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Budget highlights for Non Resident Indians.
Key Highlights:
- Dividends paid by domestic companies as well
as by equity and income mutual funds on or after 1st April 2003
are exempt from tax in the hands of the investor. Hence the
tax deducted at source on dividends for NRI’s is not applicable.
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Nature of Payment
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NRIs Tax Status
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Distribution Tax payable by the mutual fund declaring
the dividends
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Dividend Equity MF
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Nil
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Nil
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Dividend Debt MF
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Nil
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12.81%
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- Long term Capital gains
arising from investments in a listed equity share
acquired after 1st March 2003 but before 1st March
2004 will be exempt from tax. Accordingly tax deducted
at source will henceforth not be applicable on the
gains for shares acquired during this one-year period.
- Investments in mutual funds however
will continue to attract long term capital gains
as specified below
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Capital Gains
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Nature of Gains
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NRIs Taxation Status
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Long Term Capital
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Gains 20% with indexation or 10% without indexation
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Short Term Capital Gains
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Marginal rate of the investor or 30%
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A surcharge of 10% is applicable for incomes
above INR 0.85Mn
Indexation benefits are available only for NRE/NRO accounts
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Thus investors investing in the Indian equity
markets directly for a period over one year will now be totally
exempt from any tax incidence for a window of one year. Investors
investing through the mutual fund route will however have to pay
capital gains tax at the rates as specified in the table above.
Along with the sops offered for investment the
Budget 2003 simultaneously has moved towards stringent tax compliance
for all including NRIs
- Any interest, royalty, fees for technical
services or other sum chargeable under tax which is payable
in India to a non resident will be allowed as a deduction only
if tax thereon has been deducted and paid
- With effect from 1 June 2003, payment to non-residents
relating to interest on securities and rent will be regulated
by section 195, and not by sections 193 and 194I. The section
specifies that any person making payments chargeable under the
provisions of the income tax act to non-residents is required
to deduct tax at source at the rates in force.
- Henceforth a person who has defaulted in deducting
tax at source would now be treated as an assessee in default
unless the tax has been discharged by the payee.
Thus the onus of tax compliance now shifts to
the individual / company making the payment to the non-resident
facilitating better compliance.
Not Ordinary Resident – Redefined
In a measure to simplify and avoid the difference
of opinion on the definition of non- ordinary resident the finance
bill, 2003 has changed the definition of the term
Earlier definition
An individual / HUF is not ordinary resident in
a year if the individual or the manager of the HUF satisfies either
of the following conditions:
- The individual / manager has not been
resident in India in 9 out of the 10 years preceding that year
OR
- The individual / manager has not been in India
for 730 days or more during the 7 years preceding that year.
New definition
The Finance Bill now provides that an individual
or an HUF will qualify as not ordinarily resident in a year, if
the individual or the manager of the HUF satisfies either of
the following conditions:
- The individual / manager has been non-resident
in India in 9 out of the 10 years preceding that year OR
- The individual / manager has been in India
for 729 days or less during the 7 years preceding that year.
Thus an individual or an HUF will lose the status
of not ordinarily resident in a year if the individual or the
manager of the HUF has been resident in India for 2 years out
of 10 years preceding that year.
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