Tax Column

I am an individual and of Indian origin but a citizen of US. For the current financial year 2023-24, I have stayed more than 182 days in India and likely to stay further till March 2024. I was a nonresident for almost the last 10 to 15 years. What would be my residential status for tax purpose in India for the current financial year? Will there be any impact on my NRE account?

Under Section 6(1) of the Income Tax Act, an individual is said to be a resident in India in any previous year if he has been in India in that year for a period amounting to 182 days or more. Since you have already spent more than 182 days in the current financial year and likely to stay further, you will be considered resident in India for the current financial year 2023-24. However, since you were a non-resident over the previous 10 years, for tax purpose you will be considered as ‘resident but not ordinary resident’. Accordingly, your foreign income will not be taxed in India for the current financial year. However, if you continue to stay in India for more than 182 days in the next financial year, then your global income would be taxed from the financial year 2024-25. Since you are a US’ citizen but of Indian origin, you can continue to hold your NRE account in India and can deposit remittance in foreign exchange. 
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I am an individual. I have sold my 20-year-old residential house for ₹10 crore. Can I reinvest the capital gain in buying one acre land and construct a small residential house thereon? 

Under Section 54 of the Income Tax Act, an individual can reinvest capital gain arising on the sale of a residential house into another residential property either by purchase or constructing a new residential house on land. Therefore, if you purchase land and construct a small residence thereon, you are entitled to claim exemption of the entire cost of land and building thereon. The Income Tax Act does not speak about what should be the area of the residential house. Therefore, a small residential house is also eligible for deduction under Section 54 of the Income Tax Act. 

What is important is the amount in value and not the area of the residential house for the purpose of claiming deduction under Section 54 of the Income Tax Act. However, you have to ensure that the land which you acquire should be non-agricultural so that the construction of a residential house is permissible. Income Tax tribunals have held that residential house constructed on agricultural land is also permissible but to avoid litigations it is better to buy non-agricultural land and construct a small residential house thereon.
 

I am an individual but non-resident working in the USA. During the current financial year, I have provided my professional services online to an Indian company in India for which it agreed to pay me ₹25 lakhs. Will this amount be taxable in India particularly when I am a non-resident and rendered services’ outside India? Is DTA applicable?
 

In India, in the case of a non-resident, income accrued or arisen in India is taxable. In my opinion, the entire ₹25 lakhs accrued in India irrespective of the fact whether the services are rendered outside India will be taxable. While making payment of ₹25 lakhs, the company will deduct withholding tax at the rate applicable to non-residents by treating you as non-resident under Section 195 of the Income Tax Act. The DTA between India and USA is applicable only if you are a resident of USA as per the USA laws. If you are not a resident of USA, the provisions of DTA between India and USA are not applicable.
 

I am a resident. I wish to give gift or donate to a non-relative, non-resident stationed in the UK. What are the tax implications in my hand?
 

Under Section 56(2)(x) of the Income Tax Act, gift received from a relative is not taxable in the hands of the recipient of the gift. Any gift to a non-relative is taxable in the hands of the recipient. In your case, you propose to give a gift to a non-relative who is a non-resident. Therefore, under Section 9(viii) read with Section 2(24(xviia) of the Income Tax Act, a gift to a non-resident is taxable in India and therefore subject to withholding tax. You are liable to deduct withholding tax while making this gift to a non-resident, non-relative. Further, after October 1, 2023 any amount under LRS is subject to TCS at 20 per cent. Therefore, the gift is also subject to TCS. However, you will get credit for TCS while computing tax liability at the time of filing the IT Return (ITR).
 

My private limited company has international transactions with an individual whose status is ‘resident but not ordinary resident’. Is my company required to obtain transfer pricing report under Section 92 of the Income Tax Act in absence of transaction with a nonresident?
 

Yes, your company is subject to transfer pricing provisions. Your transaction with an individual, being resident but not ordinary resident, under the Income Tax Act, is to be considered as transaction with a non-resident. Section 2(30) of the Income Tax Act defines ‘non-resident’ as a person who is not a resident but for the purpose of Section 92 includes a person who is ‘not an ordinary resident’ within the meaning of Section 6(6) of the Income Tax Act. Therefore, your transaction with a resident but not ordinary resident is subject to transfer pricing provisions.

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