Provisions not to apply if the assessee so chooses.

218(1)

A non-resident Indian may choose not to be governed by the provisions of sections 212 to 217 for any tax year by declaring it in his return of income under section 263 for such tax year. and if he does so,—

• (a) the provisions of sections 212 to 217 shall not apply to him for that tax year, and
• (b) his total income for that tax year shall be computed and charged to tax according to the other provisions of this Act.

Explanation

Section Summary:

Section 218(1) allows non-resident Indians (NRIs) to opt out of the provisions outlined in Sections 212 to 217 for a specific tax year. If an NRI chooses to do so, they must declare this in their income tax return under Section 263. By opting out, the NRI will not be governed by the rules in Sections 212 to 217 for that tax year, and their income will instead be computed and taxed under the general provisions of the Income Tax Act.

Key Changes:

• New Provision: This section introduces an optional mechanism for NRIs to exclude themselves from the application of Sections 212 to 217.
• Prior Law: Previously, NRIs were automatically subject to the provisions of Sections 212 to 217 unless specific exemptions applied. This section now provides a formal way to opt out.

Practical Implications:

• For NRIs: This provision gives NRIs greater flexibility in how their income is taxed. By opting out, they can avoid the specific rules and conditions under Sections 212 to 217, which may simplify their tax compliance process.
• Tax Computation: If an NRI opts out, their income will be taxed under the general provisions of the Income Tax Act, which may result in different tax liabilities compared to the rules under Sections 212 to 217.
• Compliance: NRIs must explicitly declare their choice to opt out in their income tax return under Section 263. Failure to do so means they will continue to be governed by Sections 212 to 217.

Critical Concepts:

• Sections 212 to 217: These sections typically deal with specific tax provisions applicable to NRIs, such as taxation of income earned in India, exemptions, and deductions.
• Section 263: This section pertains to the filing of income tax returns by NRIs. The declaration to opt out must be made in the return filed under this section.
• Total Income: Refers to the aggregate income of the NRI, which will be computed and taxed under the general provisions of the Income Tax Act if they opt out of Sections 212 to 217.

Compliance Steps:

1. Declaration in Tax Return: The NRI must declare their choice to opt out of Sections 212 to 217 in their income tax return filed under Section 263.
2. Tax Computation: Ensure that the total income is computed and taxed under the general provisions of the Income Tax Act for the relevant tax year.
3. Documentation: Maintain records of the declaration and any supporting documents to substantiate the computation of income under the general provisions.

Example:

• Scenario: An NRI earns income from rental property in India and interest from fixed deposits. Under Sections 212 to 217, certain deductions or exemptions may apply to this income. However, the NRI finds that opting out and being taxed under the general provisions of the Income Tax Act results in a lower tax liability.
• Action: The NRI declares in their income tax return under Section 263 that they choose not to be governed by Sections 212 to 217 for that tax year. Their income is then computed and taxed under the general provisions, potentially reducing their overall tax burden.

This section provides NRIs with a strategic choice to optimize their tax liabilities based on their specific financial circumstances.