Finance Act 2020, as passed in Lok Sabha, brought up some significant changes to the provisions of determining the residential status of an individual in India. Finance Minister Shree Nirmala Seetharaman tried to narrow down the means by which an individual avoids taxes in India by becoming a non-resident in India. These changes have been discussed below in details.

Amendments by Finance Act 2020

Finance Act 2020 brought up the following changes in Sec-6 of the Income Tax Act: –

1. in clause (1), in Explanation 1, in clause (b), for the words “substituted” occurring at the end, the words “substituted and in case of the citizen or person of Indian origin having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year,” for the words “sixty days” occurring therein, the words “one hundred and twenty days” had been substituted

Before the amendment, a person of Indian origin or a citizen of India, who came to a visit in India was considered non-resident in India if his stay in India does not exceed 181 days during the previous year. However, after the amendment, this limit has been reduced to 119 days only if such person earns Rs. 15 lakhs or more in India (excluding his foreign income).

2. A new clause (1A) has been inserted under Sec 6 which has been reproduced as below:

Notwithstanding anything contained in clause (1), an individual, being a citizen of India, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be deemed to be resident in India in that 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.

This is a new condition introduced which says an Indian citizen who earns Rs. 15 Lakhs or more in India during the previous year  shall be considered to be a RNOR (read with sub-clause (d) of clause (6) of sec 6) if he is not taxed in any other country by virtue of his residence or domicile in  that country.

3. Further, in clause (6),after sub-clause (b), the following shall be added, namely:—

(c) a citizen of India, or a person of Indian origin, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year, as referred to in clause (b) of Explanation 1 to clause (1), who has been in India for a period or periods amounting in all to one hundred and twenty days or more but less than one hundred and eighty-two days; or

(d) a citizen of India who is deemed to be resident in India under clause (1A)

Above mentioned sub-clause (c) and (d) have been added to clause (6) of section 6 as per which the person shall be considered to be a RNOR if his stay in India is between 120 days to 181 days for category 1 above and if he falls in category 2 above (always RNOR).

Impact of Amendments

Since the above changes will restrict a person to become non-resident in India easily, such person will suffer by becoming a resident in India due to the amendments. Some of the losses of such person by not remaining NR now may be as follows:-

1. Non applicability of certain exemptions- under the income tax laws, certain exemptions like exemption under clause(4), clause (4B), clause (6B) and sub-clause(iid) of clause (15) are specifically for NR only. A person who has become resident due to the changes will not enjoy these exemptions anymore.

2. Non applicability of certain exceptions- a certain exceptions from capital gain taxes as provided under sec-47 of the income tax act will not remain enjoyable to the ‘now resident’ persons. These exceptions may include exceptions under clause (viia), (viiaa), (viiab) and clause (viib) of section 47.

3. Non availability of lower rate of taxes- Lower rate of taxes as provided under sections 112 or 115A or 115AB or 115AC shall also not be applicable to the ‘now resident’ persons.

Apart from these, there are other provisions also under the law which shall not apply to the ‘now residents’ and these non-residents have to bear the loss due to the mentioned changes under sec-6.


A brief and in depth reading of these amendments indicates that a person who is currently non-resident but becomes resident due to the amendments will have to bear some significant losses. All these mentioned losses will encourage such persons to withdraw investments made in the form of shares, bonds, debentures and bank balances from India. This may impact India’s motive of attracting foreign investments which is not in line with the policies of India.

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April 2021