An Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
As per FEMA:- "capital account transaction" means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India.
"current account transaction" means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes,-
payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business,
payments due as interest on loans and as net income from investments,
remittances for living expenses of parents, spouse and children residing abroad, and
expenses in connection with foreign travel, education and medical care of parents, spouse and children;
"person resident in India" means-
a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include-
a person who has gone out of India or who stays outside India, in either case-
for or on taking up employment outside India, or
for carrying on outside India a business or vocation outside India, or
for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
a person who has come to or stays in India, in either case, otherwise than-
for or on taking up employment in India, or
for carrying on in India a business or vocation in India,
or,
for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
any person or body corporate registered or incorporated in India,
an office, branch or agency in India owned or controlled by a person resident outside India,
an office, branch or agency outside India owned or controlled by a person resident in India;
"person resident outside India" means a person who is not resident in India;
A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.
A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.
Double Taxation Avoidation Agreement
The Indian Income-tax Act provides for levy of income-tax on the income of foreign companies and non-residents, but only to the extent of their income sourced from India. Under section 5 of the Act, a foreign company or any other non-resident person is liable to tax on income which is received or is deemed to be received in India by or on behalf of such person, or income which accrues or arises or is deemed to accrue or arise to it in India. Section 9 thereafter specifies certain types of income that are deemed to accrue or arise in India in certain circumstances. These two sections embody the source rule of income taxation in the domestic law. No income of a non-resident can be taxed in India unless it falls within the four corners of section 5 read with section 9 of the Income-tax Act.
Broadly speaking, business income of a foreign company or other non-resident person is chargeable to tax to the extent it accrues or arises through a business connection in India or from any asset or source of income located in India, and to the extent such income is attributable to the operations carried out in India. Income in the nature of salary is taxable in India if it is earned for services rendered in India. Income in the nature of interest, royalty and fees for technical services is taxable in India, if such income is received from the Government; or from a person resident in India except where such income is connected with a business or profession carried on outside India or with any other source of income outside India. Income in the nature of interest, royalty and fees for technical services received from a non-resident is also taxable in India if it is connected with a business or profession carried on in India or with any other source of income in India.
The Income-tax Act contains a number of special provisions relating to income of non-residents, including provisions under section 10 of the Act exempting certain categories of income. It also contains provisions prescribing a presumptive basis of taxation of certain types of income, so as to simplify the computation of income and tax in cases where the nature of activity makes such computation difficult. The Act also requires deduction of tax at source from certain types of income, and for withholding tax on all chargeable income remitted outside India.
This source-based taxation often gives rise to the problem of double taxation, where the same income could be taxed twice - in India, and also in the country of residence of the taxpayer. India has entered into Double Tax Avoidance Agreements (DTAAs) with a large number of countries, to resolve this problem. Essentially, these DTAAs lay down the extent to which one country has a right to tax income of a resident of the other country that is sourced from the first-mentioned country. The Governments of the two countries, having regard to the source rules contained in their respective domestic laws, have negotiated this extent. The Income-tax Act provides that the provisions of such a DTAA, if they are more favourable to a taxpayer, will override the provisions of the domestic tax law.
With a view to impart certainty of taxation in the cases of non-residents, a mechanism for obtaining timely advance rulings on the tax implications of transactions undertaken or proposed to be undertaken by them, is available. Applications for obtaining such rulings, which are binding on the tax department as well as the taxpayer, can be made to an independent judicial body, namely, the Authority for Advance Rulings.
For Example: A resident of India, also has income in USA. As India and USA have signed the DTAA then income from USA will be taxable as per provisions given in the DTAA i.e. this income will be taxable only in one country either in USA or India.
If there was no DTAA between USA and India, then first this income will be taxable in USA and after that it will be taxable in India.
Tax Deducted at Source (TDS)
Tax deducted at source is one of the modes of collecting Income-tax from the assessees. Such collection of tax is effected at the source when income arises or accrues. Hence where any specified type of income arises or accrues to any one, the Income-tax Act enjoins on the payer of such income to deduct a stipulated percentage of such income by way of Income-tax and pay only the balance amount to the recepient of such income.
The tax so deducted at source by the payer, has to be deposited in the Government treasury to the credit of Central Govt. within the specified time. The tax so deducted from the income of the recipient is deemed to be payment of Income-tax by the recepient at the time of his assessment. Income from several sources is subjected to tax deduction at source. Presently this concept of T.D.S. is also used as an instrument in enlarging the tax base. Some of such income subjected to T.D.S. are salary, interest, dividend, interest on securities, winnings from lottery, horse races, commission and brokerage, rent, fees for professional and technical services, payments to non-residents etc.
As per the applicable provisions of the Income Tax Act' 1961, though regular assessments are made in respect of any income in later assessment year, but the assessee has to pay the tax in the following two ways:
Tax Deduction at Source/ Tax Collection at Source:-
In case of certain income, tax is deducted at source by the payer at the prescribed rates either at the point of accrual or payment of such income. On same lines tax is collected at source by the seller from buyer/ licensee/ lessee at the time of debiting the amount to the account of such buyer/ licensee/ lessee or the receipt of the payment whichever is earlier.
Advance Tax:-
The assessee in certain cases is under an obligation to make payment of advance tax , in certain installments.Such taxes deducted/ collected or paid as advance tax in the previous year itself are known as prepaid taxes and are consequently deductible from the total tax due from the assessee.
A Tax Deduction or a Tax-Deductible expense has the primary function to reduce ones taxable income. Since taxes constitute a part of the taxable income earned by individuals, tax deductions can reduce the taxable income and offer a certain amount of tax relief.
With this, their taxable income falls to a great extent and the pains of paying tax at a time on total income earned is evenly distributed over the relevant previous year in the same manner as if one is paying a form of advance tax to the Govt.
Wealth TAX
The Wealth Tax Act is an important direct tax legislation, which came into existence on 1 st April 1957. Wealth tax is levied on the benefits derived from property ownership. The tax is to be paid year after year on the same property on its market value, whether or not such property yields any income.
An assessee or a person, who is liable to pay wealth tax under the Wealth Tax Act, includes legal envoy, perpetrator or administrator of a deceased person and a person deemed to be an agent of a non-resident. Under the Act, tax is charged on the following persons in respect of the wealth held by them during the assessment year:-
A company.
A Hindu Undivided Family (HUF), which is a type of assessee recognised under the Act, consisting of all persons lineally descended from a common ancestor and deriving income from joint family corpus. Hindu, Jain, Buddhist, and Sikh families have been so recognised.
An association of persons or a body of individuals.
Non-corporative taxpayers whose accounts are to be statutorily audited.
Chargeability to tax also depends upon the residential status of the assessee and the citizenship of a person.
It may be noted here that productive assets like shares, debentures, bank deposits and investments in mutual funds are exempt from wealth tax. The non-productive assets include jewellery, bullion, motorcars, aircraft, urban land, etc. Foreign nationals are exempt from wealth tax on non-Indian assets. The details of Wealth Tax can be accessed through Acts and Rules as framed by the Constitution.
To file your Wealth Tax Returns, you need to fill Form BA, Form A and Form B.
