Question: I am a resident of the UAE but a citizen of the United States. However, my main business is in India. I have a residential house both in India and the US. I am concerned that I may be subject to Indian tax laws despite being a US citizen. What are your thoughts?
ANSWER: According to Article 4.2 of the Double Tax Avoidance Agreement (DTAA) between India and the United States, various tests are applied sequentially to determine the country where you will be liable to tax. The first test considers a person to be a resident of the country where they have a permanent home. Since you have a permanent home in both India and the US, you must proceed to the second test, which assesses the country with which your personal and economic relations are closer. This test identifies the 'center of vital interests.' As you operate a regular business in India, the center of vital interests is considered to be in this country. Consequently, under the DTAA, you will be deemed a resident of India. Your American citizenship is not a relevant factor. Therefore, you will be liable to pay tax in India on your total income. If your income earned in the US is taxed there, you will receive a set-off for the tax paid in America against the tax payable in India. There have been several court and tribunal decisions in India where individuals in similar circumstances have been held liable for Indian taxes. Thus, even if you appeal against the Indian tax assessment, the likelihood of success is slim.
Question: To address the challenges posed by a large number of graduates seeking jobs in India, I recall that the Government had introduced a training scheme for them to be absorbed into manufacturing jobs. Can you provide information on whether this scheme is being implemented?
ANSWER: The internship scheme announced by the Finance Minister aims to offer training opportunities to approximately 10 million young graduates over five years, with the goal of bridging the skills gap in the Indian industry. This scheme is overseen by the Ministry of Corporate Affairs, and so far, 200 Indian companies have registered. Opportunities span various sectors, including oil, energy, FMCG, travel and hospitality, and banking and financial services. Job profiles include manufacturing and operations management, production, sales and marketing, etc. In the first phase of the scheme, which commenced last month, companies registered on a dedicated portal and listed the internships available for individuals aged 21 to 24 years. Interns will gain exposure to a real-life business environment for 12 months, enabling them to secure full-time employment opportunities in the future. Companies are expected to cover the training costs and 10% of the internship cost from their corporate social responsibility (CSR) contributions.
Question: In a previous column, you mentioned that futures & options (F&O) carry significant risks and should be avoided. I have heard that SEBI has now imposed some restrictions. Could you elaborate on the recent guidelines?
ANSWER: There are over 10 million individual F&O traders in India. According to a recent study by the Securities & Exchange Board of India, 93% of these traders have incurred average losses of around Rs.200,000 each. While equity risks primarily arise from price volatility due to various factors, including geopolitical uncertainties, derivatives trading introduces an unnecessary additional risk, similar to gambling, where individuals are lured by the prospect of quick profits. To curb this tendency, SEBI has increased the entry barrier for individuals participating in equity derivatives trading by raising the contract size. The revised contract stipulation is now Rs1.5-2 million, up from the previous value of Rs500,000-1 million. Additionally, under the new regulations, option buyers must pay premiums upfront, whereas previously, brokers were allowed to provide collaterals. SEBI has also eliminated special pricing on expiring contracts that enabled traders to take larger positions. The regulator will now monitor position limits throughout the trading day instead of at the end of the session, helping to control volatile trading activity on expiry days. Exchanges have been advised to limit weekly expiries to one index per week, instead of the current practice of multiple expiries. While these regulations are necessary, losses may still occur in speculative activities, making it advisable to avoid equity derivatives trading.
H. P. Ranina is a practicing lawyer, specializing in corporate and tax laws of India.
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