Chapter 21: Non-Resident Taxation & Special Regimes
1. Residential Status Framework (Section 6)
| Status Category | Statutory Condition / Benchmark |
|---|---|
| Basic Test 1 | Stay in India for 182 days or more during the relevant previous year. |
| Basic Test 2 | Stay in India for 60 days or more during previous year AND 365 days or more in preceding 4 previous years. |
| Relaxation (182 days) | • Indian citizen leaving India for employment abroad. • Indian citizen crew member of an Indian ship. |
| Visiting Indian Citizen / PIO | • Total income (other than foreign) $\le$ ₹ 15 Lakhs: 60 days relaxed to 182 days. • Total income (other than foreign) > ₹ 15 Lakhs: 60 days relaxed to 120 days (Deemed RNOR if stay between 120-181 days). |
| Deemed Resident (Sec 6(1A)) | Indian citizen having total income (other than foreign) > ₹ 15 Lakhs who is NOT liable to tax in any other country by reason of domicile/residence. Status: Always RNOR. |
2. Significant Economic Presence (SEP - Section 9(1)(i))
Constitutes a Business Connection in India for non-residents, bringing digital and cross-border transactions into the Indian tax net without requiring a physical presence:
| Category of Transaction | Statutory Threshold |
|---|---|
| Transaction in Goods, Services, or Property (including download of data/software in India) | Aggregate payments during the previous year ≥ ₹ 2 Crores. |
| Systematic & Continuous Soliciting of Business (or engaging in interaction with users in India) | Number of Indian users ≥ 3 Lakhs (3,00,000 users). |
3. Presumptive Taxation Regimes for Non-Residents
| Section | Eligible Business Activity | Deemed Profit Rate | Tax Base |
|---|---|---|---|
| Sec 44B | Shipping business of non-resident | 7.5% | Gross freight collected in India + freight collected abroad for cargo shipped from India. |
| Sec 44BBA | Operation of Aircraft by non-resident | 5% | Gross carriage of passengers/cargo in India or shipped from India. |
| Sec 44BB | Services/facilities for extraction of mineral oils | 10% | Gross receipts from provision of plant, machinery, or services. |
| Sec 44BBB | Turnkey power projects by foreign company | 10% | Gross amount paid/payable for civil construction or erection. |
4. Special Tax Rates under Section 115A & 115BBA
| Nature of Income | Applicable Rate u/s 115A | Deductions Allowable |
|---|---|---|
| Dividends received by Foreign Company / Non-Resident | 20% | Zero deductions |
| Interest on foreign currency bonds / loans | 20% (5% for specified infra/ECB) | Zero deductions |
| Royalty and Fees for Technical Services (FTS) | 20% | Zero deductions |
| Non-resident Sportsman / Entertainer (Sec 115BBA) | 20% | Zero deductions |
Mandatory Withholding u/s 195: Any person paying any sum chargeable to tax under the Income-tax Act to a non-resident or foreign company must deduct TDS at the rates in force (or DTAA rate, whichever is lower) at the time of credit or payment.
5. High-Frequency Exam Traps
Trap 1: Deemed Resident is ALWAYS RNOR!
An individual deemed resident u/s 6(1A) is automatically classified as Resident but Not Ordinarily Resident (RNOR). Foreign income is NOT taxable unless derived from a business controlled in or profession set up in India!
An individual deemed resident u/s 6(1A) is automatically classified as Resident but Not Ordinarily Resident (RNOR). Foreign income is NOT taxable unless derived from a business controlled in or profession set up in India!
Trap 2: DTAA vs Section 115A Rates!
Under Section 90(2), the assessee can opt for the DTAA rate (e.g. 10% or 15%) if it is more beneficial than the 20% statutory rate u/s 115A, provided valid Tax Residency Certificate (TRC) and Form 10F are submitted!
Under Section 90(2), the assessee can opt for the DTAA rate (e.g. 10% or 15%) if it is more beneficial than the 20% statutory rate u/s 115A, provided valid Tax Residency Certificate (TRC) and Form 10F are submitted!