3 min read.Updated: 05 Jan 2021, 04:54 PM ISTSudhakar Sethuraman,K. Ratna,Ankit Agarwal
Given their efforts towards nation building, the NRIs expect the forthcoming Budget to reward them with sops such as ease of compliance under the Income-tax Act, 1961 (the Act) and reduction in withholding tax rates, among other relaxations
With the countdown for Union Budget underway, the Indian diaspora, which has been instrumental in making India one of the leading recipients of remittances from abroad, is now eagerly anticipating tax sops and benefits from finance minister Nirmala Sitharaman.
According to a 2018 World Bank report, non-resident Indians (NRIs) remitted $80 billion into the country. Given their efforts towards nation building, the NRIs expect the forthcoming Budget to reward them with sops such as ease of compliance under the Income-tax Act, 1961 (the Act) and reduction in withholding tax rates, among other relaxations.
Relief of residential status on account of Covid-19
With the Covid-19 pandemic, NRIs who were on a visit to India towards the end of the Financial Year (FY) 2019-20 for a short duration and were forced to extend their stay post-April 2020 due to the lockdown, are now in a state of worry in terms of their residential status for the FY 2020-21 and the resultant impact on their global income taxation.
The Central Board of Direct Taxes (CBDT) had issued a circular relaxing the methodology of computing the ‘number of days’ of stay in India for the purpose of section 6 of the Act for FY 2019-20. The circular stated that the stay in India during the lockdown period was exempt from computing the threshold to determine the residential status.
It is expected that the government provide similar relaxation for FY 2020-21 also, else some NRIs might end up qualifying as Residents in India thereby increasing their scope of taxable income in India.
Employees of foreign companies deputed to India on short-term business visits and qualifying as Non-Residents (NR) in India during a FY are taxable in India by the virtue of rendering services in India.
Section 10(6)(vi) of the Act provides exemption to employees of foreign companies (not being Indian citizens /persons of Indian origin) rendering services during their stay in India.
Such an exemption should now be extended to NRI citizens to bring parity in provisions.
DTAA benefit at tax withholding stage
Globalisation has led many Indians take up employment overseas. In some cases, they remain on India company payroll, continuing to receive salary in India, and also being subject to tax withholding on such salary. Section 192 of the Act does not explicitly provide for benefits under the Double Taxation Avoidance Agreement (DTAA) while calculating tax at source (TDS).
It is expected that Section 192 be amended to expressly provide that benefit under the applicable DTAA shall be provided for while calculating TDS by the employer at the time of payment of salary.
Rental payments made to NRI by resident/ non-resident
Section 194-IB of the Act provides for deduction of tax on rental payments made to residents at the rate of 5%, as against a TDS rate of 30% under Section 195. Besides, the tenant also has the administrative burden of obtaining a tax deduction account number (TAN) for undertaking the tax compliance on the rental payments to an NRI landlord.
NRIs expect that a similar provision as applicable to residents, be introduced, whereby the TDS rate is lowered, and relaxation is provided on the administrative front in the form of challan-cum-statement.
Rule 3 - value of perquisites of employee stock options
Currently, stock options are subject to tax at the time of allotment of shares, with the taxable value being excess of fair value of shares over the exercise price. Based on OECD commentary and various judicial precedents, individuals who qualify as non-resident and exercise stock options should be subject to tax in India on the pro-rata value in respect of days spent in India during the period grant to vest.
It is expected that the Act should specifically provide for pro-rata taxation in respect of NRIs, to avoid litigation.
Definition of visit under explanation (b) to section 6(1)
Currently, tax residency norms permit non-resident Indians / PIOs to stay in India for longer duration when compared to foreign citizens, without losing their non-resident status, if they are on a ‘visit’ to India.
The term ‘visit’ has not been defined in the Act. There are no specified regulations listing out the activities that are permitted when a person is on a ‘visit’.
It is expected that the term "visit" be defined or explained to avoid any anomalies.
Hopefully, the upcoming Union Budget will consider the above asks of NRIs and provide much-awaited relief and relaxation to the Indian diaspora. Such a move can act as a catalyst for further remittances and investments in India by NRIs.
The author is Sudhakar Sethuraman is Partner, K. Ratna is Director, and Ankit Agarwal is Manager with Deloitte Haskins and Sells LLP.
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