While an Indian residing abroad is popularly referred to as a non-resident Indian (NRI), the nomenclature is different under tax laws. It is not the country of origin, but the number of days stay in India, which determine whether a person will be a resident or non-resident for tax purposes.
Resident individuals are taxable in India on their global income, irrespective of where it was earned. In simple words, in the case of non-residents only income that accrues or arises in India (say, bank interest from a savings account in India, or rental income from a house in Mumbai), is treated as taxable in India. Thus, salary received by non-residents in a bank account overseas, for services performed outside India, is not subject to tax in India.
According to tax experts, there are several measures that can be introduced this budget to make compliance easier for the non-resident taxpayer.
Set thresholds for obtaining a tax residency certificate: A non-resident taxpayer can take advantage of the applicable tax treaty provisions, which often offer a lower tax rate, say for dividend income arising from shares held in India. Under section 90 (2) of the Income-tax (I-T) Act, in respect of a non-resident tax payer (covered by a tax treaty), the provisions of the I-T Act apply to the extent they are more beneficial. So if the tax treaty provides a lower rate, it is this lower rate that will apply and not the domestic tax rate.
However, under section 90 (4) a ‘Tax Residency Certificate’ (TRC) is required to be furnished by the taxpayer to get the tax treaty benefit – this is required to be furnished irrespective of the nature of income or the quantum of income.
The Bombay Chamber of Commerce and Industry (BCCI) in its pre-budget memorandum suggests that when the amounts involved are very small, this provision for obtaining the TRC creates unintended hardship to both non-resident recipients and the resident payer as it involves cost/time cost to obtain such TRCs. The association suggests that there must be some threshold limit for obtaining the TRC.
Relax norms in the filing of Form 10F for claiming tax treaty benefits: Currently, non-resident taxpayers are required to electronically file Form 10F on the e-Filing portal to avail any tax treaty benefits. Along with Form 10F, non-resident taxpayers are required to provide a copy of the TRC from the overseas tax authorities for the entire financial year to confirm their residency status in the other country.
According to Rohinton Sidhwa, tax partner at Deloitte-India, “No overseas tax authorities provide a TRC certifying that the taxpayer is a tax resident for the future period. Hence, suitable amendments can be made along with Form 10F, where the taxpayer can furnish TRCs from the previous period (say, for the last 1–2 years) and a copy of the TRC for the current financial year may be provided later (say at the time of filing of its tax return in India).”
Easing procedural challenges: Non-resident taxpayers need to have a bank account in India, to facilitate tax payments. Divya Baweja, tax partner at Deloitte-India explains that tax payments in India are accepted through various modes, such as net banking, debit cards, NEFT/RTGS and over-the-bank counter. The bandwidth has been broadened to include many Indian banks and NEFT/RTGS payments and UPI payments. “However, these are possible with an Indian bank only, which makes it difficult for an NRI to make tax payments. NR taxpayers residing overseas would benefit if they were allowed to make tax payments from their overseas bank accounts,” explains Baweja.
He adds that the introduction of e-filing of tax returns has improved the process, saving both time and effort. The last mile step of e-filing is the e-verification process, which is restricted to having accounts with net banking/demat facilities with specified banks, Aadhaar OTP to India mobile numbers, digital signature certificates, etc.
“Non-resident taxpayers who need to complete the tax return filing process could benefit if the e-verification process can be extended via OTP to foreign mobile numbers or have two-factor authentication (different OTPs for foreign mobile numbers and email addresses). This would reduce paperwork and administrative tasks, such as tracking the ITR-V receipt by the tax office and applying for condonation of delays. Further, the time limit of 30 days should be extended to facilitate verification through physical mode,” he adds.
Lastly, non-resident individuals, especially foreign nations, who who leave India after closing their bank accounts in India could get a refund for various reasons. The tax refund is payable only to pre-validated Indian bank accounts. Any delay in refund processing could cause bank accounts (even if open under the NRO status) to go into dormant mode. This would prevent the refund from being credited to the account. “To alleviate the difficulty, foreign bank accounts should be considered for tax refunds for PAN-holders registered as Non-residents/foreign nationals,” states Baweja.
