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One of the major changes in the Finance Act, 2020 ('FA, 2020') is with respect to amendments in residential status criteria, which directly impacts the Non Resident Individual (NRI) community. Amendments made, its impact and way forward are explained below.

Amendments made:

As per the erstwhile provisions of Income-tax Act, 1961 (IT Act), an Indian citizen/Person of Indian origin ('PIO') who has visited India for less than 182 days in a Financial Year ('FY') is considered to be a non-resident in India.

FA, 2020 has added one more criteria to above for determining residential status of an Indian citizen/PIO visiting India. As per the said amendment, an Indian citizen/PIO having total income, other than income from foreign sources, exceeding fifteen lakh rupees in a FY would be considered as a resident in India if he has come to visit India for 120 days or more during a FY and has stayed in India for 365 days or more during 4 years preceding the relevant FY.

In addition to above amendment, FA, 2020 has introduced a concept of deemed residency for such Indian citizens whose total income other than income from foreign sources exceeds fifteen lakh rupees in a FY and he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria. Such individuals would be considered as deemed resident irrespective of their number of days of stay in India.

Amendments in relation to residential status as per Finance Act 2020

Thus, from FY 2020-21, following additional categories of people will be considered as resident in India:

  1. an Indian citizen/PIO whose Indian total income exceeds fifteen lakh rupees and has come to visit India for more than 120 days and has stayed in India for 365 days or more during 4 years preceding the relevant FY;
  2. an Indian citizen whose total income other than income from foreign sources exceeds fifteen lakh rupees in a FY and he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria.

Further, as per FA, 2020, the above two categories would be regarded as Resident but Not Ordinary Resident ('RNOR') in India.

Impact of above Amendment on NRIs:

  • In addition to keeping track of number of days stayed in India, NRIs will also have to keep track of their total income from Indian sources.
  • Indian citizens residing in such jurisdiction where there is no personal tax law (like UAE, Saudi Arabia, etc) may be considered as deemed resident, if their total income from Indian sources exceeds fifteen lakh rupees.
 

Following income will become taxable once considered as RNOR for Income-tax purpose:

  • Income from business controlled in India or profession set up in India
  • Income received in India or income earned from Indian source
 

Thus, foreign income (except income from business controlled in India or profession set up in India) would  not be taxable in India in hands of such individuals.

  • All the provisions providing special benefits and lower rates for NRIs under IT Act will not be applicable for such individuals.
  • Withholding tax rates applicable for residents should apply. These rates are generally lower than the withholding tax rates applicable for NRIs.

Way Forward:

  • NRIs will need to carefully consider their total income and plan their travel itinerary in India in a way that they can still be considered as a non-resident in India.
  • Indian citizen from such jurisdiction where there are no personal tax laws may resort to the provisions of Double Taxation Avoidance Agreement ('DTAA') and analyse if they can be considered as non-resident in India for DTAA purpose and thus can claim beneficial treaty provisions.

The author can also be reached at grish.mody@gmail.com

Disclaimer:

This article is based on the relevant provisions of Income-tax Act, 1961 and as per the information existing at the time of the preparation. This is only a knowledge sharing initiative and views, thoughts, opinion expressed are of my own. In no event I should be held liable for any direct or indirect result from this article.

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