The Finance Bill 2020 has been passed by the Parliament with some major relaxations on March 23, 2020. At the stage of passing of the Bill, there have been amendments made which would directly impact the Non Resident Individual community w.e.f 01st April, 2020. The Article here explains the concept of Residential status, deemed Resident, Number of days required to be stayed in India.
Section 6 of the Income-tax Act defines parameters to determine the residential status of an Assesse. The residential status of an individual is determined by the number of days of his stay in India. As per existing section 6(1), an individual is considered as resident in India in a financial year if
1. He is in India for 182 days or more during the year; or
2. He has been in India for 365 days or more during the 4 immediately preceding years and for 60 days or more during the financial year.
Provides that in respect of an Indian citizen and a person of Indian origin who visits India during the year or to the Indian citizen who leaves India in any previous year as a crew member or for the purpose of employment outside India, the period of 60 days as mentioned in (b) above shall be substituted with 182 days
The Finance Bill, 2020 provides that Indian citizen or a person of Indian origin whose total income, other than income from foreign sources, exceeds Rs.15 lakhs during the previous year the period of 182 days reduces it to 120 days.
An NRI, whose taxable income exceeds Rs.15 lakh stays in India for 120 days or more, then such an individual further needs to check whether his stay in India is 365 days or more in the immediately preceding 4 years. Let us assume a non-resident visits India in FY 2020-21 (having taxable income in the financial year exceeding Rs.15 lakh) and stays for say 150 days. Further, during the preceding 4 financial years (i.e., FY2019-20, 2018-19, 2017-18, 2016-17) he was in India for total of 380 days.
In such a case, he will be treated as a resident individual for income tax purposes. While this may ring alarm bells for many NRIs, but in a relief they will be treated as “Resident but Not Ordinarily Resident (RNOR)”. This would be a relief as their foreign income (i.e., income accrued outside India) shall not be taxable in India.
An individual is treated as ‘Resident but Not Ordinarily Resident’ (RNOR) if any of the following conditions are satisfied:-
1. An individual who has been a non-resident in India in 9 out of 10 previous financial years Preceding that year or
2. Has during the 7 previous years preceding that year been in India for a period of, or periods amounting in all to 729 days or less
The above 2 additional conditions have been retained as per the current law. Further, we have noted above that due to the amendment made, an individual whose taxable income exceeds Rs.15 lakh and stays in India for 120 days or more (but less than 182 days) and is treated as a resident individual will still be treated as “Resident but Not Ordinarily Resident (RNOR)”
1. For Resident Ordinarily Resident Individual –Income earned in India and outside shall be taxable.
2. For Non Resident Individual- Income earned outside India shall not be taxable and only Income earned in India shall be taxable.
3. For Resident Not Ordinarily Resident Income earned outside India shall not be taxable provided it is not derived from a profession or Business set up in India.
|Sr.No.||Particulars||Residential Status and taxability in India|
|1.||Income received or deemed to be received in India||YES||YES||YES|
|2.||Income which accrues or arises or is deemed to accrue or arise in India||YES||YES||YES|
|3.||Income which accrues or arises outside India from Business controlled in India or profession setup in India||YES||YES||NO|
|4.||Income which accrues or arises outside India from Business controlled in India or profession setup outside India||YES||NO||NO|
ROR: Resident Ordinarily Resident
RNOR: Resident Non Ordinarily Resident
NR: Non Resident.
As proposed in Budget 2020, an individual being a citizen of India, shall be deemed to be a resident in India in any previous financial 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. However, this provision will be applicable only if his total taxable Indian income during the financial year is more than Rs.15 lakh as per the amended Finance Bill. The residential status of such person shall of a ‘Not Ordinarily Resident’.
In case of NRIs who are residing in UAE, Saudi and certain countries (which do not levy personal income tax) and have taxable Indian income of more than Rs.15 lakhs, a question arises whether they can be treated as “liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature”.
In the context of the Double Tax Avoidance Agreement with the UAE, the Indian judicial and advance ruling authorities have taken a view that “liable to tax” need not be equated with “payment of tax”. As per Indian UAE Tax Treaty and the Protocol, a person who stays in UAE for more than 182 days in a year is eligible to get a “tax residency certificate” and is treated as tax resident. In view of the above and the clarification issued above, such persons would not get covered by the above deemed.
|Class of Individual||Total income (excluding income from foreign sources)||Minimum no. of days of stay in India during the relevant year to be considered as ‘Resident in India’||Whether liable to pay tax in any other country||Residential Status if stay in India is less than no. of days mentioned in condition (b)|
|Indian citizen going outside India as a crew member or for employment||Not exceeding Rs.15 lakhs||182 days||Yes||Non-resident|
|Not exceeding Rs.15 lakhs||182 days||No||Non-resident|
|Exceeding Rs.15 lakhs||182 days||Yes||Non-resident|
|Exceeding Rs.15 lakhs||182 days||No||Not Ordinarily Resident*|
|Indian citizen visiting India||Not exceeding Rs.15 lakhs||182 days||Yes||Non-resident|
|Not exceeding Rs.15 lakhs||182 days||No||Non-resident|
|Exceeding Rs.15 lakhs||120 days (and 365 days in last 4 years)||Yes||Non-resident|
|Exceeding Rs.15 lakhs||120 days (and 365 days in last 4 years)||No||Not Ordinarily Resident*|
* The period of stay in India should be 120 days or more but less than 182 days.
NRIs need to carefully consider the total Indian income and plan their travel itinerary based on the amendment for their period of stay. The positive aspect is that in most cases, NRIs can continue to visit India for up to 181 days in the financial year and even in other cases where the period of stay in India is 120 days (and also for 365 days or more in preceding 4 years) or more or in case of Indian citizens who are not tax residents of any other country and are deemed to be tax residents of India, the status would be RNOR and hence foreign income shall not be taxable in India.
The above is written by CA Suyash Tripathi and can be reached at [email protected]