Budget 2020-T20 for Non Residents
Posted on February 03,2020

Kautilya in Arthashastra suggested that a taxpayer may not be allowed to settle in a tax exempt village (3.10.11). The government seems to have taken a cue and has proposed amendment in Section 6 of the Income Tax Act, 1961 (“the Act”)  to plug the leakage of tax revenue arising out of managing smart itinerary by High Networth Individuals by staying out of India just over 182 days in a financial year, thus maintaining their non-resident status. The natural implication thereof is that such smart non-residents do not have to offer their global income to tax in India.

New Parameters for Residency:

It is now proposed that in order to maintain the status of a non-resident, such person of Indian origin would have to stay outside India for a little over than 245 days. In simple terms, as per the proposed new rule of residency, a person of Indian origin who frequently travels to India, shall be regarded as a tax resident of India, if the following conditions are fulfilled:

  1. he is in India for 120 days or more during the relevant financial year; and
  2. he has been in India for more than 365 days or more in the preceding 4 financial years from the relevant financial year.

Needless to emphasis that upon being classified as a tax resident of India, the global income of such person shall be taxable in India.

Tax Residency of Indian Citizens:

It is also proposed that any Indian citizen who is deriving income from foreign sources but not paying any tax outside India shall be regarded as Indian Tax Resident. As a natural concomitant, the global income of such resident shall be taxable in India. However, the Central Board of Direct Taxes (“CBDT”) has come out with a press release clarifying that the foreign sourced income shall not be taxed of such deemed to be resident of India. If it is so, then the rationale of inserting the proposed explanation becomes hazy. Non-residents, in any case, are taxable in India on their India sourced Income. Therefore, the anti-abuse provision sought to be inserted may lose its sting as per CBDT clarification. The Government may need to come out clearly on the scope and impact of this new provision to avoid unnecessary litigation at a later stage.







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