Non-residents in India are taxed in respect of revenue that accrues or arises in India or is acquired in India or is deemed to accrue or come up in India or deemed to be acquired in India.
Background: It’s been twenty years because the reward tax was abolished in India. Nevertheless, as part of the anti-abuse provisions and to curb tax evasions or aggressive tax planning methods, provisions for taxation of presents within the palms of recipients had been launched within the tax legal guidelines in 2004. The scope of taxation of such presents has widened through the years since then.
Present tax provisions
As per the present provisions in tax legal guidelines, if any individual receives any sum of cash, with out consideration, exceeding Rs 50,000; any immovable property or another specified property (reminiscent of shares, securities, jewelry work, and many others.) from any individual with out consideration, that’s taxed as revenue.
The place consideration is paid for buying any immovable property or different specified property however it’s insufficient (i.e. consideration is lower than stamp obligation worth / truthful market worth of the immovable property / specified property), then the distinction between such stamp obligation worth / FMV and consideration paid, is taxed as revenue on nationwide foundation within the palms of recipient supplied such distinction exceeds Rs 50,000.
In case of a person, sure exceptions to the above taxation rule for presents have been carved out. Accordingly, any reward (sum of cash, immovable property or specified property) acquired with out consideration or for an insufficient consideration from specified kinfolk or on the event of marriage or underneath a Will, inheritance, on contemplation of dying of the payer shouldn’t be taxable.
Proposed tax provisions
The Funds 2019 has proposed to think about, efficient 5 July 2019, reward of cash or property located in India by an individual resident in India to an individual outdoors India as revenue deemed to accrue or come up in India and accordingly, taxable in India.
Rationale for such proposed amendments
Non-residents in India are taxed in respect of revenue that accrues or arises in India or is acquired in India or is deemed to accrue or come up in India or deemed to be acquired in India. It has been reported that presents are made by individuals resident in India to individuals outdoors India and are claimed to be non-taxable in India because the revenue doesn’t accrue or come up in India. Thus, with a purpose to plug this loophole within the tax provisions, the proposed modification is made with speedy impact. This can be a potential modification, thereby indicating that presents made by a resident to individual outdoors India weren’t taxable previously.
Nonetheless, a recipient, being a tax resident of the abroad nation with which India has a tax treaty, might avail the treaty advantages as relevant. Nevertheless, a lot of the tax treaties signed by India offers for taxation in India of such presents, as different revenue, supplied it’s arising in India and they aren’t particularly dealt by any of the opposite articles.
Loopholes nonetheless unplugged
The proposed provisions solely seek advice from presents made by a resident to an individual outdoors India and it doesn’t cowl the situations underneath which a non-resident Indian transfers cash / property in India to an individual outdoors India. Accordingly, such presents would nonetheless be outdoors the purview of tax internet, which appears to be an unintentional miss.
Additionally, the reference to ‘individual outdoors India’ may very well be open to interpretation within the absence of a selected definition. Can this be interpreted to imply whereas an individual is outdoors India or as relevant to non-resident in India, or resident abroad as per treaty?
Compliance burden within the palms of a non-resident donee and a resident donor
Because the taxability is within the palms of the donee, there could be want for the donee / recipient to acquire PAN and file an revenue tax return in India the place there’s a taxable revenue (quantity exceeds Rs 250,000 in case of a person).
As per the provisions of part 195 of the Revenue-Tax Act, for any sum paid to a non-resident which is chargeable to tax in India, the payer is required to withhold tax at supply. Accordingly, the place a tax treaty safety shouldn’t be obtainable for exemption from taxation of such notional revenue in India, particular person donor would want to acquire TAN and perform withholding tax compliance underneath part 195.
In abstract, this can be a welcome step in offering certainty within the home regulation as to the taxability of presents to individuals outdoors India. Most significantly, this could assist present added ammunition, within the struggle towards black cash, as most spherical tripping transactions may come underneath the tax internet on the level of origination. Nevertheless, additional simplification of the associated compliance wants and addressing the loopholes, as mentioned above, could be wanted.
(By Suresh Kumar, Director, and Pallavi Dhamecha, Senior Supervisor with Deloitte Haskins and Sells LLP)
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