PravasiTax

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Can an NRI invest in Public Provident Fund?

What is the National Pension Scheme (NPS)?

The National Pension Scheme (NPS) is a retirement scheme introduced by the government to inculcate the habit of proactively saving money for the retirement phase of an individual’s life. It is managed and facilitated by the Pension Fund Regulatory and Development Authority (PFRDA). This scheme is open to every Indian citizen those who are in the age group of 18 to 65 years.

Tax Benefits of the Scheme

The significant attraction for participation in this scheme stems from the tax benefits associated with it. NPS falls under the Exempt-Exempt Exempt-Tax category whereby the contribution made, the interest earned and (partial) withdrawal from the fund is exempt (subject to certain conditions).

An overview of the tax benefits of investing in the NPS account are as follows:

1. Contribution made to the scheme is allowed as a deduction under section 80CCD(1) subject to lower of:

   (i) INR 1.5 lakhs (within the overall limit imposed by Section 80CCE for contributions made altogether under Sections 80C, 80CCC and 80CCD); or

     (ii) 20% of the gross total income.

2. Additionally, under 80 CCD(1B), a deduction of up to INR 50,000 is allowed irrespective of the conditions prescribed in point (1) above. This provision of additional deduction was introduced to further motivate the individuals to invest in NPS account.

Tax Treatment on withdrawal / closure of NPS

Withdrawal on retirement: After the subscriber attains the age of 60, up to 60% of the total corpus can be withdrawn in lump sum and it shall be exempt from tax. The remaining 40% shall be mandatorily used towards purchase of annuity, which shall also be exempt. The annuity income received in the subsequent years, however, shall be subject to income tax.

For example: If total corpus at the age of 60 is 10 lakhs, then 60% of the total corpus i.e., 6 lakhs, can be withdrawn, which shall entirely be exempt. The 4 lakhs that wasn’t allowed to be withdrawn shall be utilized towards annuity purchase and the annuity income that you receive in the subsequent years will be subject to income tax.

Partial withdrawal before retirement: Although it is advisable to continue investing till you attain 60 years of age, it is possible to make premature withdrawals, if you have been investing for at least 3 years. One can withdraw up to 25% of the contribution made, for purposes such as children’s higher education, building a house, medical treatment of self or family members and the like. However, such withdrawals can be made only 3 times, with a gap of at least 5 years between each withdrawal, in the entire tenure. Such partial withdrawal(s) made is exempt from tax.

Closure before retirement: Up to 20% of the corpus can be withdrawn tax free and the balance 80% shall mandatorily be required to be utilized towards purchase of annuity.

Structure of NPS 

The structure of NPS is made up of two branches: Tier I and Tier II. Some of the salient features of the two schemes are as follows:

• Eligibility: Any Indian citizen between 18 and 65 years of age can open the NPS Tier1 account. On the other hand, to be eligible for an NPS Tier2 account, you must be a member of NPS Tier I.

• Lock-in Period: In the case of NPS Tier1, this period lasts till the subscriber is 60 years old. The NPS Tier2 account does not have any lock-in period, which is why you can withdraw the funds anytime you want.

• Contributions: The minimum contribution to open a Tier 1 account is ₹500, and ₹1000 for a Tier 2 account. No maximum contributions under the Fund. • Tax Benefits on Contribution: For NPS Tier1, a tax deduction of up to ₹1.5 lakhs is available under 80CCD and ₹50,000 under 80CCD (1B). However, such facilities are not available in the case of NPS Tier2 accounts.

• Taxation on Withdrawal: At maturity, the total amount is tax-exempt for Tier 1 account, subject to conditions mentioned earlier. On the other hand, if you opt for a Tier 2 account, the entire corpus gets added to the investor’s taxable income and is taxed at the individual’s slab rate.

Which is better?

Both Tier 1 and Tier 2 have their benefits and drawbacks. Thus, an individual must select one after careful consideration. For instance, Tier 1 accounts are much more rigid, offering fewer opportunities for withdrawal before maturity. Therefore, investors cannot rely on the Tier 1 quantum apart from major emergencies. Tier 2 accounts do not have similar limitations. Here, a subscriber is free to withdraw the amount prematurely to fund various needs. Thus, Tier 2 account holders can better curtail all financial requirements with this accumulated amount.

Can NRI invest in NPS?

Yes. An NRI can open the NPS account (only Tier 1) under the National Pension Scheme for NRI and avail all the benefits associated with the scheme, provided he/she is aged between 18 and 60 and fulfils all the KYC norms demanded by the scheme. However, please note that as per the circular issued by the PFRDA – NPS scheme for NRI does not include the option of Tier 2. It is not available to both NRI and OCI subscribers.

In the case of NPS for NRI, he will need to mention the nature of his bank account from which contribution shall be made at the time of registration– i.e. NRE or NRO. All the conditions and regulations mentioned above for a resident is equally applicable to an NRI.

Process Involved in NRI NPS Account Opening

Step 1: The NRI NPS account opening process begins with the subscriber obtaining the NRI-NPS form online and filling the required details to submit the same along with supporting documents. The form shall be available in the NPS Trust website, through channels of PFRDA and/or at the NSDL E-Gov website.

Step 2: The filled form is to be submitted with the bank that houses his NRI NPS account, where it shall be processed. The details of the bank which has been mentioned, regarding NRE/NRO account, shall be verified and subsequently forwarded to the Central Recordkeeping Agency (CRA).

Step 3: The NRI shall make the initial deposit of money into the account which shall be a minimum of INR 500, after which deposits need to be made at least once a year. Each transaction shall be a minimum of INR 500 and the minimum annual contribution required is INR 6000.

Step 4: Once the application form is processed, the CRA shall assign a 12-digit Permanent Retirement Account Number (PRAN) which confirms his entry into the scheme. He can now make subsequent instalments online, at his convenience.

source: https://pravasitax.com/information-hub/tax/investments/other-investments/can-an-nri-invest-in-ppf-account

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Difference between Deputation and Secondment

It is a common practice among techie employees to use the words ‘deputation’ and ‘secondment’ interchangeably. But it’s important to understand that both terms have different meanings and different tax implications under the Indian Income Tax law.

The terms ‘deputation’ and ‘secondment’ have not been defined in the Indian Tax law. The International Bureau of Fiscal Documentation’s (IBFD) International Tax Glossary defines the term "secondment" to mean "in general a temporary assignment by an employer of an employee to another, typically related, party". There is no definition for the term "deputation" in the Glossary. These terms tend to be used interchangeably, however, the tax treatment would depend on the substance of the arrangement and the principles arising out of the judicial precedents.

Deputation would involve an international assignee coming to India to work for the Indian subsidiary for a long duration, say 2 to 3 years. The employee would be working under the control and supervision of the Indian entity through appropriate documentation in the form of an employment contract. The Service Permanent Establishment (Service PE) exposure in such a situation should be mitigated. 

Secondment typically involves various personnel from overseas entities being present in India for short periods (3 to 6 months) to provide services to the Indian subsidiary. While these employees work under the control and supervision of the Indian subsidiary, their payroll would be managed by the overseas entity, with a subsequent recharge of the salary costs to the Indian entity.

In case of secondment, it is possible that the Indian Tax Department may argue that the employee continues to work under the control and supervision of the foreign company since the payroll is administered by the foreign entity; therefore, citing the Morgan Stanley ruling, they could contend that there is a Service PE in India. In order to mitigate the Service PE exposure, the Indian entity should issue a letter to these employees outlining their roles and responsibilities while in India as well as their reporting obligations to the Indian entity. However, unlike in the case of a deputation arrangement, given that the payroll in this case would be administered by the overseas entity, the level of defense before the Indian Tax Department would not be as strong as that in the case of deputation.  

source https://pravasitax.com/information-hub/tax/income/salary-income/deputation-and-secondment-comparison

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Can a person in India receive money from an NRI (may be relative or friend)?

A person in India, who is required to maintain books of accounts and who received the money from an NRI has to follow NRI money transfer rules which includes responsibility to explain the nature and source of the sum received from an NRI (even if it is from a relative or friend or NRI gift money to relatives) to the satisfaction of the Assessing Officer in respect of the sum credited as NRI money transfer in the books of the Taxpayer.

When explaining the nature and source of the amount of transfer money to India, it is presumed that the item of credit is within the knowledge of the Taxpayer and so, the Taxpayer (Recipient of money) has the onus to prove the following to the satisfaction of the Assessing Officer:

The identity of the creditor (NRI)

Financial capacity of the creditor (NRI) 

The Creditworthiness of the creditor (NRI) 

Kind of relationship the creditor (NRI) had with the Taxpayer 

The genuineness of the transaction 

Now, the question arise how an NRI can prove his creditworthiness for channeling NRI money transfer to India. It might be a challenge for NRIs in GCC, (specially who is engaged in the business or profession), to substantiate their source of income from outside India since there is no regulatory requirement in certain GCC countries to furnish audited books of accounts to the Tax Authorities. However, it is better practice for NRIs to maintain the following documents as proof of evidence for Tax Department in India to show his creditworthiness during NRI money transfer to India.

Copy of income tax return 

Affidavit for proving the identity, capacity and genuineness of the transaction. 

Copy of bank pass book for past years; 

Balance Sheet

Income and Expenditure 

Cash Flow Statements

PAN Number  

Mere carrying out the transaction through normal banking channels would not be sufficient to prove the genuineness of the transaction. It is interesting to note that the Tax Authorities has power to make enquiry not only into the source(s)of the creditor (NRI) but also of his (creditor's) sub-creditors. In other words, the enquire extend to the source/source from where the creditor (NRI) has received the money. 

Source: https://pravasitax.com/information-hub/tax/general/gift-and-cash/can-a-person-in-india-receive-money-from-an-nri

[pravasitax]

What is E-RUPI?

How does it help? What are its uses?How does it work?

Prime Minister Narendra Modi launched an electronic voucher based digital payment system “e-RUPI” on Monday (02 August 2021). The platform has been developed by the National Payments Corporation of India in collaboration with other government departments.

 Is it digital currency? 

No. However, it is a first step by the Government towards the introduction of a new digital currency for India. The government is already working on developing a central bank digital currency and the launch of e-RUPI could potentially highlight the gaps in digital payments infrastructure that will be necessary for the success of the future digital currency or e-currency. 

Is it a digital payment platform ? 

No. The same is not a digital payment platform like google pay and PayTM.  

So, what is it actually? 

E-RUPI is a cashless and contactless digital payment solution. Through E-Rupi Indian government has tried to bring an electronic e-voucher system in India. It will act as a prepaid e-voucher which you can pay without any hassle. You don’t need a credit card, debit card, or any other service to pay.

 It is, in essence, like a prepaid voucher except that the voucher is entirely digital and the payments will be authorised by institutions like the government or banks.

 For instance, suppose you get an e-RUPI voucher for a getting a COVID vaccination. The said voucher can only be redeemed to obtain the said vaccine. 

 India faces a massive problem with respect to distribution of subsidies to real beneficiaries. For instance, there are middlemen in the existing system claiming benefits ineligible to them. 

The Prime Minister said that the e -RUPI voucher is going to play a huge role in making DBT (Direct Benefit Transfer) more effective in digital transactions in the country and will give a new dimension to digital governance. This will help everyone in targeted, transparent and leakage-free delivery.

 It can also be used for delivering services under schemes meant for providing drugs and nutritional support under Mother and Child welfare schemes, TB eradication programs, drugs and diagnostics under schemes like Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, fertilizer subsidies, etc.

 For example, in India the only way that a parent (in a remote village) who is struggling to finance their child’s education is to send them to a government school (which would be underfunded, have no proper infrastructure and suffer from issues such as teacher absenteeism, irresponsible administrators). However, under the new e-RUPI Model, the Government would provide a voucher to the parent for the child’s education which could be redeemed at a school of their choice. Therefore, the school would need to collect these vouchers from the students and redeem them in order to see any money in their accounts. This way government funds will go to institutions that perform and the ones that don’t, will suffer the consequences. 

 e-RUPI is a cashless and contactless instrument for digital payments. It acts as an e-voucher based on a QR code or SMS string, which is delivered to the mobile phones of the beneficiaries.” 

Meaning, the government could technically send an SMS to an Aadhar linked number and transfer the subsidy this way. All you have to do then is redeem this e-voucher and use it to fund the child’s education. 

This way the system ensures leak-proof delivery of government's welfare services to the intended beneficiaries. Further, e-RUPI will connect the sponsors of the services with the beneficiaries and service providers in a digital manner without any physical interface. 

 The PMO also added that even the private sector can “leverage these digital vouchers as part of their employee welfare and corporate social responsibility programmes". NHA opined that the advantage of using e-RUPI is that voucher redemption can be tracked by the issuer. 

 The system has been built by NPCI on its UPI platform, and has on boarded banks that will be the issuing entities. Any corporate or government agency will have to approach the partner banks, which are both private and public-sector lenders, with the details of specific persons and the purpose for which payments have to be made. The beneficiaries will be identified using their mobile number and a voucher allocated by a bank to the service provider in the name of a given person would only be delivered to that person. 

This way the Government through e- RUPI is able create a person-specific and purpose-specific payments system.   

source :https://pravasitax.com/information-hub/tax/investments/other-investments/what-is-e-rupi

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Features of Non-Resident (External) Rupee Account Scheme [NRE Account]

A Non-resident (External) Rupee Account or NRE account is a bank account that can be opened by an NRI or a PIO to house his earnings from abroad. This account can also be maintained as a joint account in the names of two or more NRIs/ PIOs. NRIs/ PIOs can hold jointly with a resident relative on ‘former or survivor’ basis. The resident relative can also operate the account as a Power of Attorney holder during the life time of the NRI/ PIO account holder. The basic NRE account features are as follows: 

 The maintenance of funds in Indian currency 

 Non-taxability of income earned in the accounts

Repatriability 

What are the different types of NRE account? 

The various NRE Account types are categorized as below: 

Savings 

Current 

Recurring 

Fixed Deposit 

What is the term period for fixed deposits? 

The term period for fixed deposits are one to three years. However, banks are allowed to accept NRE deposits above three years from their Asset-Liability point of view.

What are the NRE account rules regarding transactions?  

NRE account rules are many, which are mainly classified as Permissible Credits and Permissible Debits. 

Credits permitted to this account are inward remittance from outside India, interest accruing on the account, interest on investment, transfer from other NRE/ FCNR(B) accounts, maturity proceeds of investments (if such investments were made from this account or through inward remittance). Current income like rent, dividend, pension, interest etc. will be construed as a permissible credit to the NRE account. Care: Only those credits which have not lost repatriable character and subject to TDS, if applicable. 

 Permissible debits are local disbursements, remittance outside India, transfer to other NRE/ FCNR(B) accounts and investments in India. 

What are the major NRE account benefits? 

 Interest income earned is exempt 

Fully repatriable funds 

Maintained in INR 

Funds can be freely transferred overseas 

No limitation on withdrawals 

Source: https://pravasitax.com/information-hub/tax/Investments/Bank%20Deposits/features-of-non-resident-external-rupee-account-scheme

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How can an NRI open a Demat Account?

A Demat Account is used to hold the shares, bonds, mutual funds and other securities of publicly traded companies in an electronic form. Similar to a bank account, a Demat Account is either credited or debited, each time a person buys or sells shares of a company / companies. 

An NRI or a POI can open a Demat account with any Depository Participant, which can be a bank, financial institutions or brokerage house. For NRI Stock, it is required to select type of NRI Demat Account – Repatriable and Non-Repatriable, depending on the requirement for transferring funds outside India. Further, it is required to maintain separate Demat Accounts for repatriable and non-repatriable investments.

 Demat Account for NRI

  No specific permission is required from the RBI for opening the or for the dematerialisaion / rematerialisation of securities or for subscribing to public issue/ rights / bonus shares. However, requisite permissions of the designated AD Bank may be required for the debits / credits in the Demat account. 

A subsequent change of residential status from Non-Resident to Resident will require opening of a new Demat account in India with Resident status. The NRI Demat account can be closed after transferring the securities from the NRI Demat account to the Resident Demat account. It is the responsibility of the NRI to intimate the status change to the AD Bank and the Depository Participant. 

SOURCE: https://pravasitax.com/information-hub/tax/investments/shares/how-can-an-nri-open-demat-account

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Share Trading Income for NRIs –Is it Business Income or Capital Gain?

With the advent of mobile-based trading applications, capital market activity of individuals has surged during the years. All trading activity is mapped to the PAN number of an individual through the Demat Account, making it possible for Income Tax (IT) department to trace undeclared income from such activity. A proper analysis of such activity is required as income tax on share trading demands consideration of many factors.

 Also, before reporting such trading income in the tax returns, it is crucial that one decides the nature and taxation of his/her transactions i.e. whether the same would be taxable as business profits or capital gains. The issue was a matter of litigation, as the real intention behind the investments made i.e. whether the shares are held as investments or as stock-in-trade, was difficult to ascertain and this always brought a cloud of doubt for investors. Hence the question kept coming up time to time – “Income from share trading is taxable under which head?” 

Therefore, the IT department clarified through a circular Circular No. 6/2016 dated 29th of February 2016) that the income from share trading activity of listed securities, may be treated as capital gains or business profits at the option of the investor. The followings points would need to be noted in case of income tax on share trading of listed securities: 

If the taxpayer, himself classifies the listed security as stock in trade irrespective of the period of holding, then such income shall be treated as business income. 

If the taxpayer treats the income from transfer of a listed security, held for a period of more than 12 months as capital gains, then such stand shall not be disputed by the IT department. The position once adopted cannot be altered in subsequent years. 

In all other cases, many factors such as the frequency of transactions, scale of activity, intention of purchase, treatment in books of accounts, typical holding period etc. would influence the characterization of the trading income. 

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Features of Non-Resident Ordinary Rupee Account Scheme [NRO Account]

A Non-Resident Ordinary Rupee Account or an NRO account is an account that can be operated by any person resident outside India for putting through bonafide transactions in rupees. NRO account opening is a structured process in each bank.

Post Offices in India may maintain savings bank accounts in the names of persons resident outside India and allow operations on these accounts subject to the same terms and conditions as are applicable to NRO bank accounts maintained with an authorised dealer/ authorised bank.

An NRO account can be maintained only as a term deposit. The period for fixed deposits are same as those applicable to resident accounts. The income housed in an NRO account is taxable and the NRO Account Tax is to be paid at applicable income tax rates or DTAA rates, whichever beneficial. 

Can an NRO account be maintained as a joint account?  

Yes, NRO bank accounts can be held jointly in the names of two or more NRIs/ PIOs. They may also be held jointly with residents on ‘former or survivor’ basis.

What are the NRO account rules regarding transactions?   

NRO account rules are many, which are mainly classified as Permissible Credits and Permissible Debits.

Inward remittances from outside India, legitimate dues in India and transfers from other NRO accounts are the permissible credits to the NRO account. Rupee gift/ loan made by a resident to an NRI/ PIO relative within the limits prescribed under the Liberalised Remittance Scheme may also be credited to the latter’s NRO account. 

The NRO bank account can be debited for the purpose of local payments, transfers to other NRO account or remittance of current income abroad. Apart from these, balances in the NRO account cannot be repatriated abroad except by NRIs and PIOs up to USD 1 million, subject to conditions specified in Foreign Exchange Management (Remittance of Assets) Regulations, 2016. Funds can be transferred to NRE account within this USD 1 Million facility. 

Are the deposits in this account repatriable?   

No. They are not repatriable except for all current income. Balances in an NRO account of NRIs/ PIOs are remittable up to USD 1 (one) million per financial year (April-March) along with their other eligible assets.

Can loans be availed against the deposits?  

Loans against the deposits can be granted in India to the account holder or third party subject to usual norms and margin requirement. The loan amount cannot be used for relending, carrying on agricultural/ plantation activities or investment in real estate business. However loans outside India is not permitted.

What are the major NRO account benefits?  

The major NRO Account benefits are: 

Can be used to manage all rupee expenses 

Ease of Investing in India  

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Checklist for NRIs planning to purchase property from an Indian Resident

An NRI buying property in India is fraught with many legal & taxation formalities. If you are planning to acquire land or buying property in India from an Indian Resident, the following checkpoints need to be kept in mind from the perspective of the Indian Income Tax Law: 

 During purchase of property by NRI in India, an NRI Buyer is responsible to deduct tax if the sale value for transfer of immovable property (other than agricultural land) exceeds INR 50 Lakhs. 

 The tax on purchase of property in India initiates in the form of TDS, for which the rate would be 1% on total sale value if the Resident Seller has furnished his PAN. In the absence of PAN, the TDS rate would be 20%. 

 Tax so deducted needs to be deposited electronically within 30 days from the end of the month of deduction in a challan-cum-return Form - Form 26QB. For filing TDS Form 26QB, there is no requirement to obtain TAN, however PAN is mandatory. The NRI Buyers are also required to register themselves on the TRACES portal with their PAN. 

 NRI is also responsible to generate TDS Certificate (Form 16B) from TRACES portal and furnish the same to the Seller within 15 days from the due date of filing Form 26QB. 

 The Resident Seller can claim the TDS amount as refund by filing a tax return, if the actual capital gain tax payable by the seller is lower than the TDS amount. TDS credit will reflect in the Form 26AS (Annual Tax Statement) of the Resident Seller only if the NRI Buyer successfully completes all the above procedural compliances.

There are separate provisions to be followed in case of an NRI buying property in India from another NRI. Please refer our post on “Checklist for NRIs planning to purchase property from another NRI”. 

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Stipend received by PG Doctors – Taxable or Exempt?

The tug of war between Doctors and the Income Tax Department has gone on for a very long time regarding the taxability of stipend received by them during their course of training or internship in the hospital as a part of Post Graduate degree programs.

The confusion arises because, in the Income Tax Act, there is no mention of the word ‘Stipend’. The act provides that ‘scholarship granted to meet the cost of education’ is exempt from Income Tax under Section 10(16). Further, the Act defines the term ‘Salary’, which covers Wages, Pension, Gratuity, Fees or Commission or Profits in lieu of salary, Advance salary & Payment of leaves standing to the credit of the employee. Salary also demands the existence of an employer-employee relationship. This was what sparked all the debates, whether stipend is to be considered as ‘Salary’ or as ‘Scholarship’.

Students pursuing CA course and PhD students may receive stipends, research fellowships and grants which are clearly intended for supporting the educational journey, which becomes exempt. However, MBA graduates who involve in internships at various companies to gain experience, perform all the services similar to that of an employee. In such cases their stipend may become taxable.

This is where the significance of the literature in the agreement between Doctors and the Institution come into play, as review will be done on the terms and conditions under which the professionals has been admitted. One needs to analyse if the amount has been paid purely for the purpose of his education. If so, the amount falls under ‘scholarship’.

It is to be highlighted that there is no relevance on how the amount was spent or if he has only spent a portion of it, saving the rest. The taxability of stipend is dependant solely on the purpose with which it was paid by the hospital.

There are judicial precedents wherein stipends paid to doctors have been held as exempt from tax. Further, various adjudicating authorities have held that the stipend earned by PG students in pursuance of their course is to be considered as scholarship (i.e., exempted from tax). But in those cases, the agreement clearly stated that the amount was paid to further the education and training of the recipient and was not paid as a compensation for his services.  

It was noted that the payment was not paid to serve the interests of the grantor and also that students undergoing PG Course were not allowed to do private practice or part time job during the entire period of study. Thus, the stipend paid in such cases clearly came under the term ‘scholarship’ and was declared eligible for exemption.

However, the Tax Department could take a contrary stand that doctors are qualified professionals owing to their MBBS degree and accordingly stipend paid to doctors could partake the nature of salary or professional fees. It could also be contended that when the doctors are paid stipend by the hospital, although they are working as part of gaining a higher degree, they are also performing all the duties in the profile of a regular, full-time employee. Their hours are more or less same when compared with a permanent employee at the hospital. This makes their stipend liable to taxation, especially when their agreement doesn’t mention anything that points otherwise.

The hospital /management will be liable to deduct TDS on such stipend paid, in case where it could come under the head ‘Salaries’ or ‘Professional Income’. Also, from a practical perspective, we have noticed that most hospitals deduct TDS on stipend paid to PG Doctors on a conservative basis to avoid disallowance of the said expenditure.

Failure to deduct TDS does not exempt the tax liability in the hands of the payee, accordingly, even if TDS is not deducted by the hospital, the stipend income could be disclosed under the head ‘Income from Other Sources’ while filing the personal tax returns.

However, in a scenario, wherein the stipend income is claimed as exempt, adequate documents would be required to be maintained to substantiate before the Tax Department that the stipend is in the nature of a scholarship provided to meet cost of education.

In case of individuals who earn stipend, it is mandatorily required to file their income tax returns only if their overall earnings for the financial year exceed the minimum taxable limit (which currently set at INR 2.5 lakhs).  

However, in cases where the hospital / management has withheld taxes, it is recommendable to file tax returns. The students could contact their respective accounts and administrative departments in this respect or under the direction of a CA, file income tax return and claim refund for the same.

It is quite clear from the detailed analysis that taxability of stipend paid depends on the nature of stipend, the purpose for which it was disbursed. It is also important that the terms of agreement state the same, which can then be utilised as a valid proof for negotiating with the management and department.

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Is it possible to claim refund of TDS on cash withdrawal under new section 194N?

With effect from July 2020, Banks would be deducting TDS on cash withdrawals in excess of Rs 1 crore by any person. The limit would be lower in case of persons who have not filed returns in the past three years, whereby tax deduction would start at Rs 20 lakhs.

As per the Tax law, a claim for TDS credit can be made only in the year in which corresponding “income” is offered to tax. Since cash withdrawal cannot be said to be in the nature of income, it led to an uncertainty as to how and if the credit of TDS on cash withdrawal can be claimed.

Recently, the Income Tax Department had notified that the credit for TDS shall be given only to the person from whose account tax has been deducted. The Notification can, in other words, be interpreted to mean that credit of TDS would be available on tax deducted from cash withdrawals.

Hence, filing of IT returns would become a necessity to both claim a refund of the TDS on cash withdrawals as well as to ensure no TDS deduction in the future on cash withdrawal up to Rs 1 crore. This becomes more relevant in case of NRIs who have a practice of withdrawing cash in excess of Rs 20 lakhs in a financial year.

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Cash withdrawals in India may now attract TDS

The Finance Act 2019 introduced a new Section 194N in the Income Tax Act whereby cash withdrawals from Banks and Post Offices by any person in excess of Rs 1 crore in a year was liable to deduction of tax at source (TDS) @ 2%.

The Section had been amended by Finance Act 2020 to further provide that in case of persons who have not filed IT Returns in all the 3 years preceding the year in which amount is withdrawn by him, TDS shall be deducted:

• @ 2% where amount withdrawn exceeds Rs 20 lakhs but less than Rs 1 crore;

• @ 5% where amount withdrawn exceeds Rs 1 crore.

Hence, TDS will be attracted from Rs 20 lakhs in case of persons who have not filed IT returns in previous years and from Rs 1 crore for others. These provisions have now come into force with effect from 01 July 2020 and is applicable to every person including non-residents. Even withdrawals from ATM would be covered under the ambit of “cash withdrawal”. Since this limitation does not include bank transfers, it would be a better practice to manage transactions in India through digital mode. 

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Checklist for NRIs planning to purchase property from another NRI

If you are planning to acquire any property or land in India from another NRI, the following checkpoints needs to be kept in mind from the perspective of the Indian Income Tax Law:

Buyer is responsible to deduct tax at the time of payment of sale consideration to the NRI Seller. 

TDS Rate would be 20% (plus surcharge and cess) in case property or land was held by Seller NRI for more than two years from the date of its purchase or at the rate of 30% (plus surcharge and cess) in case the property or land was held by Seller NRI for less than two years.

Tax so deducted needs to be deposited electronically within 30 days from the end of the month of deduction along with a simple challan Form (Form 26QB). For filing TDS Form 26QB, there is no requirement to obtain TAN, however the NRI purchaser needs to register himself in TRACES with PAN.

NRI is also responsible to generate TDS Certificate (Form 16B) from the TRACES and must be furnished to the Seller within 15 days from the due date of TDS Return.

The Resident Seller can claim the TDS amount as refund by filing a tax return, if the seller the actual capital gain tax is lower than the TDS amount. TDS credit will show in Form 26AS of the Resident Seller only if the NRI Purchaser successfully completes all the above procedural compliances.

In case NRI is purchasing the immovable property from an Indian resident, then there are separate provisions to be followed. Please read our post on "Checklist for NRIs planning to purchase property from an Indian Resident".

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Share Trading Income for NRIs –Is it Business Income or Capital Gain?

With the advent of mobile-based trading applications, capital market activity of individuals has surged during the years. All trading activity is mapped to the PAN number of an individual through the Demat Account, making it possible for Income Tax (IT) department to trace undeclared income from such activity. 

Also, before reporting such income in the tax returns, it is crucial that one decides the nature and taxation of his/her transactions i.e. whether the same would be taxable as business profits or capital gains. The issue was a matter of litigation, as the real intention behind the investments made i.e. whether the shares are held as investments or as stock-in-trade, was difficult to ascertain.

Therefore, the IT department clarified through a circular Circular No. 6/2016 dated 29th of February 2016) that the income from share trading activity of listed securities, may be treated as capital gains or business profits at the option of the investor. The followings points would need to be noted in case of listed securities:

•    If the taxpayer, himself classifies the listed security as stock in trade irrespective of the period of holding, then such income shall be treated as business income.

•     If the taxpayer treats the income from transfer of a listed security, held for a period of more than 12 months as capital gains, then such stand shall not be disputed by the IT department. The position once adopted cannot be altered in subsequent years.

•    In all other cases, many factors such as the frequency of transactions, scale of activity, intention of purchase, treatment in books of accounts, typical holding period etc. would influence the characterization of the income. A person can also have both nature of income in the same year. Before opting the nature of income, an investor would require to analyse other factors as well which impacts the taxability of such income.