Taxation of Foreign Remittances
Thursday, 15 March 2018
Sunday, 9 October 2016
Remittances for Director Fees & Remuneration
Hello All,
Sunday Special Class on
Taxation of Foreign Remittances
Hope you like my previous class on
taxation on Remittances for Students.
Today
we will study purely for Remittances for Director Fees & Remuneration
It is very important to understand.
It applies to all Directors
and top level officials of the company.
1. What
does DTAA says:
Firstly,
the same is not deal with Article 15 of
DTAA.
It is covered under Article
16 of DTAA.
Article 16(1) says Director and other similar payment derived
by the resident of other country (let says UK) in the capacity of Board
of Director of Indian Company, may be
taxed in India. It means India has the right to tax.
Article 16(2) talk about Top Level Officials. It says
salary & wages derived by an Foreign
Residential (lets say UK residential)
in the capacity of Top Level Official position of an Indian company. It also taxed
in India.
There
is no requirement of services being rendered in India. (it can be rendered from
anywhere in the world, Since it is very difficult to test what services the Director
has rendered for the company & from where.)
There is a short exemption
in Article 15 of DTAA which is available for employees.
It
state as if a foreign employee , NR employee
comes to India to work for a short time, generally less than 6 months, then such kind of salary is not taxable for
short period of time.
Such
exemption is not available in Article 16 of DTAA.
2. Meaning
of Board of Director :
It
is same as defined in Companies Act 2013,
but includes a body in charge for supervision of company management.
3. What
incomes are include :
- · Sitting fees
- · Director fees
- · All remuneration paid for supervising kind of services.
- · Payment could be done either in cash or in kind (i.e. use of car, house etc.
4. Certain
Issues to understand :
- · Issue 1: Most of Indian DTAA has only Article 16(1). In such cases if we have Top Level Official to whom we have paid remuneration, then the same is deal with Article 15 of DTAA.
- · Issue 2: Suppose if the services are rendered by the Director in India for a short period of time, assume we also have Article 16(2) with that country, then we scan tax only that part of salary for which the Director comes to India.
- · Issue 3: If an Indian company employees a person who is a Director or a Top Level Official (i.e. they has sign a contract with an Indian company in India), has rendered serves from sitting anywhere else in India, the same is still taxable in India, even if service is rendered form outside India, since the source remain in India as the contract is sign in India.
- This is the parts which normally miss out by most of us.
- · Issue 4: If an Indian company has a Branch Office or a Set up outside India, where a separate employment agreement entered into, the section 5 and section 9 will not attracted.
Hope this is found interesting and useful
to you and the same is clear. Next we will discuss on some more remittances.
Looking
forward for a feedback and open discussion.
You
can reach me at :
Thanks & Regards,
CA Mohit Bansal
+91-9045773456
Saturday, 8 October 2016
Remittances for Students
Today
we will study purely for Remittances for Students
1. Residential
Status Issue:
If
student going for education outside India: It clearly means they are not going for Employment
In
each year we have to test the physical stay of the student in India, if they
are in India > 60 days – They will be consider as Resident of India.
Normally, they cannot take up employment
while studying, even the VISA also
not permit the same.
However, if they join some extra work in college
or somewhere else, for which they receive stipend,
then it is not covered under employment.
2. What
does DTAA says:
Article
20 states: Relief is
sought to be given in the country of
study.
If source of payment for the study, maintenance,
etc. Outside the country, where he goes
for study let says USA and, if the
money is coming from outside country let
say India, the said amount is not
liable to tax in USA.
However, if the students happen to get
some funding from USA itself, them
we have to check the domestic law. So
in this case, there is a risk of
taxation
Crux: Money coming from outside USA i.e. from India
or anywhere else, and if it goes to USA for student education, maintenance etc,
- it could not be liable to tax
Student should be resident of India in the year of leaving or in the immediately preceding
year.
If they are not a resident of India, then the above mention relief will not be available.
However, we need to check the domestic law for any other relief’ available.
3.
Time limit for the relief.
Normally
the relief is available for 5 years,
However in some DTAA Agreements, no time
limit is mention, The Agreement states in the article, “anytime which is reasonable”.
So in such cases, we have to take a
normal call for a reasonable time.
4. From
whom the remittance is made :
·
If the
payment is made by parents : Purely Not
taxable
·
Payment
by a college/ Institution covered under section 10(23C) or 12AA of Income Tax Act, 1961 – Then it is not to be considering
under section 56 of Income Tax Act, 1961 and hence not liable to tax.
·
Scholarship: Covered under section 10(16) of Income Tax Act, 1961 which is
Exempt.
However, Definition
of scholarship is not defined, so we have to take a general meaning.
If any money is
awarded based on some merit, criteria or some manner by an organization/trust/fund
whose main object is to support students in their education, then it is covered
in the definition of Scholarship.
My Expert Comment: If student anyhow save some money out of
Scholarship, then the same would be taxable.
·
Now sometime costs are being paid by a person
who is not a relatives.
Then
we have to check section 56 of Income Tax Act, 1961. In my view it is taxable. Most of us miss this section.
5. If
the Payment is made to a Foreign Education Institution
Generally
it is not liable to Tax, unless that
Foreign Education Institution have Permanent
Establishment in India.
In
most cases, Foreign Education Institution doesn’t have Permanent Establishment
in India due to their policies framework.
Still
we need to discuss the same.
Case 1: Suppose any Foreign Education
Institution tie – up with any Indian
Education Institution to promote their Institution programmes and to enroll students,
then this is not to be considering as Permanent
establishment.
Case 2: If any Indian Education Institution
handed over their business operation to Foreign Education Institution and that
Foreign Education Institution comes India and perform the function. i.e. only Infrastructure
is of Indian Education Instituting and running by Foreign Education Institution
, then it is treated as Permanent establishment.
Now if there is any linkage
b/w students going abroad & this PE, then it give rise to taxation
6.
Now if the student is coming to India.
In Such cases, we have to check from where the finding is
coming.
If the funding is coming
from outside India, the it is not liable to tax (as per the DTAA Agreement).
However if there is no DTAA, then we have to check the risk
of its taxability under section 56 of Income Tax Act, 1961.
Hope this is found interesting and useful
to you and the same is clear. Next we will discuss on some more remittances.
Looking
forward for a feedback and open discussion.
You
can reach me at :
Thanks & Regards,
CA Mohit Bansal
+91-9045773456
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