The Minster of Finance has announced that Non-Resident Indians (NRIs) who earn an income in India, and do not pay taxes in any other foreign country will be impacted.
According to the new budget proposals, a person will now have to stay out of India for 240 days to be categorised as NRI, as opposed to 182 days previously. The finance minister Ms Nirmala Sitharaman has proposed that “an Indian citizen shall be deemed to be resident in India if he is not liable to be taxed in any country or jurisdiction.”
The changes will primarily affect those who live in tax-free foreign countries. However, the government has clarified that only the Indian income of NRIs is proposed to be taxed.
In a post-budget press conference, Ms Sitharaman said, “An NRI living in another country earns money there that is not taxed there at all. He has some earnings through something in India but does not pay tax here either, because he does not live here. What we are saying is that for the income generated in India pay a tax. If you have property here that generates rental income here, but because you live there, you pay tax neither there nor here. I am not taxing what you earn in Dubai.”
A statement by the Ministry of Finance says this is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdiction to avoid payment of tax in India.
An amendment has been proposed in Section 6 of the Income Tax Act to change the current status of NRIs.
In the Finance Bill 2020, the minister has proposed that “notwithstanding anything contained in Clause (1), an individual -- being a citizen of India -- shall be deemed to be a resident in India in any 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 a similar nature”.
The statement released on Sunday by Minister Sitharaman aimed at clarifying this;
In order to avoid any misinterpretation, it is clarified that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession. Necessary clarification, if required, shall be incorporated in the relevant provision of the law.
The changes have received mixed reactions from the Indian community living abroad.
A banker Rohit Suri said on twitter that Indian is overlooking ‘Middle east story.’
He asked, “How will NRI income be established self-declaration?”
Another banker, Mahendra, says the rules need more explanation.
“The main catch here is the no. of days staying in India (reduced from 182 to 120), this will change the definition of NRI and will attract the tax on the income earned outside of India, especially for the people on rotational jobs.This rule needs more clarification on this (sic),” he tweeted.
Opposition Congress leader Shashi Tharoor has criticised the move.
“The bulk of them are Keralites & don’t vote for the BJP anyway, or so the Govt may have reasoned! Will oppose,” Mr Tharoor tweeted.
Two main changes
Gujarat-based Chartered Accountant Manoj Jain of Manoj S. Jain & Associates says the measure will not affect genuine Indians living and earning abroad.
“There are two proposed changes. Firs, 182 days have been increased to 240 days. And, any Indian citizen living in a tax-free country will have to pay tax in India on Indian income. The basic intention is to avoid abuse. Some people operate and earn from India but live in other countries to avoid paying taxes in India. This provision will affect such people and not any genuine, honest Indians,” Mr Jain said.
Manoj S Jain, Chartered Accountant Source: Supplied
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