In this article, I have covered the need and relaxations provided by the Central Government on Residential Status in Circular no. 11 dated May 8, 2020.
As per the provisions of section 6 of the Income-tax Act, 1961 ‘period of stay’ of an individual is used to determine the residential status of individual taxpayers. Ordinarily, any individual who stays for a period of 182 / 60 days (subject to other conditions) or more in a previous year (FY 2019-20) is a resident in India. Once he becomes a resident his global income is taxable in India.
In the current scenario of the COVID-19 pandemic, most of the countries including India have restricted/suspended international travel due to which people may have to undertake compulsory stay in India. Consequently, there is a high possibility that an individual may cross the threshold of 182 / 60 days for FY 2019-20 thus, qualify as an Indian tax resident and liable to pay tax on his global income. However, there are several rich Indians who shuffle between countries to avoid staying in India beyond stipulated time as a part of their tax planning. Restricted/suspended international travel due to Covid-19 can shatter their tax planning and liable to pay tax on their global income.
Considering the Covid-19 crisis, “to avoid genuine hardship to individuals,” and similar representations seeking relaxations on the residential status the Central Board of Direct Taxes (CBDT) invoked powers under Section 119 of the Income Tax Act, 1961 and issued a Circular no. 11, dated May 8, 2020, and granted the following relaxations:
To determine the residential status under section 6 of Income-tax Act, 1961 during the previous year 2019-20 in respect of an individual who has come to India on a visit before 22nd March 2020 and:
1. has been unable to leave India on or before 31st March 2020, his period of stay in India from 22nd March 2020 to 31st March 2020 shall not be taken into account; or
2. has been quarantined in India on account of Novel Corona Virus (Covid-19) on or after 1st March 2020 and has departed on an evacuation flight on or before 31st March 2020 his period of stay from the beginning of his quarantine to his date of departure shall not be taken into account; or
3. has been quarantined in India on account of Novel Corona Virus (Covid-19) on or after 1st March 2020 and has been unable to leave India on or before 31st March 2020, his period of stay from the beginning of his quarantine to 31st March 2020, as the case may be, shall not be taken into account; or
4. has departed on an evacuation flight on or before 31st March 2020, his period of stay in India from 22nd March 2020 to his date of departure shall not be taken into account.
CBDT may issue another circulation, at a later date, excluding the period of stay of these individuals up to the date of normalisation of international flight operations to determine their residential status for the previous year 2020-21.