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. Various news articles had spread wrong stories wherein they had stated that new amendments in FA 2020 will affect the taxation of salary received by sea farers badly. The amendment by FA 2020 will surely affect the residential status of sea farers but should not affect taxation of their foreign salary income. This article discusses in detail the amendments made and its impact on sea farers.
As per the former 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’) was 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 also 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.
Thus, from FY 2020-21, following additional categories of people will be considered as resident in India:
a) 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;
b) 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 sea farers (explained in form of FAQs)
Q1. Will a sea farer who is a Indian citizen having foreign income of more than fifteen lakh rupees be considered as resident in India even if he has stayed for less than 182 days in India during FY 2020-21?
A1. A sea farer is a person who does not stay in a single territory and keeps on sailing from one territory to other. Thus, there may be a situation, where sea farer may not constitute as resident of any country and may also not be liable to pay tax in any country.
In this scenario, deemed residency provisions of the Act will come into play and such person will become RNOR for FY 2020-21 even if he has stayed in India for less than 182 days.
Q2. With regard to Q1, if such person is considered as RNOR for FY 2020-21, will his salary income and other foreign sourced income will become taxable in India?
A2. Following income becomes taxable in India once considered as RNOR for Income-tax purpose:
Thus, foreign salary income and other income of sea farers which are not accrued or received in in India should not be taxable in India even if they are considered as deemed resident of India.
Q3. Will all provisions and beneficial rates applicable to NRIs be applicable to sea farers classified RNORs?
A3. All the provisions providing special benefits and lower rates for NRIs under IT Act will not be applicable for such individuals.
Q4. How will one determine residential status for FY 2020-21 of a sea farer having income of more than 15 lakhs who is not an Indian citizen but is a PIO and has stayed in India for less than 182 days?
A4. If such person has stayed in India for less than 182 days but for 120 days or more in that FY and for 365 days or more in preceding four FYs, then he will be considered as RNOR. It is important to note here that deemed residency provisions does not apply to PIO and thus his residential status in India will still be based on his number of days of stay in India.
CA Grishma Mody – NRI Tax Advisors- Email id – [email protected]
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.