Section 115AB of the Income Tax Act, 1961, provides provisions for the taxation of income received in India by a person who is a non-resident Indian (NRI). The section is applicable to income that is derived from foreign currency assets or specified assets, and the income is received in India by the NRI. In this blog, we will discuss the various aspects of section 115AB.
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Applicability:
Section 115AB is applicable to non-resident Indians who receive income in India from foreign currency assets or specified assets. The income should be in the form of royalty, fees for technical services, interest, dividend, or long-term capital gains.
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Foreign currency assets:
Foreign currency assets are defined as any asset that is held or acquired outside India by a non-resident Indian in convertible foreign currency. The assets can be in the form of deposits in foreign currency, bonds, securities, and mutual funds.
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Specified assets:
Specified assets are defined as any property other than foreign currency assets that are held or acquired by a non-resident Indian outside India. Specified assets can include immovable property, shares or securities of an Indian company, and any other asset that is not a foreign currency asset.
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Taxation of income:
Under section 115AB, the income received by an NRI from foreign currency assets or specified assets is taxed at a flat rate of 20%. The tax is deducted at source by the payer of the income.
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Exemption from tax:
The following incomes are exempt from tax under section 115AB:
a. Interest income on specified bonds issued by the government or any other Indian company.
b. Long-term capital gains arising from the transfer of a foreign currency asset or specified asset.
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Computation of income:
The income received by an NRI under section 115AB is computed as follows:
a. In the case of foreign currency assets, the income is computed by converting the income received in foreign currency to Indian rupees at the prevailing exchange rate.
b. In the case of specified assets, the income is computed by converting the income received in foreign currency to Indian rupees at the prevailing exchange rate on the date of acquisition of the asset.
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Filing of returns:
An NRI who has received income under section 115AB is required to file a tax return in India. The return should be filed within the due date specified under the Income Tax Act.
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Conditions for applicability:
For section 115AB to be applicable, the following conditions must be satisfied:
a. The taxpayer should be a non-resident Indian.
b. The income should be received in India.
c. The income should be derived from foreign currency assets or specified assets.
d. The income should be in the form of royalty, fees for technical services, interest, dividend, or long-term capital gains.
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Definition of non-resident Indian:
For the purpose of section 115AB, a non-resident Indian is defined as an individual who is not a resident of India under the provisions of the Income Tax Act. The individual should have been outside India for a period of 182 days or more in the previous financial year, or the individual should have been outside India for a period of 60 days or more in the previous financial year and for a total of 365 days or more in the preceding four financial years.
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Conversion of foreign currency to Indian rupees:
As mentioned earlier, the income received under section 115AB is computed by converting the income received in foreign currency to Indian rupees at the prevailing exchange rate. The conversion rate used for this purpose is the telegraphic transfer buying rate of the foreign currency on the date on which the income is received or the date on which it is due, whichever is earlier.
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Taxability of foreign currency assets:
The income received from foreign currency assets under section 115AB is taxable in India, even if the assets are held or acquired outside India. The tax is deducted at source by the payer of the income, and the NRI is required to file a tax return in India.
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Taxation of long-term capital gains:
Long-term capital gains arising from the transfer of a foreign currency asset or specified asset are taxable under section 115AB. The gains are calculated by converting the sale proceeds received in foreign currency to Indian rupees at the prevailing exchange rate on the date of sale.
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Applicability of Double Taxation Avoidance Agreement (DTAA):
In case the taxpayer is a resident of a country with which India has entered into a DTAA, the provisions of the DTAA will override the provisions of section 115AB. This means that the taxpayer will be taxed according to the provisions of the DTAA.
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TDS on income under section 115AB:
Tax deducted at source (TDS) is applicable on the income received under section 115AB. The TDS rate is 20%, and the payer of the income is responsible for deducting and depositing the tax with the government.
In conclusion
section 115AB of the Income Tax Act provides provisions for the taxation of income received in India by non-resident Indians from foreign currency assets or specified assets. The tax is deducted at source, and the income is taxed at a flat rate of 20%. NRIs who receive income under this section are required to file a tax return in India. The provisions of DTAA may also apply in certain cases.
Other Related Blogs: Section 144B Income Tax Act
Frequently Asked Questions (FAQs)
Q.1 Who is eligible to avail the benefits of section 115AB of the Income Tax Act?
Ans: Non-Resident Indians (NRIs) who receive income in India from foreign currency assets or specified assets are eligible to avail the benefits of section 115AB.
Q.2 What is the tax rate applicable on income received under section 115AB?
Ans: The tax rate applicable on income received under section 115AB is a flat rate of 20%.
Q.3 What types of income are covered under section 115AB?
Ans: The income covered under section 115AB includes royalty, fees for technical services, interest, dividend, and long-term capital gains.
Q.4 Is TDS applicable on income received under section 115AB?
Ans: Yes, TDS is applicable on income received under section 115AB. The TDS rate is 20%, and the payer of the income is responsible for deducting and depositing the tax with the government.
Q.5How is the conversion rate for foreign currency to Indian rupees determined under section 115AB?
Ans: The conversion rate for foreign currency to Indian rupees is determined based on the telegraphic transfer buying rate of the foreign currency on the date on which the income is received or the date on which it is due, whichever is earlier.
Q.6 Are NRIs required to file a tax return in India if they receive income under section 115AB?
Ans: Yes, NRIs who receive income under section 115AB are required to file a tax return in India.
Q.7 Can the provisions of Double Taxation Avoidance Agreement (DTAA) override the provisions of section 115AB?
Ans: Yes, in cases where the taxpayer is a resident of a country with which India has entered into a DTAA, the provisions of the DTAA may override the provisions of section 115AB.
Q.8 Are foreign currency assets held or acquired outside India taxable under section 115AB?
Ans: Yes, income received from foreign currency assets under section 115AB is taxable in India, even if the assets are held or acquired outside India.
