Introduction

Section 115H of the Income Tax Act provides several benefits to Non-Resident Indians (NRIs) who earn income in India. The section aims to encourage NRIs to invest in India and contribute to the country’s economic growth. In this article, we will delve into the basics of Section 115H and its benefits for NRIs.

What is Section 115H of Income Tax Act?

Section 115H of the Income Tax Act is a provision that offers several tax benefits to NRIs who earn income in India. The section applies to NRIs who meet specific criteria, including having a taxable income in India and being a resident of a country with which India has signed a Double Taxation Avoidance Agreement (DTAA). DTAA is a bilateral agreement between two countries that aims to prevent double taxation of the same income in both countries.

Benefits of Section 115H for NRIs

The following are the key benefits that Section 115H offers to NRIs who meet the eligibility criteria:

Lower Tax Rate
Under Section 115H, NRIs are eligible for a lower tax rate on their income earned in India. The tax rate is 20%, which is significantly lower than the standard tax rate applicable to NRIs, which is 30%. However, the lower tax rate is only applicable if the NRI meets specific conditions, such as not having a permanent establishment in India.

 

Exemption from Tax Deduction at Source (TDS)

NRIs who earn income in India are generally subject to Tax Deduction at Source (TDS), which is the deduction of tax at the source of income. However, under Section 115H, NRIs can avail of an exemption from TDS on certain types of income, such as interest income, dividend income, and long-term capital gains.

 

No Obligation to File Income Tax Return

NRIs who earn income in India are generally required to file an income tax return if their income exceeds the taxable limit. However, under Section 115H, NRIs who meet specific conditions are exempt from filing an income tax return in India.

Simplified Tax Compliance
Section 115H offers simplified tax compliance for NRIs who earn income in India. NRIs can avoid the complicated tax compliance process by availing the benefits under this section.

Understanding the Eligibility Criteria for Section 115H

To avail the benefits of Section 115H, NRIs must meet specific eligibility criteria, as mentioned below:

Resident of a Country with which India has Signed DTAA
The NRI must be a resident of a country with which India has signed a DTAA. The list of countries with which India has signed DTAA is available on the Income Tax Department’s website.

Taxable Income in India
The NRI must have a taxable income in India. The income can be in the form of salary, rent, interest, capital gains, etc.

Stay in India
The NRI must stay in India for a period of 182 days or more during the financial year.

No Permanent Establishment in India
The NRI must not have a permanent establishment in India. A permanent establishment refers to a fixed place of business where the NRI carries out its business activities.

No Business Income in India
The NRI must not have any business income in India. Business income refers to income earned through business activities carried out in India.

Furnishing of Relevant Information
The NRI must furnish all relevant information and documents to the Indian tax authorities to avail of the benefits under Section 115H.

Understanding the Application Process for Section 115H

NRIs who meet the eligibility criteria for Section 115H can apply for the benefits by filing Form 13 with the Indian tax authorities. The form should be submitted to the Indian tax authorities before the end of the financial year for which the NRI wishes to avail of the benefits.

The form should be accompanied by several documents, such as the NRI’s tax residency certificate, details of income earned in India, and a declaration stating that the NRI does not have a permanent establishment in India.

The Indian tax authorities will process the application and issue a certificate to the NRI if the application is found to be in order. The certificate can be submitted to the Indian tax authorities to avail of the benefits under Section 115H.

Conclusion

Section 115H of the Income Tax Act offers several benefits to NRIs who earn income in India. The section aims to encourage NRIs to invest in India and contribute to the country’s economic growth. NRIs who meet the eligibility criteria can avail of a lower tax rate, exemption from TDS, and simplified tax compliance under this section. However, NRIs must meet specific conditions and furnish all relevant information and documents to the Indian tax authorities to avail of the benefits under Section 115H.

Overall, Section 115H is a significant provision that provides several benefits to NRIs who earn income in India. By availing of the benefits under this section, NRIs can reduce their tax liability and simplify their tax compliance process.