It is a well-known fact that every country has a right to charge its citizens with taxes. However, there are certain situations when even a non-Resident person is eligible to pay taxes in a country. Under the Indian Income Tax Law, here are those 8 concrete situations.
Situation 1- Income generated from a business connection in India
When a business is connected to India, the business owner has to pay taxes to the Government of India. The connection may or may not be in respect of generating income from India, but includes any form of connection which facilitates a business to operate in India. Even if a non-resident is operating through a person who is acting on his behalf in India, the person will be required to bear taxes. However, the scope doesn’t apply to non-residents who work through independent brokers, commission agents or any other form of agents in India.
Situation 2- Income generated from a property/asset/source in India
Income generated by a non-resident through selling a house property or an asset or a source in India is taxable. To put in a simpler form, when a non-resident generates income by way of selling a property or an asset in India, his total income generated from the transaction becomes taxable as per the norms of the IT Act of India.
Situation 3- Capital Gains in India
This situation is similar to Situation 2, but applies to income which was generated through Capital Gains. When a non-resident person generates income by way of selling his investments in India, the person is said to be generating capital gains in India. The same becomes taxable as the income is being generated in India.
Situation 4- Income from Salary in India
One of the simplest situations to understand. When a non-resident receives income in India in form of salary, the same become taxable under the IT Act of India. Employment of the person may vary from Government organizations to private organizations.
Situation 5- Salary income generated in India
This is a situation where both the parties are present in India, but the actual service was offered outside India. Under this case, the Government of India pays an Indian Citizen for the services which were offered outside India.
[Note: Situation 4 and Situation 5 are completely different. Under Situation 4, the service provider is not a resident of India and is offering his services in India, whereas in Situation 5, the service provider is a resident of India and is offering his services outside India.]
Situation 6- Income from dividends outside India
When an Indian company pays dividends to its shareholders who are not residents of India, the purview of this situation becomes applicable. The amount of dividend paid by the Indian company to the non-resident citizen of India becomes taxable.
Situation 7- Income from Interest
The taxability of income from interest depends on a variety of factors. To elaborate, there are two sides to this condition.
Condition A- Where interest is payable by the Government of India, when the Government of India pays interest to a non-resident, the amount is always taxable.
Condition B- Where interest is payable by a citizen of India
When a citizen of India pays interest to a non-resident, the nature of use for the borrowed capital is taken into consideration. When the borrowed capital is used for business/profession in India, the amount becomes taxable. Contrastingly, if the borrowed capital is used for business/profession outside India, then the amount is not taxable.
Situation 8- Income from Royalty/ Fees/ Technical Services
When a non-resident person generates income in India through royalty/ fees/ technical services, the same becomes chargeable. However, there are certain factors which are required to be considered before making such a judgement.
- Parties to the transaction– When Royalty/ Fees/ Technical Services are paid by the Government of India to a non-resident, the same is always chargeable under the IT Act. If payment is being made by a resident of India then the nature of the use will be taken into consideration.
- Nature of Use– When a resident pays Royalty/ Fees/ Technical Services to a non-resident which resulted in income generation in India, the same amount becomes taxable.
All of the above-mentioned situations become taxable for a non-resident person of India. You must check DTAA: How NRIs Can Claim Benefits of DTAA 2022