Recent clarification issued by CBDT – Lockdown time period will not be counted in the determination of residential status of NRIs for the FY 2019-20

Considering the impact of Covid 19 and amidst the situation of lockdown and suspension of international flights CBDT has recently issued Circular No 11 of 2020 dated 8 May 2020 in respect of the residency under section 6 of the Income Tax Act, 1961 wherein the board has clarified that the lockdown period will not be counted to determine the NRIs residency status for the purpose of computation of tax liability. Therefore board has allowed discounting of prolonged stay period in India for the purpose of determining residency status.

Presently the circular takes care of the residential status for the FY 2019-20 only and thus excluded period till March 31st, 2020 only. The ministry further stated that as the lockdown continues during the FY 2020-21 and it is not yet clear as to when international flight operations would resume, a circular excluding the period of stay of these individuals up to the date of normalization of international flights operations, for determination of the residential status for the FY 2020-21 shall be issued after flights are resumed.

What has been included in the circular and impact of the same on the calculation of period of Stay?

S.No Various Possible Scenarios Period of Stay that shall not be taken into account
1 Individual who has come to India on or before March 22,2020 and has been unable to leave India before March 31,2020 From March 22 to March 31,2020
2 Individual who has departed on an evacuation flight on or before March 31, 2020. From March 22 to March 31,2020
3 Individual who has been quarantined in India on account of Covid-19 on or after 1 March,2020 and unable to leave India on or before 31 March,2020 From the date of quarantine to 31st March, 2020
4 Individual who has been quarantined in India on account of Covid-19 on or after 1 March, 2020 and departed on an evacuation flight on or before March 31, 2020. From the date of quarantine to the date of departure

Comments:

Due to travel restrictions and quarantine requirements, several foreigners / NRIs have been stranded and forced to stay ‘involuntarily’ in India. Several representations were made to the Government to disregard the number of days spent by such individuals in India on account of such ‘involuntary stay’. The Circular is timely and a welcome move by the Government as it has appreciated the genuine concerns of foreigners / NRIs with respect to their tax residential status.

As mentioned above, the number of days spent by a person in India in a FY is relevant not only for determining his / her tax residency status for that particular year, but also for subsequent financial years. In light of this, it would have been ideal had the Government also stated that the number of days of ‘involuntary stay’ in FY 2019-20 would be disregarded while determining the tax residency status of such individual for any subsequent financial year.

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