Tax, regulatory concerns for HNIs in India

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Within the latest previous, a number of amendments have been launched on the revenue tax and regulatory fronts, which influence excessive net-worth people (HNIs). Listed here are some key implications of the modifications:

Change in residency provisions: Some HNIs earn revenue exterior India by finishing up enterprise or skilled actions in India; nonetheless, relying on their interval of keep, they could stay non-resident in India in addition to overseas. The Finance Act, 2020, amended sure residency situations with impact from monetary yr 2020-21 (FY21). The amended legal guidelines say that an Indian citizen having a complete revenue—apart from from international sources—exceeding 15 lakh throughout a specific FY shall be deemed to be a resident of India, albeit a not ordinarily resident (NOR) for that FY, if he/she just isn’t liable to tax in some other nation by cause of his/her domicile or residence or some other standards of comparable nature.

Additional, the prolonged threshold of 182 days obtainable to Indian residents and individuals of Indian origin (PIO) for triggering residency throughout visits to India has been truncated for individuals having a complete revenue, apart from revenue from international sources, exceeding 15 lakh throughout an FY, qualifying them as NOR if their keep is between 120 to 182 days. Nonetheless, what constitutes as visits just isn’t nicely outlined.

Taxability of dividend within the fingers of shareholder: The Finance Act, 2020, abolished the dividend distribution tax payable in respect of dividends declared, distributed or paid by a home firm after 31 March 2020, and accordingly, such dividend was made absolutely taxable within the fingers of the shareholders (together with people). The Finance Act had additionally imposed a withholding tax on the fee of 10% on all dividends paid by an Indian firm to a resident shareholder whereas the speed to non-resident shareholders is 20% (plus relevant surcharge and cess). Whereas the taxpayers are actually required to pay taxes on dividend revenue on the relevant tax charges, some reduction has been granted by proscribing the surcharge charges to a most of 15%, which may have in any other case gone as much as 37% in case of HNIs.

Capital good points tax on listed shares: Lengthy-term capital achieve (LTCG) on fairness shares listed on a inventory change, which had been earlier tax-free, are actually underneath the tax lens. Efficient 1 April 2018, LTCG of greater than 1 lakh on the sale of fairness shares will entice a tax of 10% and the good thing about indexation is not going to be obtainable, as per prescribed guidelines. The surcharge has favourably been restricted to as much as 15%, which is a few reduction.

Taxability of extra employer’s contribution to retiral schemes: Previous to Finance Act, 2020. the contributions made by the employer to the account of an worker underneath the provident fund (PF), Nationwide Pension System (NPS) and permitted superannuation fund had been exempt from taxation within the fingers of the worker as much as a specified wage threshold. The Finance Act, 2020, capped the exemption to employer contributions to aforesaid funds inside 7.5 lakh every year. Any employer contribution above this threshold to such retiral schemes (together with any accretion thereto) has been introduced into the ambit of taxation.

Taxability of unit-linked insurance coverage coverage (ULIP) proceeds: Finance Act, 2021, modification supplied that for a ULIP taken on or after 1 February 2021, the maturity proceeds of the coverage, with annual premium of over 2.5 lakh ,is not going to be eligible for exemption underneath Part 10(10D) of the Act and can be taxable at par with different equity-oriented mutual funds. Accordingly, the capital good points provisions would additionally apply on sale or redemption of such ULIP.

Applicability of tax collected at supply (TCS): A number of resident HNIs use the liberalized remittance scheme (LRS) route for outward investments in securities and properties. With impact from 1 October 2020, a licensed vendor is required to gather TCS on the fee of 5% on any quantity or mixture of quantities being remitted exterior India (apart from for the aim of buy of abroad tour programme bundle) underneath the LRS route if exceeding 7 lakh in any FY. Nonetheless, the place the quantity being remitted out is in direction of prescribed schooling mortgage, 0.5% TCS fee shall apply as a substitute of 5%. Additional, the vendor of abroad tour programme bundle is required to gather TCS on the fee of 5% no matter any financial threshold.

Tax credit score for the TCS shall be obtainable on the time of submitting the revenue tax return, therefore it could end in a cash-flow constraint on the time of remittance.

Parizad Sirwalla is associate and head, World Mobility Companies- Tax, KPMG in India.

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