Non resident payment

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CA PAYAL GUPTA (Querist)
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24 June 2014 hello
in one of my client company there is a 3 director of which one is residing abroad for last 8 years. all directors are in same family. the person who is nri,his account, bank was operated by the relative. his income tax return also file in india as a resident. because ha has a interst income and speculation income in india.all the transaction made in the names of the person. tds also deduct as a resident person. all payments made in indian currency.

1 my question is whether it is correct to show him as resident person.?
2. what is the treatment of transcation made to him.
3 the company is pvt ltd in which he has shareholding more than 20% and he has a director in that company.
4. can i in this year shows him as non resident and file his return accordingly.

5. all the provision of non resident apply or not
pls reply as soon as possible

thanking u

Sathish k

Sathish k (Expert)
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25 June 2014 In your case, All the provisions of Non Resident should apply. He should file his return as Non resident only. and as for as being a Director in the company with more than 20% of the shareholding and non resident, the provisions new companies Act, 2013 will be applicable. Take care that too.

CA PAYAL GUPTA

CA PAYAL GUPTA (Querist)
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07 July 2014 thanx 4 ur reply.
NOW MY ANOTHER QUESTION IS
A PERSON IS NRI IN INDIA HAVING INTEREST INCOME RENT INCOME. BUT TOTAL INCOME IS BELOW TAXABLE LIMIT AFTER DEDUCTING 30% STANDARD DEDUCTION FROM RENT.HE HAS A DIRECTOR OF COMPANY AND RECEIVED INTEREST FROM THAT COMPANY.
1 CAN COMPANY HAVE LIABILITY TO DEDUCT TDS ON INTEREST EVEN IF THE INDIVIDUAL HAS NON TAXABLE INCOME
2 IF YES THEN AT WHAT RATE THE COMPANY HAVE TO DEDUCT TDS.
REPLY AS SOON AS POSSIBEL ITS URGENT THANX

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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03 August 2024 ### Responses to Your Queries:

#### 1. **Resident Status of the NRI Director**

**Resident Status:**
- A person is considered a **Resident** in India if they meet any of the following conditions:
1. They are in India for 182 days or more during the financial year, or
2. They are in India for 60 days or more during the financial year and 365 days or more during the preceding 4 years.

- If your client has been residing abroad for the last 8 years and does not meet these conditions, he should be classified as a **Non-Resident** (NR) for tax purposes.

**Correct Classification:**
- If the individual does not meet the criteria for a resident, showing him as a resident is incorrect. The individual should be classified as a non-resident, and his income should be taxed according to the provisions applicable to non-residents.

#### 2. **Treatment of Transactions Made to the NRI Director**

**Transactions and Tax Implications:**
- **Income Tax Returns:** As an NRI, the director's income, including interest income and any other income received from the company, should be reported in his tax return according to non-resident taxation rules.
- **TDS (Tax Deducted at Source):** The company should deduct TDS on payments made to the NRI director based on the applicable tax rates for non-residents.

#### 3. **Shareholding and Directorship in a Private Company**

**Shareholding and Director Role:**
- The fact that the NRI holds more than 20% of shares and is a director does not affect his residential status but may influence other regulatory aspects under the Companies Act, such as compliance requirements and filing obligations.

#### 4. **Filing as a Non-Resident**

**Changing Status for the Current Year:**
- **Tax Filing:** If the individual qualifies as a non-resident for the financial year in question, then his tax return should reflect his non-resident status. The tax return should be filed accordingly, and the applicable non-resident tax provisions should be applied.

#### 5. **Application of Non-Resident Provisions**

**Applicability:**
- All provisions related to non-residents will apply if the individual is classified as a non-resident. This includes taxation on income accrued or received in India and the eligibility for any deductions or exemptions under the non-resident tax regime.

### Specific Queries about TDS on Interest Payments

#### 1. **TDS Deduction on Interest Payments**

**TDS on Interest:**
- **Liability to Deduct TDS:** Yes, the company is required to deduct TDS on interest payments made to the NRI director, even if his total income is below the taxable limit.
- **Applicability of TDS:** The company must comply with TDS regulations under the Income Tax Act, which apply regardless of the recipient's total income.

#### 2. **Rate of TDS**

**TDS Rate:**
- **Interest on Deposits:** For interest paid to a non-resident, TDS is generally deducted at the rate of 40% plus applicable cess and surcharge (as per Section 115A of the Income Tax Act). This is subject to any beneficial rates provided under a Double Taxation Avoidance Agreement (DTAA) between India and the director's country of residence.
- **DTAA Benefits:** If the director is eligible for benefits under a DTAA, the TDS rate could be lower. The director needs to provide a Tax Residency Certificate and other documents to avail of the DTAA benefits.

### **Summary:**

- **Resident Status:** The NRI director should be correctly classified based on the residency criteria. If he is a non-resident, the tax treatment should reflect that status.
- **Transactions and TDS:** TDS should be deducted on payments made to the NRI director according to non-resident tax rules. The company is responsible for ensuring compliance with TDS provisions.
- **Filing Status:** If the NRI status is applicable for the current year, his return should be filed accordingly, adhering to non-resident tax rules.

**Note:** Consult with a tax professional for precise calculations and compliance, as tax regulations and their applications can be complex.