Income tax laws generally do not differentiate between a resident tax payer and a non-resident but there are certain tax benefits/concessions which are available to a resident individual but not to non-residents. Let us discuss some of the major provisions.

Differentiation based on age of the tax payer

A resident tax payer below 60 years enjoys full tax exemption for income upto Rs. 2.50 lakhs every year. Those who are between 60 and 80 year old enjoy exemption limit of Rs. 3 lakhs and those over 80 years even enjoy a higher limit of 5 lakhs. However, for all the non-resident taxpayer there is only one basic exemption limit of Rs. 2.50 lakhs irrespective of their age.

Likewise, a resident individual who is over 60 years of age, is entitled to deduction of upto Rs. 50,000/- for interest received from banks, post office and cooperative banks during the year under Section 80TTB. In case the person is non-resident this higher limit of Rs. 50,000/- is not available and instead he is entitled to claim only upto Rs. 10,000/- and that too only in respect of interest on saving bank account under Section 80TTA.

Rebate under Section 87A

All the Individual taxpayers whose total income after various deductions exceeds the basic exemption limit have to pay tax at the slab rates. However, if an individual is a resident of India for the tax purposes and his taxable income does not exceed five lakhs rupees, he gets a rebate for the amount of his tax liability restricted to Rs. 12,500/- under Section 87A. It may be noted that the rebate under Section 87A is not available against tax liability in respect of long term capital gains arising on sale/redemption of listed shares/units of equity schemes of mutual funds. This rebate under Section 87A is not available to non-residents and they have to pay tax at slab rates on the income beyond the basic exemption.  

Set off of capital gains against shortfall in basic exemptions

Long term capital gains of all nature as well as short term capital gains on equity products are taxed at flat rates in India. In case income other than the capital gains of above nature is lower than the basic exemption, a resident is entitled to set off such shortfall against such capital gains and is liable to pay tax on the balance of such capital gains. A non-resident individual does not enjoy this benefit to set off shortfall in the basic exemption against such capital gains even if his  only source of income is  capital gains of above nature.

TDS provisions

When a resident sells an immovable property, the buyer is required to deduct tax on at the rate of 1% of the sale consideration in case sale consideration of the property exceed fifty lakh rupees. However, in case the seller is a non-resident, the buyer has to deduct at higher rate of 20% if property was held by the non-resident for more than two year else at 30% of the taxable income comprised in the sale consideration if the seller provides the details of cost and date of purchase of the property to help buyer compute taxable capital gains. In case the non-resident does not provide such details, the buyer is under an obligation to deduct tax on the full amount. In case of non-resident seller, there is no threshold limit for tax deduction and the buyer has to deduct tax from first rupee.

A resident individual can apply to the company to pay him the dividend without deduction of tax at source if his estimated tax liability on his income including the amount of dividends is nil. No such option is available to a non-resident tax payer to receive dividend without deduction of tax at source. Likewise, a resident senior citizen is entitled to furnish a declaration to payer of various income to pay them income without deduction of tax at source if his estimated tax liability for the year is nil. No such option is available to a non-resident senior citizen in receipt of any income in India.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and on @jainbalwant on twitter.