*Yashish Sharma

Determining the residential status for income tax purposes is a big challenge for this financial year and a part of the previous financial year. This has been a topic of debate as many non – residents had to extend their stay in India, in view of the lockdown and resultant suspension of international flights due to the outbreak of COVID-19. Central Board of Direct Taxation (CBDT), on 8th May 2020, have issued guidelines regarding this and provided some clarity on this subject. In this article, we have discussed briefly about the concept of residential status, the amendments as per Budget 2020 and the circular issued by CBDT.

ERSTWHILE PROVISIONS RELATED TO RESIDENTIAL STATUS 

TEST 1: – IDENTIFICATION WHETHER A PERSON IS AN INDIAN RESIDENT 

An Individual is considered to be a resident if he satisfies any of the following conditions:

  • whose period of stay in India is 182 days or more in the previous year or;
  • whose period of stay in India is 365 days or more in 4 years preceding the previous year and 60 days or more in the previous

TEST 2: – IDENTIFICATION WHETEHR RESIDENT BUT ORDINARY RESIDENT OR NOT ORDINARY RESIDENT 

An Individual shall be considered as RNOR in the previous year if he satisfies any of the following:

  • who has been a Non-Resident (NR) in India in 9 out of the 10 previous years preceding that year, or
  • who has stayed in India for a period of 729 days or less during the 7 previous years preceding that year.

AMENDED PROVISIONS AS PER BUDGET 2020 

The government noticed that since the 182 days spread was a long time, there were individuals who were misusing the provisions by managing their stay in India so as to remain a non-resident and not get the income accrued in India taxed. Thus, there were few amendments proposed in Budget 2020:

  • In test 1, period of stay which was 182 days has been substituted with 120
  • In test 2, non-resident should be in India 7 out of 10 previous years to be considered as
  • If an Indian citizen is not liable to pay tax in any other country, he will be considered a Resident in Another amendment was proposed which has been explained in the table below:
Cases Period of stay Income > INR 15 Lakhs Income <= INR 15 Lakhs
1. < 120 days Non-Resident Non-Resident
2. >120>182 days Non-Resident Resident but not ordinary resident
3. >182 days Resident Resident

Explaining the new provisions with the help of a flowchart:

ANNOUNCEMENTS REGARDING RESIDENCY PROVISIONS DURING COVID 19 

The Central Board of Direct Taxes (CBDT) issued Circular No. 11 of 2020, dated 8 May 2020, that clarifies the residency situation of non-resident Indians (NRIs) whose stay in India during the tax year 2019-20 lasted longer than they expected due to the COVID-19 lockdown. CBDT clarifies that certain days would not be considered for determining their tax residency1 for the FY 2019-20 as follows:

Scenario Period of stay in India to be excluded for FY 2019-20
If he/she has/was:
unable to leave India on or before 31 March 2020 From 22nd March 2020 to 31st March 2020
Departed on evacuation flight on or before 31 March 2020 From 22nd March 2020 to date of his/her departure from India
Quarantined in India on account of COVID-19 on 1st March 2020

–    and has been unable to leave India on or before 31st March 2020

From 1st March 2020 to 31st March 2020
–      Departed on evacuation flight on or before 31st March 2020 From 1st March 2020 to date of his/her  departure from India
Quarantined in India on account of COVID-19 after 1st March 2020

–  and has been unable to leave India on or before 31st March 2020

From beginning of his/her quarantine to 31st March 2020
–      Departed on evacuation flight on or before 31st March 2020 From beginning of his/her quarantine to date of his/her departure from India

CONCLUSION

This circular provides relief to taxpayers who have been forced to remain in India due to the COVID- 19 outbreak, and whose residential status for FY 2019-20 could have been changed as a consequence of the nationwide lockdown. Further, no such circular has been issued till now by the CBDT regarding the period of stay in India due to COVID-19 in FY 20-21 and is expected to be issued once the lockdown period has ceased. But, we hope that as non-residents are stuck in India due to nationwide lockdown, this period of stay shall remain excluded till 31st May (the date when Lockdown Phase V ended).

*(Author ‘Yashish Sharma’ is associated with ‘International Business Advisors, Delhi’ as Analyst-Direct Tax)

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