Taxation of Non- Residents Person
Objective: Income tax liability can only be determined if we rightly determine the residential status of Person, per se certain income which is taxable for a resident, may not be taxable at all for Non-resident and a person who is citizen of India may be non-resident and vice-versa.
Basics: –Residential status as per Income tax and nationality is two different concepts. It means a person who is National of America may be resident of India in any previous year Broader view of any country is to tax income of their resident but with increased global participation of MNC’s and larger participation and movement of citizen of one country to other country has arises a problem of residential status. Let’s assume A is a citizen of India but has spent substantial period like 270 days during the financial year out of India. Does he still need to pay taxes in India for financial year as he was in India for only 90 days during the year?
Income Tax Provision: – Section 5 of Income Tax Act 1961, says that person who is resident in India has to pay taxes on all his income from whatever sources he derived or deem to be derived whether he received or deemed to be received in India or outside India. Similarly, Income arises to non-resident outside India is not taxable in India but it is taxable if it’s arises or accrued in India.
So to determine taxability of any person as explained above, one has to determine his residential status as per section 6 of Income Tax Act as amended by The Finance Act 2020. A new section 6(1A) of the Income Tax has been introduced by The Finance Act 2020, Which consider every citizen of India, deemed to be resident, if he is earning 15 lakhs and above not from foreign sources and not liable to pay taxes in any other foreign country. It means if a resident of India goes on vacation or visiting his relative or friends out of India and stay 365 days during the previous year and his income exceed 15 lakhs from India still he is resident in India and liable to pay taxes in India.
So, how residential status is determined? Any resident who is in India for 180 days or more during the previous year or if he is in India for 120 days during the previous year and 365 days during 4 immediately preceding previous year is Resident of India for Tax purpose and every person who is not resident is a non-resident for the tax purpose.
For taxation of Non-resident Section 9 of Income Tax is deeming provision. It specifies income that is deemed or supposed to be accrued or arise in India in few circumstances. Section 9 says irrespective of the residential status of the person if income derived is from the prescribed sources as defined in section, it is taxable in India.
It provides that all that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India shall be deemed to accrue or arise in India.
Conclusion: – Section 6 determines the residential status of an Individual and Section 5 determine Income which should be chargeable as per the residential status of the individual and section 9 is a deeming provision which income is chargeable irrespective of residential status. While drafting act lawmaker try to cover all projected scenario and if they find any new challenges same is addressed gradually. One such example is introduction of new section 6(1A), which irrespective of actual stay in India, consider person resident if his income exceeds 15 lakhs from India and does not pay taxes in any other country than India. It has broadened the base and covered all such individual who is having income above the prescribed limits, and staying outside India with their relatives or friends but does not have any income outside India.
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Disclaimer:- Writer is a professional and may be contacted at caminishmishra@gmail.com for any feedback or query around this. It is not a professional advice and discretion should be taken before taking any action based on article.
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