Clearing the air about new tax regime for NRIs, the government has said that only those NRIs will be taxed in India who are not residents of any other country, but still enjoy NRI status as they stay out of India for enough duration in a year that makes them eligible to become NRIs.
The budget for the financial year 2020-21 presented by Finance Minister Nirmala Sitharam today also increased the number of days to be spent outside the country in a year to be eligible to become NRIs. Now Indian citizens who spent at least 240 days out of India will be considered NRIs are per the Income Tax Act, up from existing 182 days.
After the budget was presented, this new clause of taxing non-resident Indians had caused lots of outrage and confusion, as the provision was misinterpreted by people. It was reported that the new clause says “an Indian citizen who is not liable to tax in any other country or territory” will come under Indian tax net. This made people to assume that those Indians living in countries where they don’t have to pay any tax will have to pay income tax in India.
Indians in Dubai will wonder if their zero tax rate makes them “an Indian citizen who is not liable to tax in any other country or territory.” Hopefully not. Otherwise, they’ll have to pay Indian taxes. More broadly, NRIs can only spend 120 days tax free in India now, not 182?
— Andy Mukherjee (@andymukherjee70) February 1, 2020
NRI’s: There is now a fine print that if your not paying taxes in your country of residence but are an Indian citizen, you could be taxed on global income. (Source: CNBC Analsyst)
Going to be fun. ??
— Rohit D Kriplani (@rdkriplani) February 1, 2020
But this was a complete misinterpretation of the changes to the Income Tax Act. The relevant section of the Finance Bill presented by the Finance Minister says, “an individual, being a citizen of India, shall be deemed to be resident in India in any previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.”
The second part of this sentence was ignored, which had caused confusion and misinterpretation. The Finance Bill clearly says that if a non-resident individual is not liable to pay tax in any other country due to domicile or residential or similar reasons, then such individuals will be considered as Indian residents.
Revenue Secy: Some people are residents of no country. They may be staying in different countries for certain number of days. So if any Indian citizen is not a resident of any country in the world, he’ll be deemed to be a resident of India&his worldwide income will be taxed.(2/2) pic.twitter.com/Q2PwMMmoFt
— ANI (@ANI) February 1, 2020
At a press conference after the budget was presented, revenue secretary Ajay Bhushan clarified the matter by saying that only those NRIs will be taxed in India who are not residents of any country. The revenue secretary said, “some people are residents of no country. They may be staying in different countries for certain number of days. So if any Indian citizen is not a resident of any country in the world, he’ll be deemed to be a resident of India and his worldwide income will be taxed.” This implies that Indians who are residents of any other country will not come under this provision, as they will be paying income tax in their country of residence as per laws of that country
There are many globe trotters who spend few days in different countries, but do not have residential status in any country. As a result, such persons are not liable to pay income tax anywhere. Now only such NRIs will have to pay Income Tax in India.