Non resident Indians can avail of various tax benefits that this country offers

Why should non resident Indians (NRIs) keep in touch with Indian tax regulations? There are two good reasons. Firstly, most NRIs have assets in India acquired before they went abroad.

Secondly, if repatriation isn’t an issue the NRI can obtain more mileage from his investible funds. He can get better returns even from avenues which allow reptriability.

That’s why it is necessary to stay abreast of the rules. For NRIs who still have a financial stake in this country, here are some basic ground rules.A two per cent surcharge will be levied if the net total income after all deductions is over Rs 60,000.

It is applicable on i) normal tax ii) advance tax iii) tax on long-term capital gains iv) TDS and v) dividend tax on shares and UTI/MFs. No surcharge is payable by NRIs.

Example : An assessee has earned net income (after claiming exemptions under section 80L, 80G etc.) of Rs. 200,000. He has contributed Rs. 30,000 to PPF, ULIP, etc. See table II.

If the assessee is a senior citizen (over 65 years of age), a rebate under section 88B of Rs. 15,300 (15,000 + surcharge 300) is available and the net tax payable is Rs. 11,730. Junior female citizens are granted a rebate of Rs. 5,100.

There are three types of tax concessions : 1. Totally Exempt Income. 2. Deductions from taxable income and 3. Tax rebates.

Income from the following sources will not be treated as income at all! Note that contributions made out of this income to avenues enjoying tax rebate cannot be availed of since such contributions should be out of income chargeable to tax.

Dividend on Shares and UTI/MF Units :

Dividend from shares and UTI/MFs is tax-free in the hands of the investor. However, dividend tax at the rate of 10 per cent (plus surcharge) is required to be paid by UTI/MFs on dividend distributed.

The extra tax is not applicable to i) US-64 and ii) open-ended schemes having over 50 per cent of their portfolio in equity. This exemption is available only up to 1.4.2002.

Agricultural income :

This is basically not taxable. However, where an assessee has other income, it will be aggregated only for rate.An example will clarify. Suppose you are a farmer and have a normal non-agricultural income of Rs. 130,000 after claiming all the deductions available under section 80L, 80D, etc. You also have agricultural income of Rs. 500,000. On this total income of Rs. 6,30,000 the tax is Rs. 1,63,000.

Now, add the basic threshold of Rs. 50,000 to the agricultural income. The tax on Rs. 550,000 is Rs. 139,000. You have to pay Rs. 24,000 (= 163000 - 139000) as tax. If you did not any agricultural income, the tax on Rs. 1,30,000 would have been Rs. 15,000. The actual tax is higher by Rs. 9,000, thanks to the clubbing of agricultural income only for rate.

Agricultural income does not enjoy as much freedom from tax as is the general impression. Moreover, all the states levy their own tax on income from agriculture. This is deductible.

Sec. 2(1Ac) stipulates that the income from farm houses hired out for residential purpose or hosting parties and picnics will be considered as income arising out of non-agricultural use.

Casual Income :

Casual and non-recurring income is exempt up to Rs. 5,000. These include winnings from race, lottery, card game, crossword puzzle or betting i.e., gambling in any form.

The scope engulfs any game show, an entertainment programme on TV or electronic mode, in which people compete to win prizes or any other similar game. Excess over this is taxed u/s 115BB at the rate of 30 per cent. Even the basic threshold of Rs. 50,000 is not available on such income.

Last year, I observed that FA97 reduced the maximum tax rate to 30 per cent for individuals but has retained the rate on winnings at 40 per cent. They have possibly slipped up in making consequential amendment in Sec. 115BB. FA01 has taken corrective action by reducing this rate to 30 per cent.

Relief Bonds & Public Sector Bonds : Interest on Relief Bonds (Rahat Patras) enjoy freedom from tax. The current rate is 8.5 per cent, payable half-yearly (= 8.68 per cent).

NSO Schemes :

Interest on deposits in a) 3.5 per cent Post Office Savings Bank and b) 9.5 per cent personal provident fund.

Life Insurance :

Sums received, including bonus, under a life insurance policy, other than i) Keyman Insurance and ii) Pension Plan.

Allowance received from United Nations Organisation : Allowance paid by the UNO to its employees is not taxable by virtue of Sec. 2 of the UN (Privileges and Immunities) Act, 1974.

FA01 has introduced a new Sec. 14A clarifying that no deduction shall be made in respect of any expenditure incurred by the assessee in relation to income which is tax-free. This amendment will become effective right from financial year 1961-1962 when the Income Tax Act (ITA) came into existence.

Communiniac dos bens : Sec. 5A

This system of ‘Community of Property’ prevails in the erstwhile states under the dominion of Portugal, viz, Goa, Daman, Diu, Dadra and Nagar Haveli.

Accordingly, for no fault of theirs, the entire family in these regions was taxed as Association Of Persons (AOPs) or Body Of Individuals (BOIs), a single entity. FA94 has taken a corrective action.

Now, any income, other than salaries, arising to the citizens governed by this system will be divided equally between the husband and wife and assessed separately in their hands. The salary income will be assessed in the hands of the spouse who has actually earned it.

Next time we shall examine various deductions allowed from income chargeable to tax and the tax rebates.

(The author can be contacted at anshanbhag@yahoo.com)