Confessional Tax Treatment NRI

Confessional Tax Treatment of certain incomes of Non Resident

The income other than Long Term Capital Gain arising from any Foreign Exchange Assets and dividend income are chargeable to tax at a flat rate of 20%. Long Term Capital Gains are charged to tax at a flat rate of 10%.The term Foreign Exchange Assets means any of the following have been purchased, acquired or subscribed in convertible foreign exchange in accordance with Foreign Exchange Regulation Act:

1. Shares in Indian company

2. Debentures issued by a public limited company

3. Deposits in a Public Ltd. Co.

4. Securities of the Central Government

5. Any other notified asset.

While computing the total income of such individuals no deduction shall be allowed in respect of any expenditure incurred by them. Moreover in case he has income only from Foreign Exchange Assets or Long Term Capital Gain & on such assets and the tax has already been deducted at source then he is not required to file any return which is otherwise required by the law.

It be noted that the special provisions mentioned as above, will continue to apply in relation to the investment income from 'foreign exchange assets' (other than shares of an Indian Company) even after the NRI becomes resident in India. In case the NRI on becoming a resident wishes to be assessed under these provisions, he is required to file a declaration in writing along with the return of income. These special provisions will apply in relation to such income until the transfer or conversion of such assets into money.

NRI can choose not to be treated under such provisions for any assessment year, by filing his return of income and thereby declaring his unwillingness. In that case he will be treated as per the normal provisions of the act.

In case any long term capital gain arises from the transfer of a foreign exchange asset and the net consideration of which is invested or deposited within a period of 6 months from the date of transfer in any specified asset mentioned at (a) to (e) or in the National Saving Certificate VI or VII issue is dealt with as follows:-

a. if the cost of the new asset is not less than the net consideration of the original foreign ex­change asset, the whole of the capital gain will not be liable to tax;

b. if the cost of the new asset is less than the net consideration in respect of the original foreign ex­change asset, proportionate amount of capital gain will be exempted from tax. The proportionate amount will be= Capital gain x (Cost of new assets / Net consideration of Transfer)


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