Tax, regulatory concerns for HNIs in India

In the latest previous, a number of amendments have been launched on the earnings tax and regulatory fronts, which affect excessive net-worth people (HNIs). Here are some key implications of the adjustments:

Change in residency provisions: Some HNIs earn earnings outdoors India by finishing up enterprise or skilled actions in India; nevertheless, relying on their interval of keep, they could stay non-resident in India in addition to overseas. The Finance Act, 2020, amended sure residency circumstances with impact from monetary yr 2020-21 (FY21). The amended legal guidelines say that an Indian citizen having a complete earnings—apart from from international sources—exceeding ₹15 lakh throughout a specific FY shall be deemed to be a resident of India, albeit a not ordinarily resident (NOR) for that FY, if he/she isn’t liable to tax in some other nation by motive of his/her domicile or residence or some other standards of comparable nature.

Further, the prolonged threshold of 182 days out there to Indian residents and individuals of Indian origin (PIO) for triggering residency throughout visits to India has been truncated for individuals having a complete earnings, apart from earnings from international sources, exceeding ₹15 lakh throughout an FY, qualifying them as NOR if their keep is between 120 to 182 days. However, what constitutes as visits isn’t nicely outlined.

Taxability of dividend within the palms of shareholder: The Finance Act, 2020, abolished the dividend distribution tax payable in respect of dividends declared, distributed or paid by a home firm after 31 March 2020, and accordingly, such dividend was made totally taxable within the palms of the shareholders (together with people). The Finance Act had additionally imposed a withholding tax on the price of 10% on all dividends paid by an Indian firm to a resident shareholder whereas the speed to non-resident shareholders is 20% (plus relevant surcharge and cess). While the taxpayers are actually required to pay taxes on dividend earnings on the relevant tax charges, some aid has been granted by proscribing the surcharge charges to a most of 15%, which might have in any other case gone as much as 37% in case of HNIs.

Capital beneficial properties tax on listed shares: Long-term capital acquire (LTCG) on fairness shares listed on a inventory trade, which had been earlier tax-free, are actually underneath the tax lens. Effective 1 April 2018, LTCG of greater than ₹1 lakh on the sale of fairness shares will appeal to a tax of 10% and the advantage of indexation won’t be out there, as per prescribed guidelines. The surcharge has favourably been restricted to as much as 15%, which is a few aid.

Taxability of extra employer’s contribution to retiral schemes: Prior to Finance Act, 2020. the contributions made by the employer to the account of an worker underneath the provident fund (PF), National Pension System (NPS) and permitted superannuation fund had been exempt from taxation within the palms of the worker as much as a specified wage threshold. The Finance Act, 2020, capped the exemption to employer contributions to aforesaid funds inside ₹7.5 lakh every year. Any employer contribution above this threshold to such retiral schemes (together with any accretion thereto) has been introduced into the ambit of taxation.

Taxability of unit-linked insurance coverage coverage (ULIP) proceeds: Finance Act, 2021, modification offered that for a ULIP taken on or after 1 February 2021, the maturity proceeds of the coverage, with annual premium of over ₹2.5 lakh ,won’t be eligible for exemption underneath Section 10(10D) of the Act and can be taxable at par with different equity-oriented mutual funds. Accordingly, the capital beneficial properties provisions would additionally apply on sale or redemption of such ULIP.

Applicability of tax collected at supply (TCS): Several resident HNIs use the liberalized remittance scheme (LRS) route for outward investments in securities and properties. With impact from 1 October 2020, a certified vendor is required to gather TCS on the price of 5% on any quantity or mixture of quantities being remitted outdoors India (apart from for the aim of buy of abroad tour programme package deal) underneath the LRS route if exceeding ₹7 lakh in any FY. However, the place the quantity being remitted out is in direction of prescribed training mortgage, 0.5% TCS price shall apply as an alternative of 5%. Further, the vendor of abroad tour programme package deal is required to gather TCS on the price of 5% regardless of any financial threshold.

Tax credit score for the TCS shall be out there on the time of submitting the earnings tax return, therefore it might lead to a cash-flow constraint on the time of remittance.

Parizad Sirwalla is companion and head, Global Mobility Services- Tax, KPMG in India.

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