Income tax and FEMA Some important provisions

Preview of Income tax and FEMA provisions  Information in this presentation is intended to provide only a general outline of the subjects covered.  It should neither be regarded as comprehensive nor sufficient for making decisions.  As Rules are subject to change, please consult your tax advisor or call on us.

Part 1 - Taxation of Non - Residents Non Resident individuals are taxable on the following: 1.Income ‘sourced’ from India ; 2.Income received in India; 3.Income accruing and arising in India.

Enactment of Tax laws in India Finance Act: Every year, Parliament passes a Finance Act which lays down the rates of Income-tax, for a particular financial year or the assessment year. Circulars: The Central Board of Direct Taxes, New Delhi, is the apex administrative body for the different tax laws. It often issues circulars interpreting the provisions of the laws, giving relief and granting tax concessions. Notifications: The Government of India issues notifications which are published in the Official Gazette e.g. granting special exemptions etc.

PREVIOUS /ASSESSMENT YEAR Income of a financial year is liable to income-tax in India every year, i.e. from 1 st April to 31 st March. This financial year precedes the relevant assessment year. Thus, for the Financial year , the relevant assessment year is The due date to file IT Returns for Financial year is 31 st JULY, In some cases, where audit is compulsory by law, the due date is 30 th September, 2016.

Check your residential status : Mr. P was out of India in financial year for 200 days. This was his first ever visit outside India. He will be resident for the said financial year as he was present in India for more than 365 days in the four years preceding financial year

Check your residential status You could be a : 1.Resident ; 2.Resident and ordinarily resident ; 3.Resident but not ordinarily resident ; 4.Non resident. Your income tax liability depends on your status as under:

Summary of taxability Status Indian income Foreign income 1.Resident Taxable Taxable 2.Resident and ordinarily resident Taxable Taxable 3.Resident and not ordinarily resident Taxable Not taxable* 4.Non- resident Taxable Not taxable *Where, it is from a business controlled or a profession set up outside India.

Heads of Income : liable to tax in India (a) Salaries ; (b) Income from house property ; (c) Profits and gains of business or profession ; (d) Capital gains ; (e) Income from other sources

Tax rates for Financial Year ear INCOMETAX RATES where the total income: 1.does not exceed Rs. 2,50,000 2.exceeds Rs. 2,50,000 but does not exceed Rs. 5,00,000 3.exceeds Rs. 5.00,000 but does not exceed Rs. 10,00,000 1.NIL 2.10 per cent of the amount by which the total income exceeds Rs. 5,00,000 3.Rs. 25,000 plus 20 per cent of the amount by which the total income exceeds Rs. 5,00,000

Education Cess Surcharge: 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)Marginal Relief in Surcharge Education Cess: 3% of the total of Income Tax and Surcharge. Note : NRIS are NOT eligible for higher threshold limits of income for senior citizens and super senior citizens. These are available for Resident senior citizens only.

Capital gains tax: On property: TAX a) long term capital gains tax: 20% b) short term capital gains tax: 30% On shares : a) Long term [held for more than 12 months] where Securities Transactions Tax [STT] is paid NIL b)Short term, [held for less than 12 months] Where STT paid 10% c)Other long term gains 20% [held for more than 36 months] d) Other short term gains 30% [held for less than 36 months]

Indexation Table for Capital Gains... Financial Year Cost inflation index Financial Year Cost inflation index

Penal provisions 1. Failure to apply for / correctly quote Permanent Account Number - Penalty of Rs 10, Failure to file a return of income - Penalty of RS 5, Concealment of income or furnishing inaccurate particulars of income - Penalty of 100 percent to 300 percent of the income-tax sought to be avoided

Part-2 FEMA FEMA is applicable to all branches, offices and agencies outside India owned or controlled by a person resident in India. Residential status under FEMA is not to be confused with that under the Income tax laws. It is possible you may be an NRI under FEMA yet be a resident under the Income tax laws.

FEMA : RESIDENTIAL STATUS is applicable to : an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, whether incorporated or not, every artificial juridical person, not falling within any of the preceding sub-clauses, and any agency, office or branch owned or controlled by such person.

Individual coming to India: Conditions for residence 1. Did he reside in India for more than 182 days during the preceding financial year ? or 2. Purpose for coming to India: employment business/vocation any other purpose indicating his intention to stay in India for uncertain period, If answer of any of the above is yes, then he is a resident for the year. employment

Individual leaving India: Conditions for residence 1. Did he reside in India for more than 182 days during the preceding financial year ? Or 2. Purpose for leaving India employment business/vocation any other purpose indicating his intention to stay in India for uncertain period, If answer of 1. or 2. above is yes, then he is a resident for the year or else Non resident.

Investments in India by NRIs / PIOs Investments: Types of: 1.Repatriable: Amount invested and capital appreciation can be repatriated abroad in some cases. 2.Non repatriable: Amount invested and capital appreciation cannot be repatriated.

Where Residents can remit money outside India in Dollars : Liberalised Remittance Scheme of USD 250,000 for Resident Individuals Liberalised Remittance Scheme of USD 250,000 for Resident Individuals Effective 1 June 2015, under the Liberalised Remittance Scheme, (hereinafter referred to as the Scheme/LRS) resident individuals are allowed to remit upto USD 250,000 per financial year (April-March) Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 250,000 only. Any additional remittance in excess of the said limit for the following purposes shall require prior approval of the Reserve Bank of India. i. Private visits to any country (except Nepal and Bhutan). ii. Gift or donation. iii. Going abroad for employment. iv. Emigration. v. Maintenance of close relatives abroad. vi. Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/check-up. vii. Expenses in connection with medical treatment abroad. viii. Studies abroad. ix. Any other current account transaction.

Investment by NRIs in Proprietary concerns / Partnerships Contribution to the capital of Proprietary concerns / Partnership in India 1.NRI / PIOs are permitted to invest on a Non repatriable basis. 2.Current Income like profit, interest, remuneration are repatriable. 3.Investment not permitted where the concern is engaged in agriculture, plantation or real estate business (dealing in land and immovable property with a view to earning profit) and print media.

FOREIGN INVESTMENT PROHIBITIONS for NRIs: 1.Business of Chit Fund 2.Nidhi Company 3.Agricultural or Plantation activities 4.Housing and Real Estate business 5.Construction of farm houses 6.Retail Trading 7.Atomic Energy 8.Lottery Business 9.Gambling and Betting However it is clarified by RBI that Housing and Real Estate business does not include development of township, construction of residential / commercial premises, road or bridges.

LENDING BY NRI TO RESIDENTS Non-residents can lend to residents either in foreign exchange or in rupees either on repatriable basis or non-repatriable basis. (1) Repatriable Basis: (a) Lending in Foreign exchange to resident individual. (b) Lending in rupees to Indian companies by issue of Non-Convertible Debentures. (2) Non-Repatriable Basis: (a) Lending in rupees to residents. (b) Lending in rupees to Indian companies by issue of Non-Convertible Debentures. Lending by NRIs on Repatriable Basis. Lending in foreign exchange to resident individual. Non-residents can lend money to resident close relatives (as defined under section 6 of the Companies Act, 1956) in foreign exchange up to us $ 2,50,000 or its equivalents subject to the following conditions: (1) Loan is interest-free. (2) Minimum maturity period of loan is one year.

REPATRIATION OF INCOME from INDIA Dividends or Interest:- Dividends or Interest on shares or convertible debentures held by “Non - Residents ” under Automatic Route are permitted to be repatriated outside India after payment of Indian Income Tax. Sale Proceeds:- Sale proceeds of share or convertible debentures held by “Non - Residents” under “Automatic Route” is permitted to be repatriated outside India after payment of local Indian Income Tax.

STATUS OF NRI BANK ACCOUNTS IN INDIA ON RETURN (a) Ordinary Non-Resident Accounts These have to be converted to resident accounts by banks on return of the account holders to India and consequently becoming resident in India. (b) Non-resident (External) Rupee Accounts: These can be converted to resident rupee accounts or RFC (Resident Foreign Currency) accounts on becoming resident in India. In case of NR(E) fixed deposits, the accounts will continue to earn agreed rates of interest till maturity, even after being converted to resident account. (c) FCNR (Banks) Account: These deposits can be converted to resident rupee account or RFC account at the option of the account holder on his return to India and becoming resident in India. (d) Resident Foreign Currency Account: The returning NRI being the citizen of India or a PIO who has permanently settled in India and is in India for a period of more than one year can open an RFC account.

FACILITY OF BANK ACCOUNTS ABROAD by INDIAN ENTITIES A firm or a company or body corporate registered or incorporated in India,an "Indian entity" may open, hold and maintain in the name of its office (trading or non-trading) or its branch set up outside India or its representative posted outside India, a foreign currency account with a bank outside India by making remittances from India for the purpose of normal business of operations of the office/branch or representative.

FEMA: illustrations APerson leaving India: Mr. Reddy has boarded the flight to New Zealand on 25th December 2015 for taking up employment as Software Engineer. This is his first visit abroad. His residential status for the financial year 2015 – 2016 is as under: Mr. Reddy resided in India for more than 182 days during the financial year 2015 –2016. Though he satisfied the basic threshold condition the first exception in clause A [S. 2(v)(i)(A)] would be applicable since he is leaving India for taking up employment. Accordingly, Mr. Patel will be person resident outside India for the financial year 2015 – 2016.

Illustration Foreign Branch/Subsidiary of an Indian Corporate:- X Ltd. an Indian Company, has opened a Branch in Singapore to service its clients on 20th March, It also setup a 100% wholly owned Subsidiary in Tokyo on 20th March, 2016 as an Independent Company under the name of M/s. X Japan Ltd. and subscribed to 100% of the equity. The residential status of both the Branches is as under: A. Singapore Branch:- The Singapore branch of X Ltd will be a “person resident in India” from 20th March, Accordingly, for the financial year 2015 – 2016 the Singapore Branch of X ltd. is a “person resident in India”. B. [Independent Company]: X Japan Ltd X Japan Ltd. is an independent limited liability Company incorporated outside India. X Japan Ltd. cannot be regarded as an office, branch or agency of X and therefore X Japan Ltd. is totally outside the purview of FEMA. Hence the residential status under FEMA of X Japan Ltd. for the financial year 2015 – 2016 would be person resident outside India.

THANK YOU /4/A Street No 4, Habsiguda, Hyderabad Call on