10 Apr Understanding the Tax Advantages of Section 115H for NRIs
Overview of Section 115H:
Section 115H of the Income Tax Act provides favorable tax rates for non-resident Indians (NRIs) on specific investments, encouraging them to invest in India and boosting the country’s attractiveness as a financial destination.
Benefits Under Section 115H:
- NRIs enjoy concessional tax rates even after becoming resident Indians in subsequent years.
- The primary benefit is the reduced tax rate on income earned from specified assets, including long-term and short-term capital gains, as well as dividend income.
Claiming the Benefit Under Section 115H:
- Entities such as corporate firms, LLPs, companies, or any other organizations cannot claim tax exemption under Section 54. The eligibility criteria for claiming benefits under this section are as follows:
- Residency in a country with a Double Taxation Avoidance Agreement (DTAA) with India.
- Furnishing a valid Tax Residency Certificate (TRC) issued by the tax authorities of their resident country.
Continuing Benefits After Becoming a Resident Indian:
- NRIs turning into resident Indians in subsequent years can still enjoy concessional tax rates on income from specified foreign exchange assets by filing a declaration with their income tax return.
Key Considerations:
- Tax benefits under Section 115H are applicable only to income earned from specific investments held by NRIs in India.
- NRIs must file their income tax returns in India if their taxable income exceeds the basic exemption limit.
- Seeking guidance from tax professionals is advisable to understand the nuances of Section 115H and maximize tax benefits.
Difference Between Section 115 and Section 115H:
- Section 115 focuses on computing total income for residents and non-residents, while Section 115H specifically addresses concessional tax treatment for NRIs on income earned from specified foreign exchange assets.
Conclusion:
Understanding the eligibility criteria, benefits, and claiming process of Section 115H enables NRIs to make informed investment decisions and optimize their tax liabilities in India.
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