Here, we shall specifically deal with the steps which are necessary for the computation of the total income or taxable income of a non-resident Indian in relation to a particular assessment year. The first step in computation of the total income is under each head of income separately after making the specified deductions and taking into account allowances allowed in computing income under such head of income. The total of the income under different heads of income is known as the gross total income. Any income which is completely exempt from tax is not to form part of the gross total income. Certain deductions in the matter of investment in Bank deposits, etc., are allowed from the gross total income. The balance is the taxable income of the non-resident Indian and is technically known as the “total income” of the non-resident Indian for a previous year in relation to a particular assessment year. A deduction of income tax is allowed on the investment in the form of NSCs (VIII Issue), P.P.F., special units, bonds, etc., under Section 80C of the income Tax Act. This is explained by means of an example given below.
The following are some of the most important points which should be remembered by an NRI in computing the (taxable) total income:
(a) If there is loss from one source of income, it can be set off against income from another source under the same head of income as per Section 70 of the I.T. At. If there is a short-term capital loss, it can be set off against short-term capital gain or long-term capital gain regarding any capital asset in the same assessment year. But the long-term capital loss can be set off only against taxable long-term capital gain and not against short-term capital gain.
(b) Normally, the loss under one head of income can be set off against income under another head of income except (i) business loss which cannot be set off against income under the head “Salaries”, and (ii) loss under the head “Capital gains”, as per Section 71 of the I.T. Act, 1961.
(c) Loss under the head “Income from house property” which can not be set off as described in (b) above shall be allowed to be carried forward for the next 8 assessment years for set off against income from house property as per Section 71B of the 1.T. Act, 1961.
(d) Unabsorbed business loss can be carried forward for set off against income under the head “Profits and gains of business or profession” for the next 8 assessment years as per Section 72 of the I.T. Act. However, speculation losses can be set off or carried forward and set off for the next 8 years only against speculation profits, as per Section 73 of the LT. Act.
(e) The unabsorbed short-term capital loss can be carried forward for set off against any capital gain — both long-term and short-term for the next 8 assessment years. However, long—term capital loss can be carried forward and set off for the next 8 assessment years only against long-term capital gain, as per Section 74 of the I.T. Act.
(f) The above rules are relevant for the computation of Indian taxable income and are not to be affected by the gain or loss made by the NRI in the foreign country.