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Section 44B of Income Tax Act – Shipping Business of Non Residents

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June 5, 2021

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14 mins read

Section 44B of Income Tax Act 1961 – Shipping Business of Non Residents

Section Section 44B of Income Tax Act 1961
Particulars Income from shipping business on presumptive basis
Rate of presumptive income/deduction 7.5%
Type of business Non-resident engaged in shipping business

Who can opt for presumptive tax provisions ?

Any non-resident engaged in business of operations of ships may opt for presumptive taxation under Section 44B of Income Tax Act.  It is not mandatory, for a person who is engaged in the business of operations of ships, to  follow the provisions of Section 44B. Such a person can opt to be governed by the normal provisions of Income Tax Act, and maintain the required books of accounts and other documents, for the purpose of arriving at their taxable income in India.

What would be the profits and gains of non-resident ?

Profits of a non-resident  who is  engaged in the business of operation of ships and opts for the provisions of Section 44B of Income Tax Act, would to be   7.5% of the aggregate of the specified receipts. Kindly note, that it is the profit and gains of Business and profession, and not the Tax amount, that is calculated above at 7.5% of the aggregate of the specified receipts. The tax payable by the  non-resident, would be calculated by applying the normal tax rate applicable to such at 7.5% of the aggregate of the specified receipts non-resident to such profits.

For this purpose, the specified receipts shall be aggregate of following amounts  :

Receipts from goods shipped at any port in India : –

  • Such receipts, shall include amount paid or payable, on account of carriage of passengers, livestock, mail or goods shipped at any port in India;
  • The amount may be paid for payable in India or Outside India ;
  • The amount may be paid for payable to the assessee or to any person on his behalf.

Note : –

Such amount shall also include demurrage charges or handling charges or any other amount of similar nature.

Receipts from goods shipped at any port outside India : –

  • Such receipts, shall include amount paid or payable, on account of carriage of passengers, livestock, mail or goods shipped at any port outside India;
  • The amount may be received in India or deemed to be received in India; and
  • The amount received in India or deemed to be received in India by assessee or on behalf of the assessee .

International Taxation Services

Note : –

Such amount shall also include demurrage charges or handling charges or any other amount of similar nature.

Summary of What Shall Constitute Specified Receipts – Section 44B of Income Tax Act 1961

SUMMARY OF WHAT SHALL CONSTITUTE SPECIFIED RECEIPTS

Section 44B of Income Tax Act – Example 1

A foreign shipping company received following amounts on account of carriage of passengers from Chennai : –

  1. Rs 20 lakhs in India ; and
  2. Rs 1 crore in Malaysia

Calculate the presumptive income of the Foreign shipping company , if it opts to be governed under Section 44B ?

Solution –

Particulars Amount
7.5%* of Amount received in India (Rs. 20 lakhs)

7.5%* of Amount received in Malaysia (Rs 1 crore)

1,50,000

7,50,000

Amount taxable as per Section 44B 9,00,000
Tax Rate 40%
Tax amount 3,60,000

 

Section 44B of Income Tax Act – Example 2

In Example 1, if the carriage of passengers was also  from Malaysia for freight received in Malaysia, what would be the Presumptive income under Section 44B  ?

Solution

Particulars Amount
Amount received in India (7.5%* Rs 20 lakhs)

Amount received in Malaysia (Note 1)

1,50,000

Nil

Amount taxable as per Section 44B 1,50,000
Tax rate 40%
Tax amount 60,000

Note : –

Only freight received in India will be considered in case of carriage of passengers from any port outside India (i.e, ., Malaysia)

II. DEDUCTION OF ANY EXPENDITURE

No deduction of any expenditure , which is incurred under   Section 28 to 43A would be allowed , while computing presumptive income of the non-resident u/s 44B.

III. CARRY FORWARD AND SET-OFF OF LOSSES

An assessee who has opted to be governed by the provision of Section 44B, shall be entitled  to carry forward , and set-off of losses as per the normal provision of the IT Act. These benefits are not available while computing income u/s 172.

IV. DEDUCTION UNDER CHAPTER VI-A

All deductions under Chapter VI-A from Section 80C to Section 80U would be available to taxpayers opting for presumptive taxation under Section 44B of Income Tax Act. These benefits are not available while computing income u/s 172.

Note : –

Provisions of Section 44B of Income Tax Act are only for computing the presumptive income. Tax liability will be determined as per normal provisions of the IT Act.

Section 44B of Income Tax Act – Example 3

Mr. Jim is a non-resident and is engaged in shipping business. During the previous year 2019-20, he collects following freight (Mr. Jim does not have any other income in India) : –

  • 50 lakhs, for shipping of goods from Chennai port (Amount of freight was paid in India). He also collects demurrage charges of Rs. 60,000 and handling charges of Rs. 40,000 in India.
  • 2 crore for shipping of goods from Singapore port (freight paid in Singapore)
  • 1 crore for shipping of goods from Malaysian port (freight paid in India)
  • He incurred expenditure of Rs 5 lakhs in India for such shipping business.
  • He had brought forward loss of Rs 50,000 from manufacturing business in India.

Compute the tax liability of Mr. Jim, assuming he opts for the provision of Section 44B ?

Particulars Amount
Shipping of goods from Chennai port [7.5%* (Rs 50 lakh+ Rs 1 lakh)]

Shipping of goods from Singapore port (Note 1)

Shipping of goods from Malaysian port [7.5%* Rs 1 crore]

3,82,500

Nil

7,50,000

Business income

Less: Business expenditure (Note 2)

Less: Brought forward business loss

11,32,500

Nil

50,000

Net Income 10,82,500
Tax at the normal rate applicable to Individual (Note 3) 1,54,243

Notes

  1. When goods are shipped from any port outside India, freight should be received in India or deemed to be received in India in order to include it in taxable income. As goods are shipped from Singapore Port, freight received in Singapore would not be considered under Section 44B.
  2. While calculating presumptive income under Section 44B of Income Tax Act, deduction of business expenditure would not be allowed.
  3. Provisions of Section 44B of Income Tax Act 1961 are only for computing presumptive income. Tax liability will be determined as per normal slab rates applicable to Individuals.

International Taxation Services

Section 44B of Income Tax Act – Example 4

In the aforesaid example, assume that assessee is also eligible to claim Chapter VI-A deduction of Rs 1,00,000, while all other facts remain unchanged. Compute the tax liability of Mr. Jim ?

Solution –

Particulars Amount
Income as per Example 1 10,82,500
Less: Deduction under chapter VI-A 1,00,000
Net Income 9,82,500
Tax at the normal rate applicable to Individual 1,25,145

For any queries, please write them in the Comment Section or Talk to our tax expert

Presumptive Taxation Provisions for Non residents

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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One Reply to “Section 44B of Income Tax Act – Shipping Business of Non Residents”

  1. Apurv Mathur says:

    Hello Sir

    I have to pay a freight amount of 2800 USD for AIR FREIGHT from China to India. Freight is to be paid in USD at Origin Port (China) to the Freight Forwarder Company Based in Shenhzen (China) . I will be transferring USD using International Remittance under S0209 Freight on imports – Airlines companies.

    Will there be any TDS Liability on this ? If yes what will be the amount

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