Can you explain the tax provisions announced in Budget 2020 and how they will affect the taxation of a non-resident Indian’s (NRI) income? What’s the change?
Budget 2020 amended the tax residency rules for NRIs. Till financial year (FY) 2019-20, an NRI who visited India would be considered a resident if they spent 182 days or more in the previous year in the country, in addition to an aggregate stay of 365 days or more in the preceding four years. Budget 2020 proposed to lower the threshold period of stay in the previous year to 120 days from 182 days.
Second, the budget proposed to amend the definition of “not ordinarily resident". Till FY20, an individual was classified as a “not ordinarily resident" if he was a non-resident in India for nine out of 10 preceding years. The budget proposal has reduced the numbers of years to seven out of the 10 preceding years.
The proposal to lower the threshold for visiting NRIs qualifying as residents in India may result in double taxation of the global income of NRIs, both in India and in the country of their tax residence.
The government is seeking to tax NRIs who are carrying on substantial economic activities from India. Under the present residence criteria of a minimum stay of 182 days in an FY, NRIs remain non-resident in India perpetually. Consequently, they do not declare and pay tax on their global incomes in India.
NRIs may face issues of having dual tax residence, dual homes, economic interests and dual citizenship. It is likely to cause difficulty for high net-worth individuals to determine their tax residence. They may be required to disclose their wealth and assets to the income tax authorities of the respective countries.
Budget 2020 proposed to deem citizens of India who are not tax residents of any country as tax residents of India. This would have the impact of taxation of global income of such individuals in India. Such individuals would not be able to employ international taxation rules to avoid taxes in India. Individuals who are non-residents of all the countries in which they work but a citizen of India would be deemed to be Indian tax residents.
Archit Gupta is founder and chief executive officer, ClearTax. Send in your queries and views at firstname.lastname@example.org