#taxability

The Rise of Intermediary Services:

Intermediary services have become an integral part of our daily lives. From ride-hailing apps and online marketplaces to food delivery platforms and digital content providers, these intermediaries have transformed traditional industries. Their seamless connectivity has spurred economic growth and opened up new business avenues for millions.

The Ambiguous Tax Landscape:

One of the significant challenges in taxing intermediary services lies in their diverse business models. Many of these companies operate across borders, further complicating matters. While governments acknowledge the potential tax revenues associated with these services, establishing a comprehensive and globally accepted taxation framework has remained elusive.

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Any donation where the recipient (TRUST) does not keep track of the donor is considered an anonymous donation. The Income-tax Act's Section 115BBC is explained in this article. The section discusses whether income related to anonymous donations received by charitable trusts is taxable.

Anonymous Donation Meaning

According to Section 115BBC, a "anonymous donation" is defined as any voluntary contribution described in Section 2(24)(iiia) for which the recipient does not keep a record of the identity containing the name and address of the contributor as well as any other information that may be required.

Anonymous donations are contributions made by taxpayers to a location or person where proper records are not kept. Exemptions are permitted up to 5% of total donations or Rs.1,00,000 whichever is greater. Donations made to a trust that is wholly religious or wholly religious & charitable purpose in nature, on the other hand, will be completely exempt. If the donation is for educational purposes and the Trust operates in the same manner, the donation is taxable.

Section 115BBC: Taxation of Anonymous Donations received by Trust

According to sub-section (1) of Section 115BBC, any anonymous donation received in excess of the higher of the following two amounts will be subject to a 30% tax;

5% of the total amount of the donation.

1,00,000  rupees.

A wholly religious trust received an anonymous donation.

Institutions that are wholly religious are exempt from taxes when they receive anonymous donations.

Taxation of institutions that are partly religious and partly charitable.

Anonymous donations to medical or educational institutions run by partly religious, partly charitable organisations are only taxed to the extent that they exceed 5% of all donations received by the trust or organisation, or a sum of Rs. 1 lakh, whichever is higher. Other donations to institutions that are partly religious and partly charitable shall continue to be exempt from taxation.

Taxation of wholly charitable institutions.

Anonymous donations to wholly charitable institutions are taxable only to the extent that they exceed 5% of total donations received by such trust or institution, or a sum of Rs. 1 lakh, whichever is higher.

Who is eligible for anonymous donations?

Anonymous donations are acceptable for:

Charitable trusts/institutions as defined in section 11

u/s 10(23C)(iiiad) and 10(23C)(vi) or universities and other educational institutions

Hospitals and other medical institutions are referred to in sections 10(23C)(iiiae) and 10(23C)(iiiae) (via)

Notified funds or institutions as defined in section 10(23C)(iv) or

Notified trusts or institutions established wholly for public religious purposes or wholly for public religious or public charitable purposes are referred to in section 10(23C) (v)

Conclusion

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Taxability of Dividends in case of NRIs:

Further to the article on NRI residential status, there were a couple of queries raised by the readers on the taxability of dividends.  Here are some of those queries and answers for the benefit of the readers.

Are dividends received by NRIs from Indian shares/mutual funds taxable in India?

Till 31 Mar 2020, dividend income from an Indian source was completely exempt in the hands of NRIs. However, from 01 April 2020, such dividends would be taxable in India and NRIs would need to pay tax at applicable rates. If there is a Double Taxation Avoidance Agreement (DTAA/tax treaty) between India and the country of residence, a beneficial rate as per the treaty could be applied. Taking the UK as an example, most dividends are taxed at 10% as per India-UK DTAA. This is subject to the availability of TRC from the country of residence.

What is TRC? Is it mandatory to avail treaty relief?

TRC stands for Tax Residency Certificate. This will be issued by the tax authorities of the respective country certifying that the individual NRI is a resident of such country. Most countries have a specific form prescribed for this purpose and an NRI who wishes to avail the treaty benefit would need to apply for the same to the respective country’s tax authorities. As per the Indian tax laws, TRC is a mandatory document required to avail any treaty relief by a non-resident.

Is withholding tax/Tax Deduction at Source (TDS) applicable in case of dividends paid to NRIs?

Yes, the dividends paid to NRIs would generally be subject to 20% withholding tax in India. However, the actual tax on dividends may vary depending on the total income of an individual and applicable slab rates. So, the differential taxes would get adjusted at the time of filing the tax return.

Can an NRI avail the beneficial rate as per the treaty at the time of tax withholding itself?

Yes. An NRI can avail of the beneficial rate on dividends at the time of tax withholding. In order to avail this, the individual needs to submit the TRC and other prescribed documents to the company. Some companies are contacting individual shareholders to confirm their residential status and other documentation to avail of the treaty benefit. Please ensure that this information is submitted to the companies so that the beneficial rate is availed at the time of withholding itself. In this way, refunds on the tax return could be avoided as well.

Can an NRI avail Foreign Tax Credit in his home country on taxes paid on dividends in India?

Generally, yes. However, this may also depend on any specific conditions/documentation requirement specified in the tax treaty or domestic tax laws of such resident country. It is advisable to go through the same and ensure that those requirements are met before availing the credit.

The write-up is for general understanding. We suggest the readers to discuss with their CAs before deciding on tax implications.

AUTHOR:

A S Amarnatha B.com, FCA, LLB