The Income tax Laws treats residents and Non Resident differently in respect of some of the taxation provisions. In this article we shall discuss the tax benefits which are available to a resident Individual tax payer and which is not available to a non resident tax payers. Please note Non Resident for taxation purpose is different than for the purposes of banking transactions and making investments in India. As discussed in another article a person is treated as non resident for income tax purposes on the basis of his period of stay in the financial year ended 31st March of each year and which is generally known after end of the year. Let us discuss.
Basic Exemption Limit
A person is required to pay tax in India in case his taxable income in India exceeds certain limit. The general limit of Rs. 2.50 lakhs per year. However for resident Individual who has completed 60 years of age on 31st March of the relevant year, the basic exemption limit get enhanced to Rs. 3 lakhs. Likewise for individual tax payers who are resident for Income Tax purposes and have completed 80 years of age ( Generally referred to as super Senior Citizens) the basic exemption limit is Rs. 5 lakhs and then the respective slabs rate apply on the income exceeding the basic exemption limit. This special treatment of enhanced basic exemption limit is available only to the senior citizen and super Senior Citizen who are resident of India. So the basic exemption limit for all the non residents under the Indian Income Tax laws thus remains Rs. 2.50 Lakhs. Please note that the special treatment is available on the basis of your physical stay in India during the previous year and which is independent of your citizenship. So even an Indian Citizen who above 80 years but is not resident under Income Tax laws will have only Rs. 2.50 lakhs as basic exemption.
Rebate under Section 87A
The Indian tax laws allows you a rebate of Rs. 2500/- from your net tax liability if your income does not exceed Rs. 3.50 lakhs and you are a resident under the income tax laws of India. So this rebate of Rs. 2500/- is not available to a person who is a non resident even if he is otherwise eligible to avail this rebate.
Marginal Relief from payment of short term capital gains under Section 111A
Any profit arising on sale of equity shares or investment in equity oriented units of Indian Mutual funds or units of business trust are taxed at flat rate of 15%. In case of shares they need to be sold on the platform of the Indian Stock Exchanges. All these transactions need to be subjected to Securities Transactions Tax( STT). However in case of the resident tax payers if his other income falls short of the basic exemption limit, he is allowed to set off such gap between the basic exemption limit and his income excluding such short term capital gains, against such taxable short term capital gains. For example in case you are a resident and your short term capital gains are Rs. 10 lakhs on sale of your equity shares and have other income in the form of interest on bank fixed deposits of another Rs. 50,000. So while ascertaining your tax liability you will be allowed to set off the gap of Rs. 2.00 lakhs (between the basic exemption limit of Rs. 2.50 lakhs and Rs. 50,000 being income other than the short term capital gains) against the short term capital gains of Rs. 10.00 lakhs and thus you will be required to pay tax only on balance Rs. 8 lakhs only. However had you been a non resident under Income Tax laws, you would have to pay tax on 10 lakhs full as the benefit of set off under Section 111A in basic exemption is not available to a non resident.
I am sure this discussion will help you plan your tax affairs in a better way in case you are a non resident or planning to become a non resident soon.
(The author is a CA, CS and CFP. He can be reached at jainbalwant at gmail.com and @jainbalwant)
By Balwant Jain (CA, CS and CFP)The author is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited. Views are personal., He can be reached at email@example.com and @jainbalwant