Taxation of presents to non-residents: A phrase of warning

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Present of cash made by resident Indians to non-residents who’re family members as per the income-tax legislation, proceed to be exempt, below specified situations.

Amid the coverage initiatives and tax proposals geared toward strengthening the Indian economic system, the Union price range 2019 has plugged a loophole by proposing to tax presents acquired by non-residents from resident Indians. The transfer, meant to widen and deepen the tax base, must be fastidiously understood and examined for any future presents to be made by resident Indians. The supply was additional amended when the identical was handed by the Decrease Home (Lok Sabha) of the Indian Parliament.

The proposal intends to tax present of cash exceeding 50,000 made by residents to non-residents that have been earlier claimed to be exterior the ambit of India taxation on the premise that earnings doesn’t accrue or come up in India. The price range goals at treating non-residents on a par with residents with respect to taxation of presents. Now, all such presents of cash to non-residents shall be deemed to accrue or come up in India and consequently taxable in India, topic to sure exceptions as mentioned under.

Presently, there exists anti-abuse provision within the Revenue-Tax Act to tax presents with exceptions carved out for real transactions like presents to shut family members, presents acquired on marriage, below a will or inheritance, and many others. These exceptions can be relevant even within the context of presents to non-residents.

This modification is proposed to be relevant with impact from 5 July. The worth of those presents shall be added to earnings of the non-resident people and taxed as per the progressive slab price. For instance, if the non-resident is already incomes taxable earnings in India of 10 lakh and has acquired a present of 1.1 crore through the 12 months that’s not coated inside one of many exceptions mentioned above, then such present shall be taxed on the price of 31.2% (inclusive of cess) within the arms of the non-resident. Additional, the newly launched “super-rich” surcharge at 25% and 37% on the tax quantity shall apply to people if earnings together with the present exceeds 2 crore and 5 crore, respectively. In such case, the efficient tax price can be 39% and 42.7%.

It’s pertinent to notice that the resident Indian gifting cash to a non-resident shall be accountable to withhold tax at supply and deposit the identical within the authorities treasury. Tax must be deposited inside seven days of the top of the month wherein the tax is withheld.

The resident Indian shall be required to acquire tax deduction account quantity (TAN) from the Indian tax division, file withholding tax e-statements and subject tax withholding certificates to the non-resident. In case of a delay in deposit of withholding tax/file e-statement/subject certificates, the resident can be topic to pursuits/penalties/fines, as prescribed below the tax statute.

Additional, with a view to be eligible to say credit score in his residence nation of taxes deducted in India, the recipient ought to acquire Everlasting Account Quantity (Indian taxpayer’s identification quantity) and consequently file his tax return in India through the 12 months.

The price range additional clarifies that reduction, if any, below the tax treaty (Double Taxation Avoidance Agreements) can be out there with respect to such earnings. Basically, the profit below the tax treaty is prone to be out there below the article ‘Different Revenue’ current in plenty of treaties.

Curiously, in among the tax treaties that India has signed with nations the place giant Indian diaspora is there just like the US, UK, Singapore, and many others., the taxation proper vests with India (as a supply nation). It’s crucial that every treaty is analyzed intimately to guage if any tax is to be paid in context of the presents.

In addition to, tax legal guidelines, one also needs to consider the implications, if any below the international trade rules for presents from a resident Indian to a non-resident. Thus, one should act with warning to make sure compliance with legislation and mitigate pointless disputes and litigation at a later date.

Nilpa Keval Gosrani contributed to this text.

Vikas Vasal is nationwide chief tax at Grant Thornton India Llp.

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