FAQ

Special Tax Rates Applicable to Non-Residents

Are non-residents subject to different tax rates in India compared to residents?

Yes, non-residents are subject to special tax rates on certain types of income. These rates are often prescribed under specific provisions of the Income Tax Act or applicable Double Taxation Avoidance Agreements (DTAA) and are usually applied on a gross basis (without deductions).

What is the tax rate on interest income earned by non-residents from Indian sources?

Interest earned by non-residents on NRO accounts or from Indian companies or banks is generally taxed at 30% (plus applicable surcharge and cess).
However, interest on foreign currency loans or specified securities may be taxed at 5% or 20%, subject to conditions and DTAA benefits.

How is dividend income of non-residents taxed in India?

Dividend income received by non-residents from Indian companies is taxed at 20% (plus surcharge and cess), as per Section 115A.
Lower rates may be available under the DTAA with the country of residence.

What are the tax rates on capital gains for non-residents?

Short-Term Capital Gains (STCG) on listed securities (under Section 111A): 15%. Long-Term Capital Gains (LTCG) on listed shares/equity mutual funds: 10% (above ₹1 lakh, without indexation).
LTCG on unlisted shares or immovable property: 20% with indexation.
STCG on immovable property or unlisted shares: Taxed as per slab or at 30% if no slab applies.

Is business income earned by non-residents taxed differently?

Business income is taxed at 30% if the non-resident has a Permanent Establishment (PE) in India.
In the absence of a PE, income is generally taxed at presumptive or gross basis rates, depending on the agreement under the DTAA or provisions of Indian tax law.

What are the tax rates on royalty and fees for technical services (FTS) received by non-residents?

Royalty/FTS payments to non-residents are taxed at 10% to 20% (plus surcharge and cess) under Section 115A.
However, DTAA provisions often provide a reduced rate (commonly 10% or 15%).

Are any exemptions or lower rates available under DTAA for non-residents?

Yes. Non-residents can avail lower taxrates or even exemptions on specific types of income if:
      A valid Tax Residency Certificate (TRC) is provided.
     Form 10F and other declarations are submitted.
     The relevant DTAA conditions are satisfied.

Do special rates apply to income from Global Depository Receipts (GDRs)?

Yes. Income from GDRs purchased in foreign currency is taxed at a concessional rate of 10%, under certain conditions.

What is the tax treatment of income from bonds and government securities for non-residents?

Interest on Rupee Denominated Bonds or Government securities may be taxed at 5% under Section 194LD, provided specific conditions are met.
DTAA benefits may further reduce this rate.

Are TDS rates the same as final tax rates for non-residents?

In many cases, TDS (Tax Deducted at Source) for non-residents is deducted at the applicable special rate(like 10%, 20%, etc.) and is considered a final tax unless the individual chooses to file a return to claim a refund or set-off against other incomes.

Is surcharge and cess applicable on special rates?

Yes, in most cases:

Surcharge is applicable if total income exceeds ₹50 lakh.
Health and Education Cess at 4% is added to the base tax + surcharge.

Cana non-resident opt for slab rates instead of special rates?

Generally, no. For specified income like interest, royalties, dividends, and capital gains, special flat rates are applied. However, for income from business or profession, the normal slab rates may be applied if the individual files a return and opts accordingly.

Do special rates override the general tax slab for non-residents?

Yes. For the types of income where special tax rates are prescribed (e.g., capital gains, royalties), these override the general tax slabs applicable to individuals.

Are there special rates for income earned by Foreign Institutional Investors (FIIs) or Foreign Portfolio Investors(FPIs)?

Yes. FIIs/FPIs are taxed at:
       20% for long-term capital gains (except listed equity).
       10% for long-term capital gains on listed equity (above ₹1 lakh).
       15% for short-term capital gains under Section 111A.

FAQ – Special Tax Rates Applicable to Non-Residents

Special Tax Rates Applicable to Non-Residents

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