The Chamber of Tax Consultants

The Chamber of Tax Consultants Workshop on Taxation of Foreign Remittances Students, Directors fees, Other income, Artistes & Sportsperson. 14 th December, 2013 Naresh Ajwani Rashmin Sanghvi & Associates Chartered Accountants

Students Slide No.: 1

Students Payments related to students would include: - Tuition fees. - Travel, stay & maintenance. Payments could be by parents, or by sponsoring institution. Payments could be to student, or the education institution. Slide No.: 2

Payments clearly not taxable in student s hands Payments by parents. Payments by institutions covered u/s. 10(23C) & 12AA. [Section 56 will not apply]. Scholarships u/s. 10(16). Slide No.: 3

Payments to Foreign Educational Institutions Normally foreign educational institutions would not be liable to tax. - Unless they have a PE in India. Foreign universities arrangements / tie-ups with Indian universities need to be examined independently. Slide No.: 4

Residential Status: Students They would not get benefit of stay of 182 days in India under Explanation (a) to S.6(1). University work difficult to say it is employment. If student is a resident of India, his US income is any will be taxable in India. Next year s residential status also gets affected if he comes to India for 60 days or more. Slide No.: 5

DTA Rare article applies for relief in country of study (residence). (No relief in country of source). Applies to payments received from sources outside the country in which the student goes to study. Article applies to Student, Business trainee and apprentice. Article applies to payments received for their maintenance, education or training. Slide No.: 6

DTA The student should be resident of say India in the year in which he goes, or in immediately preceding year. (He should be a non-resident of the other country.) Most of the articles provide that if the student gets any benefit in the country of study, the same relief will be extended as to a student of that country. Many DTAs provide similar relief to teachers who go to the other country for teaching. Slide No.: 7

Student going out of India Normally there are few difficulties. If the costs are paid by a person who is not a relative, then section 56 can apply. The source of gift would be the residence of payer. (Difficult to fall in other income article.) Slide No.: 8

Students coming to India They would be exempt from tax in India if source is from outside India. Scholarship relief will be available to such a student whether payer is resident or nonresident. Section 56 will not apply if student falls in this article. Slide No.: 9

Directors Fees Slide No.: 10

Directors Fees & Remuneration DTA deals with fees & remuneration received by a director as a member of the Board of Directors. The article in some DTAs also deals with remuneration of top-level official. Slide No.: 11

Basic Rule U.N. Model 2011: Article 16(1): Directors fees & other similar payments, derived by resident of UK, in his capacity as a member of Board of Directors of an Indian company, may be taxed in India. Slide No.: 12

Basic Rule Article 16(2): Salaries, wages & other similar remuneration, derived by resident of UK, in his capacity as an official in a top-level managerial position of an Indian company, may be taxed in India. [Thus under both clauses, India gets the right to tax.] Slide No.: 13

Basic Rule Article 16 supersedes Article 15 (salary). Therefore there is no short stay exemption as in article 15(2). There is no requirement of rendering of services in the COS. Activities of director can be performed anywhere. Slide No.: 14

Some Indian DTAs Only directors fees are covered. Top level managerial remuneration is not covered - U.K., U.S.A. Top-level managerial remuneration is covered in DTAs with Denmark, France (through protocol & dependent personal services article). Slide No.: 15

Directors Fees & Remuneration Meaning of Board of Directors. - Includes a body in charge of supervision of company s management. Fees can be received by an individual or legal person. Slide No.: 16

Directors Fees & Remuneration What kinds of incomes are covered? - Directors fees. - Payment in cash or kind received in a capacity as a Director (use of residence, car, etc.) is taxable. - ESOPs also will be taxable in COS. Slide No.: 17

Directors Fees & Remuneration Under OECD model, remuneration in other capacities employees, adviser, consultant, etc. is not covered. Article 16(2) is not there. However as per the UN model, such remuneration is covered. Dieter Eberhard Gustav Von Der Mark Advance Ruling (102 Taxmann 368). Only sitting fee was considered to be taxable. Other fees without a fixed base was not taxable. (India- Germany DTA) Slide No.: 18

Directors Fees & Remuneration Remuneration as a top-level official. Top level managerial position refers to position which has primary responsibility for general direction of affairs of the company. ------------------------------------------------------------ Summary COS gets the right to tax the remuneration fully. Slide No.: 19