India touted as a hub for automobile manufacturing

dubai - During the financial year ended March 31, 2018, automobile exports were $7.1 billion

Q: India is touted as a manufacturing hub for automobiles. Is there any truth in this statement? What export performance has been recorded during the last financial year?

A: During the financial year ended March 31, 2018, automobile exports were $7.1 billion, according to data released by the Ministry of Commerce. Exports to the United States increased to $654 million as against just $3.52 million during the preceding year ended March 31, 2017. However, there was a decline in exports to the United Kingdom, Spain and Italy.

Two American companies, Ford and General Motors, are using India as one of their manufacturing hubs, which resulted in the export of automobiles to the United States during the year ended March 2018. The largest market for Indian automobile manufacturers is Mexico. Exports to this country during the financial year 2017-18 touched $1.69 billion. Cars manufactured in India are currently sold in about 175 countries.

Q: I have been associated with a publishing company in India for the past many years, having invested in the company. Though I am not a director, I am being consulted from time to time on all important proposals. This company is completing 50 years of its existence and to commemorate this occasion, it proposes to spend a substantial amount in constructing houses for the poor. The directors are of the opinion that this gesture will give wide publicity to the publication which in turn will boost its circulation and revenues. Will this expenditure be allowed as a deduction from its regular business income?

A: The business of this company is to publish newspapers and periodicals. The circulation of the newspaper is of utmost importance for the success and profitability of its business. Any expenditure which is wholly and exclusively incurred for the purpose of the business is deductible under section 37 of the Income-tax Act. However, expenditure which is not directly connected with the publication business of the company would not be allowed as a deduction by the tax department.

The construction of houses for the poor is a social welfare activity which would help the community at large. The publicity and goodwill generated by this gesture may indirectly help in boosting the circulation of the newspaper and periodicals. However, the expenditure on constructing the houses will not be treated as being incurred wholly and exclusively for the purpose of the business. Claim of such expenditure incurred in constructing the houses would, therefore, lead to litigation with little prospects of success.

Q: After having worked for more than 10 years in Saudi Arabia and Malaysia, my cousin has now retired. He intends to continue living in Malaysia. He owns a flat and a business interest (passive investment in a retail business) in Malaysia and he holds a multiple entry visit visa to the country. Please note that while his intention is to live in Malaysia permanently, he may stay in India for uncertain periods (say, more than 183 days in a financial year) during his visits. He also has a house in India. From a Fema perspective, can he continue to maintain his NRI status?

A: Under the Foreign Exchange Management Act, intention to live in a foreign country is one of the criteria to establish non-resident status. On the other hand, under the Income-tax Act, 1961, the resident or non-resident status is determined by the number of days a person is physically present in India. Therefore, from the Fema perspective, your cousin would be treated as being non-resident on the ground that he has a house in Malaysia and that he has a passive business interest in that country. While your cousin may visit India as frequently as he wishes, he would not be a person resident in India under Fema, provided he does not carry on any business in India.

If he is in India for more than 182 days in any financial year, he would be treated as being resident but not ordinarily resident under the tax law. This would be for two consecutive financial years, assuming that he has spent more than 182 days in India in each financial year. With the RNOR status, he would have to pay tax in India only on his Indian income. However, from the third year onwards, if he again spends more than 182 days in India, he will be treated as resident and ordinarily resident. Under this status, he would have to pay tax in India on the aggregate of income earned in and outside India.

The writer is a practising lawyer specialising in tax and exchange management laws of India. Views expressed are his own and do not reflect the newspaper's policy.