International taxation in a simple language means the study of Taxation beyond the National Level. Though we all are very much aware about our Indian Taxation Laws but as time is demanding something more so, there is a need to study the taxation at another level.

Here, my main motive of writing this article is to make CA students feel comfortable with the international taxation laws as it is not a new thing but an old thing which is going to be present in a new shape in the form of syllabus. I am using a word old thing because India is not new in the scope of International Taxation as Already, our country is having taxpayers in the form of big MNC’s, big business tycoons who are regularly doing international transactions and the main thing is that some of them are situated outside India but due to Indian taxability criteria, their income is assessed by Indian taxation department. The CA students who are pursuing their articleship from the big companies may already get aware of this concept but still that students covers only approx. 10% of total CA students who are in their articleship period. So, there is a strong need to convey the importance, means & methods, policies of international taxation to them.

Basics of International Taxation:

International taxation

is the study or determination of tax on a person or business subject to the tax laws of different countries or the international aspects of an individual country’s tax laws as the case may be. For detailed study of this topic we have to understand the tax provisions already prevailing in India:

1) Indian income tax provisions related to Non Residents:

Residential status of a person describes the taxability of that person in a county but in the case of Non-resident only that Income which is received or deemed to have been received in India by or on his behalf and income that accrues or arises or is deemed to accrue or arising in India is Taxable in India.

Section 9 of the Income Tax Act, 1961 also envisages certain deeming provisions. As per the deeming provisions following Incomes will be deemed to accrue or arise in India, even though they may actually accrue or arise out of India :-

• Income from Business Connection in India.
• Income from any Property, Asset or Source of Income in India.
• Capital Gains from transfer of any Capital Asset situated in India.
• Income from Salary earned in India – i.e. if Service is rendered in India. Where a rest period which is preceded or succeeded by services rendered in India forms part of the service contract of employment, the same shall be considered to be income earned in India.
• Income from salary (other than perquisite &/or allowance ) paid by Government of India to an Indian Citizen of India even though the service is rendered out of India.
• Dividend paid by Indian Company outside India.
• Income by way of Interest in some situations.
• Income by way of Royalty in some situations.
• Income by way of Fees for Technical Services in some situations.

2) NRI Tax Exemption

NRI’s are taxed as per income tax slabs applicable to resident Indians below the age of 60 years irrespective of the age criteria of non resident indian. Simply means that if the NRI is above the age of 60 years still he will be taxed a per tax rate applicable to resident indian who is below the age of 60 years.

But, in the following two cases NRIs need not to file tax return:

• Interest earned on Saving Certificates etc.
• Interest earned on Non Resident (Non Repatriable) [NRNR] Deposit.
• Interest earned on Foreign Currency Non Resident (Bank) [FCNR(B)] Deposit which technically is exempt under Section 10(4)(ii) too being covered by the definition of an NRE deposit under the FERA 1973 in case of a ” Non Resident ” or “Resident but Not Ordinarily Resident” as per the provisions of Income Tax Act, 1961.
• Interest earned on Foreign Currency Non Resident (Bank) [FCNR(B)] Deposit continued until maturity by a Non Resident Indian (NRI) who has returned to India for taking up employment , business, vocation i.e. for permanent settlement provided he is a ” Non Resident ” or “Resident but Not Ordinarily Resident” as per the provisions of Income Tax Act, 1961. Overseas income of NRIs.
• Dividend income from Indian Public/Private Company, Indian Mutual Fund and from Unit Trust of India is exempt from tax in India at par with residents.
• Long-term capital gains arising on transfer of equity shares traded on recognized Stock Exchange and units of equity schemes of Mutual Fund is exempt from tax at par with residents, provided Security transaction tax is paid.
• Remuneration or fee received by non-resident / non-citizen / citizen but not ordinarily resident ‘consultants’, for rending technical consultancy in India under approved programme including remuneration of their employees, and income of their family members which accrue or arise outside India.
• Interest on notified bonds.

Tax Deducted at Source (TDS) provisions related to NRI’s:

3) TDS provisions

Finance Act, 2008 inserted a new sub section (6) to section 195 effective from April 1, 2008, which requires the person responsible for making payment to a non-resident to furnish information relating to such payments in forms to be prescribed. The Central Board of Direct Taxes (“CBDT”) has prescribed a new rule 37BB in the Income Tax Rules, 1962 (“the rules”) prescribing Form 15CA and Form 15CB to be filed in relation to remittances to non-residents under section 195(6) of the Income Tax Act, 1961 (“the Act”). The process that will have to be followed, before any remittance can be made, is as under:

• Step 1 : Obtain a certificate from a Chartered Accountant in Form No 15CB
• Certificate in Form 15CB is not required when remittance does not exceed Rs 5,00,000 in total in a financial year.
• Step 2 : Furnish the information in Form No15CA
• Step 3 : Electronically upload Form 15CA on the designated website
• Step 4 : Take Print out of Form 15CA and file a signed copy
• Step 5 : Remit money to the Non Resident

There is a very common doubt which generally strike the minds of students that is Double Taxation of money. Generally people thinks that if a NRI is paying a tax in the country in which he is a non resident then the country of his residence will also demands tax from that person for that income. But if this happens this will leads to double taxation. The thinking of students or other people is absolutely right as the law interprets the same but Law is always a step ahead from our minds. Law already found a way so as to avoid double taxation of income in case of NRI’s and that amazing thing is DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA)