For a non-resident individual, any income which is received or deemed to be received OR which accrues or deemed to be accrue in India shall be chargeable to tax in India. With regard to the interest income of a non-resident, any interest income received or accrued or deemed to be received or accrued in India shall be taxed in India. Any interest payable outside India by the following shall also be deemed to accrue or arise in India:

(i)           Interest payable by the central or state government

(ii)         Interest payable by a resident outside India except in the following cases:

• Interest is payable by a resident in respect of any debt incurred or any money borrowed and used, for the purpose of a business or profession carried on by him outside India, and
• Interest is payable on any money borrowed by a resident for the purpose of making or earning any income from any source outside India.

(iii)       Interest payable by a non-resident in respect of any debt incurred, or money borrowed and used, for the purpose of a business or profession carried on by him in India.

Taxability in case when there is treaty between India and the country of which he is resident

• If such interest arises through permanent establishment in India

Interest income is treated as a business income and will be chargeable to tax at the special rate as prescribed by the act.

• If such interest does not arises through permanent establishment in India

In such case, the interest income will be chargeable to tax as per the provision of Income Tax Act or provisions of DTAA, whichever is more beneficial to the assessee.

Taxability in case when there is no treaty between India and the country of which he is resident

In such cases, interest income shall be taxable in India as per the provisions of Income tax act.

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Founder and Director at Taxmantra.com