Foreign companies. These points are covered under chapter XII-A of the Income Tax Act, 1961 and section 115C to Section 115I of the Income Tax Act, 1961 deals with these provisions which are explained below.

SPECIAL PROVISIONS RELATING TO TAXATION OF NON-RESIDENTS AND FOREIGN COMPANIES: -

Chapter XII-A of the Income Tax Act, 1961 and section 115C to 115I deals with the special provisions relating to taxability of some specials incomes earned by Non-Residents and Foreign Companies and details are being​​ outlined below: -

​​ 

Section No.

Remarks​​ 

Particulars

115C

Deals with different definitions

  • "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made thereunder;

  • "foreign exchange asset" means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange;

  • "investment income" means any income derived other than dividends referred to in​​ section 115-O​​ from a foreign exchange asset;

  • "long-term capital gains" means income chargeable under the head "Capital gains" relating to a capital asset, being a foreign exchange asset which is not a short-term capital asset;

  • "non-resident Indian" means an individual, being a citizen of India or a person of Indian origin who is not a "resident".

Explanation.—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;

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

  • shares in an Indian company;

  • debentures issued by a Public Limited Indian company ​​ 

  • a Public Limited Indian company;

  • any security of the Central Government ​​ 

  • such other assets as the Central Government may specify in this behalf by notification in the Official Gazette.

115D

Special Provisions for Computation of Total Income of Non-Residents

Non-Deduction in respect of any expenditure or allowance shall be allowed under any provision of the Act in computing the​​ investment income of a Non-Resident Indian

If the Gross Total Income (GTI) includes only investment income and/or Capital Gains then the second proviso to section 48 shall not apply and no benefit/deduction of Chapter VI-A shall be allowed.

If the GTI includes other incomes along with Investment income and/or Capital Gains then the second proviso to section 48 shall not apply​​ but benefit of Chapter VI-A will be allowed only from other income part.

115E

Tax on Investment Income and Long Term Capital Gains

Where the total income of an assessee, being a non-resident Indian, includes—

  • any income from investment or income from long-term capital gains of an asset other than a specified asset; (@ 20%)

  • income by way of long-term capital gains, (@ 10%)

the tax payable shall be the total of tax payable @ the rates specified for income referred at clause a and ​​ b above plus any other tax chargeable​​ at normal rates​​ (excluding a and b clause)

115F

Capital Gains on transfer of foreign exchange assets not be charged in certain cases

Long Term Capital gains arising on transfer of foreign exchange assets to​​ NRI will be exempt from tax if whole or part (i.e. proportionately)​​ of the net consideration (Gross Consideration minus expenses of transfer)​​ is invested in buying “Specified Assets”​​ (will be known as new asset)​​ with 6 months from the date of transfer.

Further to note that new asset​​ cannot be converted into money until 3 years​​ from the date of acquisition else capital gains exempted earlier will be​​ taxed as long term capital gains in the year in which new asset is converted into money.

115G

Return of income (ROI) not to be filed in certain cases

NRI is not required to file ITR​​ if his total income consisted only of Investment income and/or long term Capital Gains​​ and​​ Tax has been deducted from such income as per the provisions of the Income Tax Act.​​ 

 

115H

Benefit available in certain cases even after becoming resident

Assessee can continue to avail benefit if,

  • If after becoming resident he furnish​​ a​​ declaration along with his return of income​​ under section 139 that provisions of this chapter shall continue to apply to him in relation to investment income​​ derived from foreign exchange asset.

  • This benefit will continue to available to him in relation to​​ such assessment year and every subsequent assessment year till that investment is converted into money.

115I

Chapter provisions not applicable if assessee so chooses

If A NRI wants not to be governed by provisions of this chapter then he​​ can do so by declaring this fact while filing his return of Income under section 139 that provisions of this chapter shall not apply to him for that assessment year.

After his choice the provisions of this chapter shall not apply and his income will​​ be computed under other provisions of the Income Tax Act, 1961.

 

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