Will the Income in USA of a US citizen attract Tax in India?
SOMNATH CHAKRABORTY
(Querist) 07 April 2011
This query is : Resolved
My friend who is a US citizen and has VISA for 10 years to stay in India. He is presently living in Tamilnadu. He has been advised to submit an income tax return in India including his total income in USA + his Income in India.
According my friend :
His yearly income in USA is from the interest on Govt. bonds which is not taxable in USA.
AND
His total income in India is from the interest on Bank Fixed Deposits on which TDS has been remitted by bank to IT authorities.
Will my friend has to submit the details of his total yearly income in USA in his I.Tax return together with his income in India. According to him if he has to submit the details of his USA income then his total income (INDIA+USA) will be taxable.
What he should do?
Anil Kumar-Advocate
(Expert) 11 April 2011
Dear Somnath,
From the contents,it appears to me that your friend is Non-resident and will stay in Tamilnadu-India for a specified period.Meaning thereby, he has to file Incometax Return in the capacity of Non-resident. Now the question is whether his income is taxable or not.In brief, I can only say that Please refer Chaapter IX(Double Taxation Relief) of Income tax Act 1961. Alternatively, give some more details. Thank you!
SOMNATH CHAKRABORTY
(Querist) 11 April 2011
Dear Anil
Thanks for your response. Yes my friend is a Non-resident and he is a US citizen by birth. He has a 10 years Visa to stay in India. He has made Thiruvanamalai in Tamilnadu his home. It is his query. He did not pay tax in USA in the previous year (F.Y 2010-11) because his combined income of(USA+India) was not taxable in USA. His question is if his income in India is taxable as per Indian Income Tax Act will the Indian Tax authorities Tax his USA income for those previous years he stayed continuously for more than 180 days in India?
His another question is if he pays his TDS from the income in India will he have to submit I.Tax return?
MUKESH SHARMA
(Expert) 12 April 2011
As mentioned in Chapter-II, a person who is non-resident is liable to tax on that income only which is earned by him in India. Income is earned in India if:
It is directly or indirectly received in India; or
It accrues in India or the law construes it as having accrued in India.
The following are some of the instances when the law construes and income to have accrued in India:
Income from business arising through any business connection in India (refer Chapter X);
Income from property if such property is situated in India;
Income from any asset or source if such asset or source is in India;
Income from salaries if the services are rendered in India. In such cases salary for rest period or leave period will be regarded as earned in India if it forms part of service contract;
Income from salaries payable by the Government to a citizen of India even though the services are rendered outside India;
Income from dividend paid by an Indian company even if the same is paid outside India;
Income by way of interest payable by the Government or by any other person in certain circumstances (refer Chapter VII);
Income by way of Royalty if payable by the Government or by any other person in certain circumstances (refer Chapter VIII);
Income by way of fees for technical services if such fees is payable by the Government or by any other person in certain circumstances (refer Chapter VIII).
The following income, even though appearing to be arising in India, are construed as not arising in lndia:
If a non-resident running a news agency or publishing newspapers, magazines etc earns income from activities confined to the collection of news and views in India for transmission outside India, such income is not considered to have arisen in India.
In the case of a non-resident, no income shall be considered to have arisen in India if it arises from operations which are confined to the shooting of any cinematography film. This applies to the following types of non-residents:
Individual who is not a citizen of India; or
Firm which does not have any partner who is a citizen of India or who is resident in India; or
Company which does not have any shareholder who is resident in India.
Deduction of Tax at Source from payments to Non-residents
Any person responsible for making any payment (except dividend declared after 1.6.97) to a non-resident individual or a foreign company is required to deduct tax at source at the prescribed rate at the time of credit of such income to the account of the payee or at the time of payment thereof. If, however, person responsible for making the payment is the government, public sector bank or public financial institutions, deduction is to be made at the time of payment only.
Where the person responsible for making such payments considers that the whole of such sum would not be income chargeable in the case of recipient, he may make an application to the assessing officer to determine the appropriate proportion of such sum which will be chargeable to tax and upon such determination tax is required to be deducted only on the chargeable proportion.
The rate at which tax is to be deducted at source will be the rates as specified in the Finance Act of the relevant year or the rate specified in any agreement for avoidance of double tax whichever is beneficial to the assessee.
In respect of income of the nature referred to in para 7.2(iii) arising to Offshore Funds and of the nature referred to in para 7.2(iv), tax is deductible at the rates at which such income is taxable.
For certain remittances, the Reserve Bank of India Exchange Control Manual requires production of a no objection certificate from the Income-tax authorities. The Central Board of Direct Taxes, vide circular No. 759 and 767, has simplified the procedure by dispensing with such requirement. The person making the remittance has only to furnish an undertaking (in duplicate) addressed to the Assessing Officer which should be accompanied by a certificate from a Chartered Accountant in the prescribed form. The undertaking should be submitted to the Reserve Bank of India or the authorised dealer in foreign exchange who will forward a copy to the assessing officer.
Any tax deducted in excess of the required amount is normally refundable to the non-resident on making a proper claim for it. Sometimes the non-resident returns the amount in respect of which tax was deducted or, circumstances occur in which tax is found to be non-deductible or, in which tax is found to have been deducted in excess and the non-resident is either not able to claim refund or does not show initiative in claiming such refund. In such cases, the CBDT has by circular No. 790 dated 20.4.2000 permitted refund of excess tax to the person making the deduction.
