The Income Tax Act treats residents and non-residents differently in certain aspects of the tax provisions. In this article we will discuss the tax benefits that are available to resident taxpayers and not available to non-resident taxpayers. Please note that Non Resident is different from FEMA (Foreign Exchange Management Act) for tax purposes for purposes of trade and investment in India. A person is treated as a non-resident for income tax purposes based on his period of stay in the financial year ending on March 31 of each year and generally recognized after the end of the year. Let’s take a look at the main benefits that non-residents do not have.

Basic exemption limits

An individual has to pay tax in India if his income in India exceeds the basic exemption limit. The general exemption limit is Rs. 2.50 lakhs per annum. However, for residents who have completed 60 years on March 31 of the relevant year, the basic exemption limit has been increased to Rs. 3 lakhs. Similarly, for individual taxpayers who are resident for income tax purposes and have completed 80 years of age (Generally known as Super Senior Citizens) the applicable basic exemption limit is Rs. 5 lakhs and then the rate of individual slabs will apply to income above the basic exemption limit. This special treatment of enhanced basic exemption limit is available only to senior citizens and senior citizens who are residents of India. Therefore, the basic exemption limit for all non-residents under the Indian Income Tax Act remains at Rs. 2.50 lakhs regardless of age. Please note that the special treatment is derived from your physical stay in India during the previous year and is independent of your nationality. So even an Indian citizen above 80 years but not residing under Income Tax Act will have only Rs. 2.50 lakhs as basic exemption.

Refund under section 87A

Indian tax law allows you to deduct Rs. 12,500/- from your tax credit if it does not exceed Rs. 5 lakhs if you are a resident under the Income Tax Act of India. Therefore, this deduction under section 87A of Rs. 12,500/- is not available to non-residents even if their income does not exceed 5 lakhs.

Tax on dividends

Dividends in the hands of non-residents are taxed at the rate of 20% with no allowance for deduction but residents have to pay tax on dividends at the slab rate. Therefore, a resident can claim deduction under various sections like 80C, 80D, 80G to reduce his income tax. Since dividends are taxed at a slab rate, the effective rate for resident taxpayers is very low compared to non-residents who have to pay 20% on dividends from of Indian companies. Residents are allowed to claim a deduction from their income for the interest paid to get a share of up to 20% of the dividends received.

Higher deduction for interest earned from banks, post offices and co-operative banks for senior citizens

All senior citizens who are resident for tax purposes can claim deduction under Section 80TTTB on interest earned from banks, post offices and cooperative banks up to Rs. 50,000/- in one year. Interest may come from bank deposits, fixed deposits or recurring deposits. However, in case of non-resident senior citizen it will be reduced to Rs. 10,000/- under section 80TTA and also in respect of bank account interest received from these rights

Income tax relief

All capital gains from sale of listed shares or investment in equity oriented units of Indian mutual funds or business trusts are taxed at the rate of 15% . If a resident taxpayer if his income other than short-term capital gains or long-term capital gains does not reach the exemption limit, he is allowed to deduct his profits in the short term if it is not enough and pays taxes. on the scales. Likewise, the same benefits are available to taxpayers who are sitting on all aspects of their long-term profits. Both of these benefits are not available to non-residents due to the lack of basic exemptions.

TDS conditions

When a resident sells an immovable property, the buyer has to deduct tax at the rate of 1% of the sale price if the sale price exceeds 50 lakh rupees. However, if the seller is a non-resident, the buyer must deduct at a higher rate of 20% if the property has been held by a non-resident for more than two years, another 30% the income included in the sale. if the seller provides details of the price and date of purchase of the property to help the buyer calculate the taxable amount. If the non-resident does not provide such details, the buyer is obliged to deduct the tax from the full amount. In case of non-resident seller, there is no tax deduction limit and the buyer has to deduct tax from the first rupee.

A resident can ask the company to pay dividends without deduction of tax at source if there is no tax paid on their income, including the amount of dividends. There is no such option for non-resident taxpayers to receive dividends without deduction of tax at source. Similarly, a senior citizen is entitled to make a declaration to the payer of various incomes to pay their income without deduction of tax at source if there is no the tax for the year. There is no such option for non-resident senior citizens for receiving income in India.

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

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