Finance Act, 2020 has amended section 6 to insert new sub-clause (1A) with an intention to bring into tax net the persons who are not liable to pay tax in any country due to their domicile or residency or any other criteria of similar nature.

The newly inserted clause reads as under:

“(1A) 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;

Further sub-clause (6) of section 6 is also amended to provide that the persons falling under the mischief of sub-clause (1A) of section 6 shall be deemed to be Resident but Not Ordinarily Resident (R-NOR) implying that when a person is deemed to be resident by virtue of provisions of sub-clause (6) his status for the purpose of Income-tax shall be R-NOR and his income which accrues or arises in India shall be liable for income-tax in India. However, any income which is foreign income other than that from a business or profession controlled or set-up respectively in India, the same shall not be liable for income-tax in India.

However, non-obstante clause appearing in clause (1A) of section 6 has made the situation interesting.

It is pertinent to note that clause (1A) of section 6 starts with “notwithstanding anything contained in clause (1)” which technically means that for any person who falls under the mischief of clause (1A) of section 6, provisions of clause (1) of section 6 shall not apply.

Now, for careful perusal of clause (1A) it be noticed that this clause applies for:

1. An individual AND

2. Who is a citizen of India AND

3. whose total income, other than foreign income, exceeds Rs. 15 lakh during previous year AND

4. he is not liable to tax in any other country or territory for the reason of his domicile, residence or any other similar criteria

Such individual shall be deemed to be resident in India and by the operation of sub-clause (6) he shall be rendered to be an R-NOR.

Let us check the applicability of this clause for a normal taxable Indian citizen who continues to stay and earn in India. He is not taxable in any other country or territory for his residence in India. Let us assume for the purpose of this discussion that his total income is above Rs. 15,00,000 for the previous year.

Ideally, he would fall under sub-clause 1 of section 6 as he is in India for 182 days or more than in previous year and should be attributed with “R and Ordinarily Resident (ROR)” status. But, he can still take shelter of provisions of sub-clause (1A) which itself starts with non-obstante clause superseding the provisions of sub-clause 1 and can render himself as R-NOR.

This implies that a Indian Citizen who is a normal taxpayer and a resident of India by virtue of his stay in India and who earns total income of more than Rs. 15,00,000/- in India, can be categorised as R-NOR instead of ROR by the joint operation of sub-clause (1A) & (6) of section 6 disturbing the whole taxation structure of the country as the same shall cover majority of the taxpayers of the county.

Immediate clarification in respect of the said ambiguity is warranted and highly necessary.

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Qualification: CA in Practice
Company: CA Anup Bipin Shaha & Associates
Location: Pune, Maharashtra, IN
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  1. CA Sreekumar Mankuzhy says:

    Hi CA Anup
    The deeming provision is applicable only if the taxpayer is not a resident within Section 6(1) – so if he is a Resident then 6(1A) has no applicability since it is a deeming provision and as such Section 6(6) will not come into play is what I Feel.

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March 2021