Gift Tax shall not be charged in respect of gifts made by a person :-

1. being a non-resident individual to any person resident in India, of foreign currency or other foreign exchange , remitted from a country outside India during the period from 26^th October, 1965 to 28^th February, 1966 or such later date as the Central Government may, by notification in the Official Gazette, specify in this behalf – Section 5(1)(iia)
2. being a person resident outside India out of moneys standing to his credit in a Non-resident(External) Account in any bank in India-Section 5(1)(iib)
3. being a non-resident Indian to any of his relatives in India, of convertible foreign exchange remitted from a country outside India- Section 5(1)(iic)
4. being a non-resident Indian to any of his relatives in India of property in the form of any foreign exchange asset-section 5(1)(iid)
5. regarding one time gift made out of any deposit held by him under the Non-Resident(Non-repatriable) Rupee Deposit Scheme, 1992 of the Reserve Bank of India-Section 5(1)(iie)
6. to any of his relatives in the form of notified NRI bonds specified under Section 10(15)(iid) of the Income tax Act- section 5(1)(iie)

Assets exempt from wealth Tax- Section 6

In case of an individual, who is not a citizen of India or a person of Indian origin who is not resident of India, the following are exempt from wealth tax: -

1. the value of the assets and debts located outside India; and
2. The value of the assets in india represented by any loan or debts owing to the assessee in any case where the interest if any, payable on such loans or debts is not to be included in the total income of the assessee u/s 10 of the IT Act.
3. Moneys lying to the credit in a Non-resident( External) Account belonging to a person resident outside India, is an exempted asset.

Tax on investment income are as follows :-

1. Where the total income of a non-resident Indian consists only of investment income or income by way of long-term capital gains or both, the income tax payable by him shall be calculated on such total income @ 20% of such income.
2. Where a non-resident Indian has the other income in addition to the income mentioned in para (a) above, the tax payable by him on his total income shall be :-

1. the aggregate of the income-tax payable by him in accordance with the provisions mentioned in para (a) above on investment income and income by way of long-term capital gains; plus
2. The amount of the income-tax chargeable on the total income as reduced by the amount of investment income and long-term capital gains, had the total income so reduced been his total income.

The Finance Bill, 1997 has amended section 115E so as to provide that :-

Where the total income of an assessee, being a non-resident Indian, includes-

1. any income from investment or income from long-tern capital gains of an asset other than a specified asset
2. income by way of long-tern capital gains,

The income tax payable by him shall be the aggregate of :-

1. the amount of income-tax calculated on the income in respect of investment income referred to in clause (a), if any, included in the total income @ 20%,
2. the amount of income-tax calculated on the income in respect of investment income referred to in clause (b) ,if any, included in the total income @ 10%, and
3. the amount of income tax with which he would have been chargeable to tax, had his total income been reduced by the amount of income referred to in clauses (a) and (b)

1. if the cost of the new asset is not less than the net consideration in respect of the foreign exchange asset, the whole of such capital gains shall not be charged u/s 45;
2. if the cost of the new asset is less than the net consideration of the foreign exchange asset, so much of the capital gains as bears to the whole of the capital gains the same proportion as the cost of acquisition of the new asset bears to the net consideration shall not be charged u/s 45.

However, where the new asset is transferred or converted (otherwise than by transfer) into money, within a period of 3 years from the date of its acquisition, the amount of capital gains arising from the transfer of the foreign exchange asset, not chargeable u/s 45 on the basis of the cost of such new asset as detailed above shall be deemed to be income chargeable under the head ‘Capital Gains’ relating to capital assets other than short term capital assets of the previous year, in which the new asset is transferred or converted ( otherwise than by transfer ) into money.

Deduction from Gross Total Income- Section 115 D:

No deduction is allowed under Chapter VIA against investment income or income by way of long term capital gains of foreign exchange assets. However, in cases where the gross total income includes long term capital gains or/and investment income, then the gross total income shall be reduced by the amount of such income and remaining part of gross total income will be entitled to deduction under Chapter VIA.

A non-resident Indian having taxable income exceeding Rs. 50,000 during the previous year 1998-99 has to file a return.

However, a non-resident Indian covered u/s 115 G i.e., having income only from investments in specified assets and long term capital gains on transfer of foreign assets and having opted for being assessed under the special provisions of Chapter XII-A need not file a return, if the tax has already been deducted at source.

Besides, a non-resident shall not be required to file a return of income u/s 139 (1), if his total income consists only of dividend, interest income from units of mutual fund/ UTI, interest or dividends on bonds or shares of an Indian company issued under a notified scheme and purchased in foreign currency, and the tax has been deducted therefrom at source.

Computation of Capital Gains on transfer of shares/debentures

Capital Gains arising to non-resident assessees from the transfer of a capital asset being shares in or debentures of an India Company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or arruring as a result of the transfer of the capital asset into the same foreign currency as was initially utilized in the purchase of shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency. Moreover, the aforesaid manner of computing capital gains shall be applicable in respect of capital gains accruing from every reinvestment thereafter in and sale of shares or debentures of an Indian Company.

Note:

1. The benefit of indexed cost of acquisition shall not be available to non-residents on long-term capital gains from the transfer of shares, debentures of an Indian Company.
2. In case of long term debentures and bonds (except capital indexed bonds), the cost of acquisition/improvement shall not be indexed, even in case of resident assesses.

This special procedure of using foreign exchange rate has been prescribed to protect non-resident assessees from fluctuation of rupee vale against foreign currency, in order that the NRI pays tax only on the actual capital gains in foreign currency and not on the gains computed in rupees.

Computation of Capital Gains on transfer of other Capital Assets

Capital gains arising from the transfer of capital asset other than shares/ debentures shall be computed in the usual manner, by deducting cost of acquisition, cost of improvement and expenditure incurred in relation to such transfer from the total sale consideration. However, for computing capital gains on transfer of Long Term Capital gains, indexed cost of acquisition and indexed cost of improvement shall be considered.

An Exemptions exclusively for non-residents/ foreigners

1. Any Interest on or premium on redemption of such bonds or securities as the Central Government may notify.
2. Interest on Non-Resident (External) Accounts in any bank in India by NRIs. The exemption is valid only so long as the individual resides outside India. When he returns to India, he will no longer be entitled to such exemption. However, if he applies to the RBI to maintain or continue the NRE account, the exemption will be available so long as the permission remains valid-Section 10(4)(ii).
3. Interest on Foreign Currency Non-Resident Accounts
4. Interest on Foreign Currency ( Ordinary Non-Repatriable) Deposit Scheme
5. Interest on Non-Resident ( Non-Repatriable ) Rupee Deposit Scheme
6. Dividend on units of Unit trust of India provided the units are purchased from proceeds of foreign exchange remittance or from balances held in NR(E). FCNR accounts of the investor.
7. Interest on specified Saving Certificates received by Non-Resident Indian citizens or Persons of Indian Origin provided such certificates have been subscribed in convertible foreign exchange remitted from outside India through official channels.
8. Any allowance or perquisite paid or allowed as such outside India by the Government to a citizen of India for rendering services outside India- Section 10(7).
9. Tax on remuneration to a non-resident technician- tax paid to the Central Government by the employer ( being the Government, local authority, any corporation set up under special law or any approved institution or body carrying on scientific research), on remuneration payable to a technician ( being an individual) not resident in India in any of the four financial years immediately preceding the year in which he arrived in India and whose service as such commences after 31.3.1993, shall be exempt for a minimum period of 48 months commencing from the date of his arrival in India.- Section 10(5B)
10. Income exempt in respect of foreigners:

1. Passage money- Section 10(6)(I)
2. Remuneration of an official of an Embassy, High Commission, Legation, Affairs, Commissioner, Consulate or Trade Representative of a Foreign State or as a member of Staff of any of these officials.- Section 10(6)(ii)(iii)(iv)(v)
3. Remuneration received by employee of foreign enterprises- Section 10(6)(vi).
4. Salaries to non-residents employee on a foreign ship- Section 10(6)(viii).
5. Income of individuals engaged in research work in certain cases- Section 10(6)(x)
6. Remuneration received by certain foreigners, on traveling in certain establishments. – Section 10(6)(xi)

1. Tax paid on behalf of a foreign Company- the amount of tax paid by Government or an Indian concern on behalf of a foreign company in respect of royalty or fees for technical service paid under the agreement approved by the Central Government will not be included in computing the total income of foreign company.- Section 10(6A)
2. Tax paid by Government or an Indian concern on behalf of a non-resident or a foreign company in respect of its income.- Section 10(6B)
3. Income by way of fees for technical services received by a foreign company under an agreement the Central Government in connection with Indian Security. – Section 10(6C)
4. Income of an individual, and his family member assigned to duties in India in connection with any co-operative technical assistance programme or project under agreement between Government of India and the Government of a foreign State, received directly or indirectly from such foreign government, and any other income of such individual members which accrues or arises outside India and is not deemed to accrue or arise in India and such income is liable to tax in that foreign country. – Section 10(8) and (9)
5. Income of a consultant under a Technical Assistance Grant Agreement:

1. Any remuneration or fees received by a consultant, directly or indirectly, out of the funds made available to an international organization under a technical assistance agreement between that agency and the Government of a foreign State will be exempted from income-tax. The expression, consultant has been defined for this purpose to mean any individual who is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India, or any other person who is a non-resident and is engaged by the agency for rendering technical services in India in accordance with the agreement entered into by the Central Government and the agency and the agreement relating to engagement of the consultant is approved by the prescribed authority.Also, any other income accruing outside India to the consultant and taxable in the country of his origin, shall be exempt. – Section 10(8A)
2. The remuneration received by an employee of the consultant referred to in para (I) above will be exempted from income-tax, provided such employee is either not a citizen of India or, being a citizen of India is not ordinarily resident in India and the contract of his services is approved by the prescribed authority before the commencement of his service.- Section 10(8B)
3. The income of any family member of such individual as is referred to in the above para accompanying him to India, which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such member is required to pay any income or social security tax to the country of his origin. – Section 10(9)

Interest on notified bonds. - NRI Bonds 1988 of State Bank of India/ NRI Bonds Second Series by SBI- India Development Bonds, arising to non-resident Indian or his nominee or survivor or the person to whom such bonds have been gifted by the non-resident, provided such bonds are purchased in foreign exchange and the principal and interest thereon, are not allowable to be taken out of India. – Section 10(15)(iid)

The Authority for Advance Ruling has held that interest on India Development Bonds is not taxable even when the non-resident becomes resident.

17. Any interest payable by the Government or a local authority, industrial undertaking, specified financial and banking institutions or scheduled Banks or a public company engaged in the business of providing long term housing finance, on moneys borrowed from sources outside India, exempt in the hands of the payee. - Section 10(15)(iv)