Relief for Non resident from filing of Income tax return | Non-residents are not required to file Income tax return

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Income tax Department has vide Notification No. 119/2021 Dt. 11th October 2021 has released a list whereby Income tax department has prescribed a few conditions and if the same are fulfilled by the non-residents, they are not required to file Income tax returns in India. The same are as under:

Explanation. -For the purposes of this Notification. –

(a) “eligible foreign investor” means a non-resident who operates in accordance with the Securities and Exchange Board of India, circular IMD/HO/FPIC/CIR/P/2017/003 dated 04th January, 2017;

(b) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(c) “recognised stock exchange” shall have the meaning as assigned to it in clause (ii) of Explanation 1 to sub-section (5) of section 43 of the said Act.

3. The above exemption from the requirement of furnishing a return of income shall not be available to the class of persons mentioned in the column (2) of the said Table where a notice under sub-section (1) of section 142 or section 148 or section 153A or section 153C of the said Act has been issued for filing a return of income for the assessment year specified therein.

Important points to note from the above notification are as under:

First relief:

• The First relief in the above notification that has provided states that a non-resident individual or foreign company would not be required to file Income tax return, if they only earn income from “specified fund” as mentioned in 10(4D)(c)(i) and to whom provisions of section 139A are not applicable subject to fulfillment of conditions mentioned in sub-rule 1 of rule 114AAB.

“specified fund” means a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate,—

(i) which has been granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

The conditions mentioned in sub-rule 1 of rule 114AAB are as under:

“(1) The provisions of section 139A shall not apply to a non-resident, not being a company, or a foreign company, (hereinafter referred to as the non-resident) who has, during a previous year, made investment in a specified fund if the following conditions are fulfilled, namely:—

(i) the non-resident does not earn any income in India, other than the income from investment in the specified fund during the previous year;
(ii) any income-tax due on income of non-resident has been deducted at source and remitted to the Central Government by the specified fund at the rates specified in section 194LBB of the Act; and
(iii) the non-resident furnishes the following details and documents to the specified fund, namely:—
(a) name, e-mail id, contact number;
(b) address in the country or specified territory outside India of which he is a resident;
(c) a declaration that he is a resident of a country or specified territory outside India; and
(d) Tax Identification Number in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the nonresident is identified by the Government of that country or the specified territory of which he claims to be a resident.“

Thus, a non resident individual or foreign company earning income “only” from Category III Alternative Investment fund and fulfilling the conditions of rule 114AAB(1) are not required to file Income tax return. Thus, it can be considered as a Gift for the Gift City.

Second Relief:

• The second relief has been provided specifically to a non-resident, being an eligible foreign investor who has made transaction only in capital asset referred to in clause (viiab) of section 47 of the said Act, which are listed on a recognised stock exchange located in any International Financial Services Centre, the consideration on transfer of such capital asset is paid or payable in foreign currency, the said class of persons does not earn any other income in India, during the previous year and the provisions of section 139A of the said Act are not applicable to the said class of persons subject to fulfillment of the conditions mentioned in sub-rule (2A) of rule 114AAB of the said rules.

Now, Let’s break the above statements as under:

According to the above relief specified investors means a non-resident who operates in accordance with the circular of Securities and Exchange Board of India as mentioned above and has made transaction in capital asset referred to in 47(viiab) on a recognised stock exchange located in IFSC which covers:

(a) bond or Global Depository Receipt referred to in sub-section (1) of section 115AC; or

(b) rupee denominated bond of an Indian company; or

(c) derivative; or

(d) such other securities as may be notified by the Central Government in this behalf, and to whom provisions of section 139A are not applicable if conditions of rule 114AAB(2A) are fulfilled which are as under:

(2A) The provisions of section 139A shall not apply to a non-resident, being an eligible foreign investor, who has made transaction only in a capital asset referred to in clause (viiab) of section 47 which are listed on a recognised stock exchange located in any International Financial Services Centre and the consideration on transfer of such capital asset is paid or payable in foreign currency, are fulfilled, namely:—

“(i) the eligible foreign investor does not earn any income in India, other than the income from transfer of a capital asset referred to in clause (viiab) of section 47;
(ii) the eligible foreign investor furnishes the following details and documents to the stock broker through which the transaction is made namely:—
(a) name, e-mail id, contact number;
(b) address in the country or specified territory outside India of which he is a resident;
(c) a declaration that he is a resident of a country or specified territory outside India; and
(d) Tax Identification Number in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the non-resident is identified by the Government of that country or the specified territory of which he claims to be a resident.”

Earlier also section 115A and 115G were also providing relief from filing of Income tax return to non-resident but the major difference between that section and this sections is that the relief under 115A and 115G are available only if TDS has been deducted under the Income tax act whereas no such conditions for tax deduction is there in these provisions.

The relief announced by the CBDT above will not affect many non-residents as the conditions are very narrow and specific, also the above notification does not give any relief from tax deduction or tax payment.

To read the notification CLICK HERE.

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