Income tax benefits which are available only to resident tax payers – not NRIs

Basic Exemption Limit

An individual is required to pay tax in India in case his taxable income in India exceeds basic exemption limit. The general exemption limit is Rs. 2.50 lakhs per year. However for resident Individual who has completed 60 years of age on 31st March of the relevant year, the basic exemption limit get enhanced to Rs. 3 lakhs. Likewise, for individual tax payers who are resident for income tax purposes and have completed 80 years of age (Generally referred to as super Senior Citizens) the basic exemption limit applicable is Rs. 5 lakhs and then the respective slabs rate apply on the income exceeding the basic exemption limit. This special treatment of enhanced basic exemption limit is available only to the senior citizen and super Senior Citizen who are resident of India. So the basic exemption limit for all the non residents under the Indian Income Tax laws thus remains Rs. 2.50 Lakhs irrespective of their age. Please note that the special treatment is available on the basis of your physical stay in India during the previous year and which is independent of your citizenship. So even an Indian Citizen who is above 80 years but is not resident under Income Tax laws will have only Rs. 2.50 lakhs as basic exemption.

Rebate under Section 87A

The Indian tax laws allows you a rebate of Rs. 12,500/- from your net tax liability if your income does not exceed Rs. 5 lakhs provided you are a resident under the income tax laws of India. So this rebate under Section 87A of Rs. 12,500/- is not available to a person who is a non-resident even if his net taxable income does not exceed 5 lakhs.

Taxation of dividends

The dividends in the hands of non-resident are taxed at flat rate of 20% without any allowance for deduction whereas a resident has to pay tax on dividend at the slab rate. So a resident can claim deductions under various sections like 80C, 80D, 80G to reduce incidence of tax on his dividend income. Since the dividend is taxed at slab rate the effective rate for resident tax payers is very low as compared to non-residents who have to pay flat 20% on dividend from Indian companies. A resident is allowed to claim deduction against his dividend income in respect of interest paid to acquire the shares upto 20% of the dividend received.

Higher deduction for interest received from bank, post office and cooperative banks to senior citizens

All the senior citizens who are resident for tax purpose are eligible to claim deduction under Section 80TTTB in respect of any interest received from bank, post office and cooperative banks upto Rs. 50,000/- in a year. The interest may be from saving bank, fixed deposits or recurring deposits. However, in case of non-resident senior the deduction get reduced to Rs. 10,000/- under Section 80TTA and that too only in respect of interest on saving bank account received from these entitles

Marginal Relief from payment of capital gains

Any profit arising on sale of listed equity shares or investment in equity oriented units of Indian mutual funds or units of business trust are taxed at flat rate of 15%. In case of a resident tax payer if his income other than such short term capital gains or long term capital gains falls short of the basic exemption limit, he is allowed to set off his short term capital gains to the extent of such shortfall and pay tax on the balance. Likewise, the same benefit is available to a resident tax payer in respect of all types of long term capital gains. Both these benefits of set off in the shortfall in basic exemption are not available to a non-resident.

TDS provisions

When a resident sells an immovable property, the buyer is required to deduct tax on at the rate of 1% of the sale consideration in case sale consideration of the property exceed fifty lakh rupees. However, in case the seller is a non-resident, the buyer has to deduct at higher rate of 20% if property was held by the non-resident for more than two years else at 30% of the taxable income comprised in the sale consideration if the seller provides the details of cost and date of purchase of the property to help buyer compute taxable capital gains. In case the non-resident does not provide such details, the buyer is under an obligation to deduct tax on the full amount. In case of non-resident seller, there is no threshold limit for tax deduction and the buyer has to deduct tax from first rupee.

A resident individual can apply to the company paying him the dividend without deduction of tax at source if his estimated tax liability on his income including the amount of dividends is nil. No such option is available to a non-resident tax payer to receive dividend without deduction of tax at source. Likewise, a resident senior citizen is entitled to furnish a declaration to payer of various income to pay them income without deduction of tax at source if his estimated tax liability for the year is nil. No such option is available to a non-resident senior citizen in receipt of any income in India.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.