An individual is taxed basis the tax slab he or she falls in, besides the residential status of the concerned also holds great importance. In India, residential status as per Income tax laws is decided by the provisions defined for the same:
A person is deemed as a resident or non-resident Indian basis his physical presence in the country in a particular taxation year. If an individual in a tax year has been in India for a period of 182 days or more or is present for 60 days or more in a particular tax years and 365 days or more during the previous four tax years. In any of the case besides specified, the individual will be taken as a NRI for taxation purpose.
With the whole world transcending into a smaller space, it is not uncommon to find people engage in providing services across shores and if such services are provided by NRIs to Indians, then there arises withholding tax implications. In general, it is the tax which is deducted at source by the payer of the income before the final payment is tendered to the payee (foreign national) in order to meet out the taxation liability towards the government
Also read: What is withholding tax?
And for some common income sources of NRIs in India or income that arises or accrues or is deemed to accrue or arise in India, following is described the scope of taxation. It is to be noted that resident Indians are taxed on their income earned globally.
Rent on a property that is let out in India: It is common for NRIs now settled for sometime abroad to let out their property and on this the rental income payer or tenant is required to withhold taxes @ 30% plus applicable surcharge and cess, after a standard deduction is claimed @ 30% (of the annual value of the property), property taxes (actually paid) and mortgage interest payable during the relevant tax year.
For income from salary, the scope of taxation for NRI concern is related to the extent of his or her exercising employment in India. And the employer has the obligation to withhold taxes at progressive rates.
Another interesting point to note is that foreign nationals if they are in receipt of salary income in India due to a short term project for which their stay in India is not more than 90 days they can claim an exemption for not being taxed in India. But with a catch i.e. the employment of such a foreign national should be with a foreign entity with no dealings of whatsoever sort with India. Furthermore, foreign employer cannot claim such a salary expense as a deductible expenditure.
It is to be noted that withholding taxes are subject to revision time and again and are reducd based on tax treaties.
Income from sale of shares
Similar to resident Indians, NRIs are also subject to capital gains tax implications if the share sale is made of an Indian company. STCG apply when shares are held for less than 1 year whereas in the other case LTCG tax apply on the capital gains at 15% and 10% respectively. During the earlier time there was exemption in respect of tax on sale on shares held in India as per a treaty.
But from April 1, 2017 until March 31, 2019, tax on capital gains due to sale of shares will be charged at 50% of the prevailing tax rate. So, the transferee of such a payment or gains to the share transferor will be required to withhold taxes at rates previously discussed.
Interest, commission or other dividend income
For other miscellaneous income such as interest on different securities, dividend income, commission etc, withholding taxes apply in India. If DDT or dividend distribution tax is levied by an Indian company, there is an exemption on the tax.
Furthermore, based on the treaty, individuals can claim for the different beneficial provisions in respect of the exemption and lower withholding taxes or WTH. Notably, foreign nationals as per the tax laws of their country of residence can also claim for the credit in respect of taxes paid in the Indian sub-continent.