The Indian Constitution has empowered only the Central
Government to levy and collect taxes. Every person whose total
income exceeds the maximum exemption limit shall be chargeable to
the income tax at the rate or rates prescribed in Income Tax Act.
Such income tax shall be paid on the total income of the previous
year in the relevant assessment year. But the total income of the
individual is determined on the basis of the residential status in
Status of Resident or Non Resident
The income tax to be paid by individual is determined on the
basis of his residential status. An individual can be termed as a
"resident" if he stays for the prescribed period during
the previous year (1st April to 31st March)
182 days or more in previous year
60 days or more and has been in India in aggregate for 365 days
or more in four years preceding previous year.
Any person who does not satisfy this requirement is termed as
Taxability of Non resident
Non residents are liable to tax in Indian source income,
Interest, royalty and fees for technical services paid by an
Salary paid for services rendered in India,
Income arises from business connection or property in
Withholding tax - Introduction
Withholding Tax is an obligation on the payer to withhold tax at
the time of making payment under specified head such as rent,
commission, salary, professional services, contract etc. at the
rates specified in tax regime.
The Withholding tax provisions are in the nature of machinery
provisions applicable to the payer of the income to enable easy
collection and recovery of tax and are independent of the charging
provisions which are applicable to the recipient of the
Direct Tax provision
Where any payment is to be made to a non resident, the payer is
obliged to deduct at source. As per Section 195 of the Income Tax
Act, an obligation on the person responsible for payment to deduct
tax at source at the time of payment or at the time of the credit
of the income to the account of the non resident
If the payment would not be taxable, the person responsible for
making such payment may make an application to the accessing
officer to determine appropriate proportion which shall be
chargeable to tax. The tax is required to be deducted only on the
The tax is to be deducted at the rate prescribed in the Act or
rate specified in Double Taxation Avoidance Agreement whichever is
beneficial to the assessee.
Any person making a payment to any non-resident shall be liable
to deduct tax at the rates specified.
Rates of Withholding Tax
Current rates for withholding tax for payment to non-residents
1. Interest: 20 %
2. Dividends paid by domestic companies: Nil
3. Royalties: 10%
4. Technical Services: 10%
5. Any other services:
Individuals: 30% of the income
Companies: 40% of the net income
The above rates are general and are applicable in respect of
countries with which India does not have a Double Taxation
Avoidance Agreement (DTAA).
Assessment of the Non Resident Assessee through
Person treated as 'agent'
A non resident assessee may be assessed directly or through non
resident. Persons who may be treated as 'agent' of assesee
of non resident are as follows:
employee or trustee of the non resident;
any person who has any business connection with the non
any person from or through whom the non resident is in receipt
of any income;
any person who has acquired a capital asset in India from non
Opportunity of being heard and any representation from him is
considered before treated him as an 'agent' of non
Recently the Delhi High Court's in the case of CUB Pty Ltd granted relief to multinationals licensing and registering their intellectual property in India and held that the situs of an intangible asset like IPRs, shall be the situs of the owner of such asset.
Mumbai Income Tax Appellate Tribunal in the case of Praful Chandaria, dealt with the issue of taxability of consideration received by the assessee pursuant to grant of call option in respect of shares of an Indian company.
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