Income tax laws in India treat taxpayers differently based on their residency status. Laws are different for non-resident Indians (NRIs) and resident Indians. The income tax also specifies what will be the implication in case the residency status of an NRI changes to resident during an assessment year. In a normal situation, NRIs are not allowed tax benefits under Chapter XII-A of the Income Tax Act. However, in case of a change of residency, this benefit is allowed under Section 115H.
See also: Section 57: Tax deduction available on income from other sources
Who is a resident Indian?
An individual will be treated as a resident in India in any previous year if they fulfil any of the following conditions:
- They are in India for a period of 182 days or more during the previous year, or
2. They are in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.
Who is an NRI?
NRI is an individual who is not a resident of India. To determine whether an Individual is an NRI, their residential status is required to be determined under Section 6 of the Income Tax Act. An individual who does not satisfy both the conditions as mentioned above will be treated as NRI in that previous year.
However, in respect of an Indian citizen and a person of Indian origin who visits India during the year, the period of 60 days will be substituted with 182 days. The similar concession is provided to the Indian citizen who leaves India in any previous year as a crew member or for the purpose of employment outside India.
The Finance Act, 2020, with effect from the Assessment Year 2021-22 has amended the above exception to provide that the period of 60 days will be substituted with 120 days if an Indian citizen or a person of Indian origin whose total income other than income from foreign sources, exceeds Rs 15 lakh during the previous year.
The Finance Act, 2020, has also introduced new Section 6(1A) which is applicable from the Assessment Year 2021-22. It provides that an Indian citizen earning a total income in excess of Rs 15 lakh (other than income from foreign sources) will be deemed to be a resident in India if they are not liable to pay tax in any country.
What is Section 115H?
This section applies to those taxpayers who were an NRI in the previous year but have become an Indian resident in the current financial year. The section provides for such taxpayers to submit a declaration stating these facts to the assessment officer at the time of filing his ITR. Provisions of this section remain applicable to determine such a taxpayer’s tax liability till his assets are transferred into money value.
“Where a person, who is a non- resident Indian in any previous year, becomes assessable as resident in India in respect of the total income of any subsequent year, he may furnish to the Assessing Officer a declaration in writing along with his return of income under Section 139 for the assessment year for which he is so assessable, to the effect that the provisions of this chapter shall continue to apply to him in relation to the investment income derived from any foreign exchange asset being an asset of the nature referred to in sub- clause (ii) or sub- clause (iii) or sub-clause (iv) or sub- clause (v) of clause (f) of section 115C,” reads Section 115H.
“And if he does so, the provisions of this chapter shall continue to apply to him in relation to such income for that assessment year and for every subsequent assessment year until the transfer or conversion (otherwise than by transfer) into money of such assets,” it adds.
All about: Section 35AD
Section 115H benefits
Under this section, NRIs enjoy a tax rebate of 20% on investment income and a 10% concession on tax for long- term capital gains from specified assets and dividend income. However, benefits under Section 115H apply only to income from foreign exchange assets. The concessional tax rates apply even if the deposits are transferred from one bank account to another without changing their identity of convertible foreign exchange.
See also: Section 115JD Income Tax Act: Credits and claiming process
FAQs
What is Section 115H?
Under Section 115H, an NRI who becomes a resident in respect of the total income of any subsequent year can continue to be assessable to income tax at the special rate of 20% income tax on the investment income in future years as well.
Who is an NRI for taxation purposes?
A non-resident Indian is an individual who is a person of Indian origin but who is not a resident. A person will be considered of Indian origin if he, either of his parents or any of his grandparents were born in India.
What can be a person's residency status for income tax calculation in India?
As per the Income Tax Act, 1961, a person may be a resident, non-resident or a resident not ordinarily resident.
An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.
In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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