9911796707
TMI BlogSpecial taxation regime applicable to non-residents and foreign companies : Clause 212 of Income Tax Bill, 2025 Vs. Section 115C of Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... in incomes of non-residents. The 1961 Act's definitions have been the cornerstone for the application of beneficial tax rates and exemptions for NRIs investing in India. The proposed Clause 212 is thus both a continuation and an evolution of the existing legal regime. This commentary examines the objectives, detailed provisions, and practical implications of Clause 212, followed by a comparative analysis with Section 115C of the Income-tax Act, 1961. Objective and Purpose Clause 212 seeks to provide clarity and certainty regarding the interpretation of key terms for the special regime applicable to non-residents and foreign companies. The legislative intent is to ensure that the concessional tax regime is targeted, transparent, and consistent with broader economic and policy objectives, such as attracting foreign investment, facilitating capital inflows, and providing tax certainty to NRIs and foreign entities investing in specified assets in India. Historically, India has provided a favourable tax regime for NRIs and foreign investors to encourage the inflow of foreign capital and remittances. The definitions in Section 115C were crafted to ensure that only genuine foreign i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign investors. (c) "Long-term Capital Gains" Clause 212 (2025): "Long-term capital gains" means income chargeable under the head "Capital gains" relating to a capital asset, being a foreign exchange asset which is not a short-term capital asset. Section 115C (1961): The definition is verbatim: "Long-term capital gains" means income chargeable under the head "Capital gains" relating to a capital asset, being a foreign exchange asset which is not a short-term capital asset. Analysis: Both provisions tie the definition of long-term capital gains to the holding period and the nature of the asset (i.e., a foreign exchange asset). This is significant because long-term capital gains are often taxed at a lower rate or are eligible for exemptions under certain conditions. The uniformity in language ensures that there is no interpretative divergence between the old and new law. The use of the phrase "not a short-term capital asset" is consistent with the general scheme of capital gains taxation. (d) "Non-resident Indian" Clause 212 (2025): "Non-resident Indian" means an individual, who is not a resident and is (i) a citizen of India; or (ii) a person of Indian origin. Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 2013 Act (section 2(68)) is similar in substance to the previous law, but the cross-reference ensures legal consistency. Another minor change is the reference to "section 2(c)" (2025 Bill) as opposed to "clause (2) of section 2" (1961 Act) of the Public Debt Act, 1944. This appears to be a stylistic update rather than a substantive change. The power of the Central Government to notify additional assets remains intact, preserving flexibility to respond to evolving financial instruments and policy priorities. Interpretation of Key Provisions * Convertible Foreign Exchange: Although not separately defined in Clause 212, the term is integral to the definition of "foreign exchange asset." In the absence of a definition, it is likely to be interpreted in accordance with the prevailing RBI regulations and the Foreign Exchange Management Act, 1999. * Person of Indian Origin (PIO): Clause 212 does not provide an explicit explanation of who qualifies as a PIO. However, the legislative intent is to cover individuals with ancestral roots in India, and it is reasonable to expect that the explanation under the existing law (Section 115C) or rules framed under the new regime will be adop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll, 2025 Comments Convertible Foreign Exchange Defined as per RBI and FEMA (explicit definition in 115C(a)) Not separately defined; referenced in "foreign exchange asset" Potential ambiguity; likely to be interpreted per FEMA/RBI norms Foreign Exchange Asset Specified asset acquired with convertible foreign exchange Same definition No substantive change Investment Income Income derived from foreign exchange asset (earlier excluded certain dividends) Income derived from foreign exchange asset Omission of exclusion for certain dividends is in line with post-2020 law Long-term Capital Gains Income under "Capital gains" from a foreign exchange asset which is not a short-term capital asset Same definition No substantive change Non-resident Indian Citizen of India or person of Indian origin, not a resident; explicit explanation for PIO Individual, not a resident, who is a citizen of India or PIO; no explicit explanation for PIO Omission of explanation for PIO may lead to interpretive challenges; likely to be clarified by rules Specified Asset Shares, debentures, deposits (excluding private companies as per Companies Act, 1956), Central Govt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latory policy could have immediate tax implications, requiring stakeholders to be vigilant. Practical Implications for Stakeholders * For NRIs and PIOs: The regime continues to offer significant tax incentives for investment in specified Indian assets, but eligibility will depend on compliance with the detailed requirements regarding source of funds and nature of assets. * For Indian Companies: Companies seeking to attract NRI investment must ensure that their instruments qualify as "specified assets" and that investments are made in accordance with the regime's requirements. * For Tax Authorities: The definitions provide a clear framework for assessment, but ambiguities regarding PIO status or convertible foreign exchange may require adjudicatory or administrative clarification. * For Policymakers: The regime balances the need for tax incentives with safeguards against abuse, but ongoing monitoring and periodic review will be necessary to ensure continued effectiveness and relevance. Comparative Perspective: International Practice Many jurisdictions offer special tax regimes for expatriates or foreign investors, often tying eligibility to the use of foreign currency ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
