Union budget 2023-24 has proposed various amendments in the Income tax act such as Change in slab rates, extended benefits to MSME Enterprises, relaxation in tax audits threshold limits, Relaxations for cooperative societies etc.

During the budget, every person, from a big corporation to a small businessman, looks after amendments in Income tax because it does not only impact pockets of taxpayers but also decides on compliances a business needs to carry out. Every extra compliance leads to an increase in cost and have other impacts as well.

In this article a detailed discussion is made of amendments proposed in Income Tax Act, 1961 by Union Budget FY 2023-2024.

1. Amendments in Personal Income Tax

• ⦁ Union Budget, 2023-24 has proposed amendment in slab rates under section 115BAC (i.e., New Tax Regime) within an objective to reduce income tax liabilities.
• ⦁ Following are the new slab rates:

Income Range	Income Tax Rate
Upto INR 3,00,000	NIL
INR 3,00,000 to INR 6,00,000	5% on income above INR 3,00,000
INR 6,00,000 to INR 9,00,000	15000+ 10% on Income above INR 6,00,000
INR 9,00,000 to INR 12,00,000	45,000 + 15% on income more than INR 9,00,000
INR 12,00,000 to INR 1500,000	90,000 + 20% on income more than Rs 12,00,000
Above INR 15,00,000	150,000 + 30% on income more than Rs 15,00,000

• ⦁ Further, tax rebate under section 87A has been increased from INR 12,500 to INR 25,000 under the new regime. Therefore, the threshold limit of exempted income has been increased from INR 5,00,000 to INR 7,00,000.
• ⦁ Highest slab of surcharge has been reduced from 37% to 25%. Therefore, the highest rate of income tax has been reduced from 42.744% to 39%.
• ⦁ New tax regime shall be the default scheme and if the taxpayer wants to opt for the old regime then he has to specifically opt the same.

2. Enhancement in Threshold limit of Presumptive Taxation

• ⦁ Presumptive income allows ad hoc deduction of expenses for small business and professionals.
• ⦁ Threshold limit to avail benefit of presumptive taxes has been enhanced:

Nature of Business	Existing Threshold limit to avail presumptive taxation	Proposed Threshold limit to avail presumptive taxation
Eligible Business	INR 2 Crores	INR 3 Crores
Eligible Professional	INR 50 Lacs	INR 70 Lacs

• ⦁ However, the benefit of enhanced threshold limit shall be provided where atleast 95% of receipts and payments are made through non-cash methods.

3. Amendment in TDS & TCS Provisions

• ⦁ As per Section 194N, cash withdrawal from a bank exceeding INR 1 Crores is subject to TDS @ 2%. The Union Budget has proposed to enhance the threshold limit of INR 1 Crore to INR 3 Crores where the recipient is a Co-operative society.
• ⦁ TDS on winning from online games shall be deducted at rates in force without any threshold limit. TDS shall be deducted at the time of withdrawal of funds or at the end of the Financial year.
• ⦁ Interest to listed debentures has been brought under TDS ambit. TDS shall be deducted @ 10%.
• ⦁ TDS on withdrawal of funds from employees provident funds (EPF) shall be deducted @ 20% in case of non-furnishing of PAN. Earlier TDS was required to be deducted at maximum marginal rate.
• ⦁ Refund of TDS Deducted across Financial years
  • ⦁ Taxpayers generally face addition with respect to income disclosed in ITR of a year and TDS on such income is deducted by the counterparty in subsequent financial year.
  • ⦁ Union budget has provided that in such cases, assessee can make an application in prescribed form to the Assessing officer to claim benefit of such TDS.
  • ⦁ Such an application can be filed within 2 years from the end of the financial year in which TDS has been deducted.
  • ⦁ Further, the provisions of rectification shall also apply and the assessee also can make an application for rectification. For the purpose of rectification, a period of 4 years shall be reckoned from the end of the financial year in which such tax has been deducted. 
• ⦁ As per Section 206AB, TDS shall be deducted at higher rate from specified persons, i.e., persons who have failed to file income tax returns. Union budget has excluded following persons from specified persons list:
  • ⦁ a non-resident who does not have a permanent establishment in India;
  • ⦁ a person who is not required to furnish the return of income for the assessment year relevant to the said previous year and is notified by the Central Government in the Official Gazette in this behalf.

4. Deductions to be allowed on payment basis

• ⦁ In order to provide more security to MSME, the union budget has amended Section 43B to provide that deduction of sum payable to Micro, Small and Medium Enterprises (MSME) shall be allowed only on payment basis.
• ⦁ So far, deduction for deposit taken from NBFC is permitted during the Financial year in which payment is made. Now, Government shall prescribe the list of NBFCs for Section 43B.

5. Lower rate of Income Tax for manufacturing cooperative societies

• ⦁ A new section 115BAE is proposed to be inserted, which provides that following reduced rates of income tax shall apply:
  • ⦁ Manufacturing co-operative societies (established on or after April 1st, 2023, and commencing production on or before March 31st, 2024): Income tax shall be charged at 15% (plus surcharge of 10% & cess)  [provided that specified incentives or deductions are not availed]. 
  • ⦁ Income not derived or incidental to manufacturing or production: Income shall be charged at 22%.

6. Income tax on maturity proceeds of Life Insurance Policy

• ⦁ Section 10(10D) provides that the amount received on maturity of life insurance policies is exempted from income tax subject to given conditions.
• ⦁ Union budget has proposed to withdraw such exemption on insurance policies, other than unit linked insurance policies, issued on or after 01.04.2023 if the amount of premium payable exceeds INR 5 lacs for any of the previous year during the term of policy.
• ⦁ In case of more than one life insurance policies, other than ULIP, threshold hold of INR 5 Lacs shall be checked for all premiums paid during the year.
• ⦁ However, such exemption is not withdrawn on the sum received on death of a person.
• ⦁ Amount received on maturity, net of non-tax deducted premium, shall be taxed under head “Other Incomes” in the year of receipt.

7. Exemptions to Newly established Units in Special Economic Zones (Section 10AA)

• ⦁ Section 10AA provides for 100% and 50% deduction of profit derived from the export by newly set-up units in SEZ.
• ⦁ As per amendments, deduction under section 10AA shall be provided only if return is filed within the due date specified u/s 139(1).
• ⦁ Further, Deduction shall only be allowed if the proceeds from the sale of goods or provision of services are received within 6 months from the end of the previous year or within such further period as the competent authority may allow in this behalf.

8.  Amendments in Capital Gain

• ⦁ Similar to goodwill, cost of acquisition and cost of improvement of self-generated intangible assets and rights shall be considered as “NIL” while computing capital gains on sale of such asset.
• ⦁ Capital gain arise on transfer or redemption or maturity of Market Linked Debenture shall be considered capital gains arising from the transfer of a short-term capital asset. Further, while computing such capital gain, no deduction shall be allowed in respect of securities transaction tax.
• ⦁ Investment under Section 54 and Section 54F has been capped for INR 10 Crores. Therefore, if cost of new asset exceeds INR 10 Crores, the amount exceeding INR 10 Crores shall not be taken into account.
• ⦁ The transformation of physical gold into Electronic Gold Receipts and vice versa by a Vault Manager registered with the Securities and Exchange Board of India (SEBI) shall not be considered as a transfer for purposes of capital gains taxation. 
• ⦁ While computing cost of acquisition of the asset or the cost of improvement, no additional shall be made of interest expense for which deductions are already claimed u/s Section 24(b) or or Chapter VI-A of Income Tax Act.

9. Other Amendments

• ⦁ Benefit of Section 115BAC (i.e., new tax regime) is proposed to be extended to Association of Persons (AOP) (other than co-operative societies), Body of Individuals (BOI) and Artificial Judicial Persons (AJP). This will help in reduction of Income tax liabilities. 
• ⦁ For the purpose of claiming deductions under section 80-IAC, incorporation date of eligible start-ups is proposed to be extended from 1st April, 2023 to 1st April, 2024.
• ⦁ The exemption can be claimed by trusts or institutions only if return of income is furnished within time limit prescribed under section 139(1) or 139(4).
• ⦁ Government has provided for a new appellate authority, the Joint Commissioner (Appeal), for specific categories of taxpayers, such as individuals and HUFs, to speed up the resolution process in appeal proceedings.

The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

According to the provisions of the Income Tax Act, 1961; all the foreigners or individuals who belong to a different country but staying and working in India or individuals who belong to India but working in any other part of the world, have to pay income tax, as the Income Tax Act, 1961 provides for taxability depending upon the residential status of a person. Here in this article, we are going to discuss all the details related to tax by NRI and foreigners.

This tax is levied regardless of the individual’s status of citizenship, or intention of staying in India. However, the extent of taxability may vary depending upon the residential status of the person. 

There could be some tax deduction at source on income earned in India, though the person will be entitled to take credit of such amount while filing the income tax return. However, if Income tax payable is less than tax deducted at source, then balance amount can be claimed as refund.

Tax By NRI and Foreigners- How is a foreign national’s or expatriate’s income taxed after becoming a resident of India?

In India, the taxability of income of a foreign national solely depends on the person’s residential status. The following can be the different scenarios of taxability based on residential status:

1. 1. Resident and Ordinary Resident: For a person who is a resident and ordinary resident in India as per Income Tax Act, 1961 then the total income earned by such person anywhere in the globe, including India, is taxable in India. This includes even if the income is earned in the country of citizenship and taxed there.
2. 2. Non-Resident (NR) and Resident But Not Ordinary Resident (RNOR): In case the expatriate is a Non-Resident (NR) or Resident but Not Ordinarily Resident (RNOR) as per Income Tax Act, only the income earned, i.e, Income accrued or deemed to be accrued in India or Income received or deemed to be received in India, is taxable in his hands in India. 

So the first thing is you need to find out your residential status to ensure what tax is levied on your income. 

As per the Income Tax Act, residential status rules, the first 2 years of a foreign national’s arrival to India will put the person into RNOR (Resident but Not Ordinarily Resident) status and he/she will pay tax for only the income earned in India.

However, there are certain other criteria given under Income Tax Act to determine whether a person is NRI (Non-Resident), RNOR (Resident but not Ordinary Resident), or ROR (Resident and Ordinary Resident) and then only one can check tax by NRI.

How to check Residential Status?

To determine residential status, Income Tax Act, 1961 defined 2 stages wherein first we need to determine whether a person is resident or not and if a person is found resident then it is further determined whether he is an ordinary resident (ROR) or not (RNOR).

Let’s have a look at criteria given by the Income Tax Act, 1961 to determine residential status:

1. Resident

The first step is to determine whether a person is a resident or not for the relevant previous year or not. As per Section 6 of the Income Tax Act, if he satisfied either of the following condition:

1. The concerned individual has been in India for more than 182 days during the relevant previous year; or 
2. The concerned person has stayed in India for 365 days or more for 4 years immediately preceding the relevant previous year and has stayed in India for 60 or days during the relevant year. 

As per explanation to Section 6(1), if any person who is an Indian Citizen or person of Indian Origin and staying outside India and he comes to India for a visit in any Previous year then in the second option period of instead of 60 days, period of 182 days shall be considered.

Let’s understand the same with an example. Mr A has the following different scenarios of stays in India for F.Y. 2019-20:

Stay in India During F.Y. 2019-20	Stay in India During F.Y. 2015-16 to F.Y. 2018-19	Residential status
200 days	600 days	Resident. Criteria A satisfies. So, we are not required to check Criteria B.
200 days	30 days	Also regarded as Resident. Criteria A satisfies. So, we are not required to check Criteria B.
150 days	600 days	Resident. Criteria A doesn’t satisfy. Criteria B satisfied
40 days	600 days	Non-Resident. No criteria satisfied.

Amendments by Finance Act, 2020.

However, with an objective to stringent provisions related to residential status, the Finance Act, 2020 has proposed to change the period of 182 days, in explanation to section 6(1), to 120 days in case where total income of a person, other than income from foreign sources, exceeds INR 15 lacs. Therefore, If concerned individuals have stayed in India for more than 120 days during the relevant financial year then he shall qualify as resident.

2. Resident and Ordinary Resident (ROR)

Once it is determined that a person is a resident for a financial year then it is determined that whether such person Ordinary Resident (ROR) or Not Ordinary Resident (RNOR). 

To get the status of ROR, an expatriate must have to meet the following 2 conditions simultaneously:

• ⦁ Such a person is Resident In India during 2 or more Financial years out of 10 financial years immediately preceding relevant Financial year; and
• ⦁ Such persons have resided in India for a total duration of 730 days or more during 7 financial years prior to the relevant Financial Year.

3. Resident but not Ordinary Resident (RNOR)

If a person fails to satisfy the above-mentioned conditions then he will be considered RNOR.

Let’s understand the same with an example. Mr. A has qualified as Resident for FY 2019-20. Now following are the different scenarios to check his status as ROR and RNOR:

No of years during which Mr. A was resident during F.Y. 2009- 2010 to F..Y. 2018 -2019	Stay in India During F.Y. 2012-13 to F.Y. 2018-19	Status
1 Year	720 Days	RNOR.
1 year	740 days	Same
3 years	720 Days	Same
3 years	740 days	ROR

Amendments by Finance Act, 2020

Finance Act, 2020 has proposed to replace the period of 2 years to 4 years. Therefore, to qualify as ROR, you have to qualify as a resident for 4 or more out of 10 immediately preceding financial years.

4. NR (Non-Resident)

If a person fails to satisfy either of the condition given for residential status then he shall be considered as Non-Resident for the purpose of Income Tax Ac, 1961.

You can refer to the table below to understand better and determine your residential status,

	Basic conditions	ROR	RNOR	RNOR	NR
A.	1. Your total stay in the country is 182 days (120 days from F.Y, 2020-21 onwards) or more during the relevant financial year. Or,2. stay is 60 days or more in India in the relevant financial year and total stay is 365 days or more during the last 4 financial years.	Yes	Same	Same	No
	Additional Conditions	ROR	RNOR	RNOR	NR
B.	Your cumulative stay in India is 730 days or more during 7 financial years	Yes	Yes	No	NA
C.	You were an Indian resident for at least 2 (4 years or more from F.Y. 2020-21 onwards)  of the last 10 financial years	Yes	No	Yes	NA

• ⦁ If you satisfy all the conditions i.e. condition A, B, and C then you qualify as a ROR.
• ⦁ If you satisfy condition A and any of conditions B and C then you qualify as an RNOR.
• ⦁ But if you do not satisfy condition A then you qualify as NR. Therefore, the condition B and C does not apply in this case.

What are the factors in determining the Tax liability of a Foreign National in India?

As we’ve already mentioned, the tax liability of a foreign individual depends only on the residential status which can be outlined as follows-

• ⦁ Resident and Ordinary Resident: Expatriates who have qualified to be a resident of India, need to pay tax on the total income earned throughout the globe. This income may also include the amount of remuneration which is paid to them in their own country. 
• ⦁ Non-Resident (NR) or Resident but Not Ordinary Resident (RNOR): Foreign individuals who qualify to have the status of an NRI or RNOR, are liable to pay tax on the income which is accrued or deemed to be accrued in India or received or deemed to be received in India Only.  

What type of incomes of Foreign Nationals are taxable in India?

Foreign nationals residing in India are liable to pay tax for the following types of incomes- 

• ⦁ Employment Income
  • ⦁ Reimbursements
  • ⦁ Cash compensations
  • ⦁ Salaries
  • ⦁ Wages
  • ⦁ Allowances
• ⦁ Non-Employment Income
  • ⦁ Income generated through the investments made abroad but sent directly to a bank account in India
  • ⦁ Royalties received from an Indian individual
  • ⦁ Capital gained through the selling of Indian based assets
  • ⦁ Interest payments on the infrastructure bill funds in India

DTAA (DOUBLE TAXATION AVOIDANCE AGREEMENT)

In the case of residents, income earned in India or outside India is liable to Income Tax in India and in case of non-resident, income earned in India is taxable. 

However, there are certain cases where an expatriate may get assigned to pay tax two times [in India and another country] for the same Income. 

To avoid such instances, the Government of countries enters into an agreement with the Government of other countries. To avoid double taxation of Income and these agreements are known as facilities of the Double Tax Avoidance Agreement (DTAA).

DTAA or Double Tax Avoidance Agreement is a particular agreement that two countries have made to help the foreign individuals in avoiding taxation of his/her total income in both the countries. 

By availing the benefits of DTAA, one can easily avoid paying tax two times on such income which is taxable in India and another country as well. 

DTAA set out different conditions which help in determining the tax amount by foreigners.

Documents required by Foreign Nationals to file ITR in India –

Certain documents that you are mandatory to have or required to be provided by a foreign national while filing Income Tax Returns (ITR) in India. These are- 

• ⦁ Form 16- Form 16 is a certificate issued under the Income Tax Act, 1961 which shows Tax deducted by the payer on salary. For the purpose of claiming credit for such TDS, the person needs to furnish a copy of his Form 16. Please note that Form 16 is applicable as per the Income Tax laws of India. Such credit of TDS will get reflected in 26AS of the assessee also.
• ⦁ Form 16A: Similarly to Form 16, Form 16A represents TDS deducted on Incomes other than Salary and this certificate consists of information related to the amount of tax which has been deducted at source and also other details of deductor. 
• ⦁ Bank Statements- Expatriates have to provide bank statements mandatorily, that contains the detail of transactions made with the purpose of income accrued, investments, and expenditure owing to a taxation year.
• ⦁ Investment Proofs- If an expatriate has certain investments that don’t show up in Form 16 then he requires to provide the proof separately for the same. 
• ⦁ Details of Property- If any property or asset of a foreign individual is sold in India, the capital gain tax will be levied on the income that came from the sale. The details of selling the property or asset must be presented at the time of filing Income tax Returns. 

Note – The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.