Section 115H of the Income Tax Act: Benefits and Provisions

Section 115H of the Income Tax Act: Benefits and Provisions

Section 115H of the Income Tax Act: Benefits and Provisions

According to the provisions of the Income Tax Act 1961, individuals can have one of three residential statuses: resident, non-resident Indian (NRI), or resident but not ordinarily resident (RNOR).

A person's residential status is determined by the number of days they reside in India. However, this does not mean that their residential status, once determined, becomes permanent. It can change based on their reason for staying in India and the duration of their stay.

Section 115H applies to individuals who were NRIs in the previous year but have become Indian residents in the current financial year. Let's delve into the provisions of this section.

What is Section 115H of the Income Tax Act?

Non-residents can enjoy certain tax privileges under Chapter XII-A of the Income Tax Act. This grants them a special tax concession of 20% on their income from foreign exchange asset investments. However, this special tax rate does not apply to resident Indians.

If an NRI becomes assessable as a resident Indian in any year, they can choose to avail themselves of the benefits of Chapter XII-A. To do so, they must provide a written statement to the assessing officer, expressing their intention to continue applying the provisions of Chapter XII-A. It's important to note that this only applies to their investment income derived from foreign exchange assets.

Benefits under Section 115H of the Income Tax Act

If a non-resident submits a written statement to the assessing officer, along with their income tax return for the relevant year in which they are assessable as a resident, they can continue to enjoy the following benefits:

- They will still receive a tax concession of 20% for investment income on foreign exchange assets.

- They can also avail a 10% tax concession for long-term capital gains, limited to specified assets and dividend income.

- They can retain the benefits of a concessional levy until they convert their foreign exchange asset into money.

- The assessee can enjoy concession tax rates if they own the specified asset, even if they transfer their convertible foreign exchange from one bank to another.

Provisions of Section 115H of the Income Tax Act

The following sections provide detailed explanations of the provisions of Section 115H:

- Any person of Indian origin, meaning their parents or grandparents are/were Indian, can avail themselves of the benefits of Section 115H. However, if the person does not have a resident status, they become a non-resident under this act, despite their Indian origin.

- Foreign exchange asset refers to any asset acquired by the assessee in convertible foreign exchange.

- Specified assets include securities issued by the Central Government, shares in an Indian company, debentures issued by a public Indian company, and deposits with a public Indian company. Section 115C defines the specified assets, and any other asset specified by the Central Government is also considered for the purpose of Section 115C.

- If a non-resident successfully submits their return under Section 139 and expresses their choice in writing, they can enjoy concessional rates on all the aforementioned assets except shares in an Indian company. Since 01.04.2021, dividend income has also been included in the asset specification.

- A person attains resident status if they satisfy either of the following criteria: they have stayed in India for 182 days or more in the previous year, or they have stayed in India for a total of 365 days or more in the four immediately preceding years, with at least 60 days spent in India for the relevant previous year.

- An RNOR is an individual who has maintained resident status in India for at least 2 years out of the immediately preceding 10 previous years and has stayed in India for at least 730 days in the preceding seven previous years.

- A person of Indian origin (PIO) becomes a non-resident for income tax calculations if they do not meet the criteria for either resident or resident not ordinarily resident status.

- Since the residential status of a person is determined by their stay in previous years, it can change annually. For example, a person who was a resident in the previous year, 2022-2023, may become a non-resident in the following year, 2023-2024, or vice versa.

- Section 115H allows non-resident taxpayers to continue enjoying the privileges of concessional tax rates even after becoming a resident Indian in subsequent years. By timely filing their tax returns, they can continue to avail themselves of the tax benefits under this section as if they were still non-resident Indians.

However, taxpayers should remember to disclose their income and file their returns under Section 139 for the relevant year in which their status changed to resident Indian.

Section 115H of the Income Tax Act: Benefits and Provisions

According to the provisions of the Income Tax Act 1961, individuals can have one of three residential statuses: resident, non-resident Indian (NRI), or resident but not ordinarily resident (RNOR).

A person's residential status is determined by the number of days they reside in India. However, this does not mean that their residential status, once determined, becomes permanent. It can change based on their reason for staying in India and the duration of their stay.

Section 115H applies to individuals who were NRIs in the previous year but have become Indian residents in the current financial year. Let's delve into the provisions of this section.

What is Section 115H of the Income Tax Act?

Non-residents can enjoy certain tax privileges under Chapter XII-A of the Income Tax Act. This grants them a special tax concession of 20% on their income from foreign exchange asset investments. However, this special tax rate does not apply to resident Indians.

If an NRI becomes assessable as a resident Indian in any year, they can choose to avail themselves of the benefits of Chapter XII-A. To do so, they must provide a written statement to the assessing officer, expressing their intention to continue applying the provisions of Chapter XII-A. It's important to note that this only applies to their investment income derived from foreign exchange assets.

Benefits under Section 115H of the Income Tax Act

If a non-resident submits a written statement to the assessing officer, along with their income tax return for the relevant year in which they are assessable as a resident, they can continue to enjoy the following benefits:

- They will still receive a tax concession of 20% for investment income on foreign exchange assets.

- They can also avail a 10% tax concession for long-term capital gains, limited to specified assets and dividend income.

- They can retain the benefits of a concessional levy until they convert their foreign exchange asset into money.

- The assessee can enjoy concession tax rates if they own the specified asset, even if they transfer their convertible foreign exchange from one bank to another.

Provisions of Section 115H of the Income Tax Act

The following sections provide detailed explanations of the provisions of Section 115H:

- Any person of Indian origin, meaning their parents or grandparents are/were Indian, can avail themselves of the benefits of Section 115H. However, if the person does not have a resident status, they become a non-resident under this act, despite their Indian origin.

- Foreign exchange asset refers to any asset acquired by the assessee in convertible foreign exchange.

- Specified assets include securities issued by the Central Government, shares in an Indian company, debentures issued by a public Indian company, and deposits with a public Indian company. Section 115C defines the specified assets, and any other asset specified by the Central Government is also considered for the purpose of Section 115C.

- If a non-resident successfully submits their return under Section 139 and expresses their choice in writing, they can enjoy concessional rates on all the aforementioned assets except shares in an Indian company. Since 01.04.2021, dividend income has also been included in the asset specification.

- A person attains resident status if they satisfy either of the following criteria: they have stayed in India for 182 days or more in the previous year, or they have stayed in India for a total of 365 days or more in the four immediately preceding years, with at least 60 days spent in India for the relevant previous year.

- An RNOR is an individual who has maintained resident status in India for at least 2 years out of the immediately preceding 10 previous years and has stayed in India for at least 730 days in the preceding seven previous years.

- A person of Indian origin (PIO) becomes a non-resident for income tax calculations if they do not meet the criteria for either resident or resident not ordinarily resident status.

- Since the residential status of a person is determined by their stay in previous years, it can change annually. For example, a person who was a resident in the previous year, 2022-2023, may become a non-resident in the following year, 2023-2024, or vice versa.

- Section 115H allows non-resident taxpayers to continue enjoying the privileges of concessional tax rates even after becoming a resident Indian in subsequent years. By timely filing their tax returns, they can continue to avail themselves of the tax benefits under this section as if they were still non-resident Indians.

However, taxpayers should remember to disclose their income and file their returns under Section 139 for the relevant year in which their status changed to resident Indian.

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