NRI Tax : Finance Ministry Issues Clarifications On Proposals In Budget 2020

In view of the confusion and controversy over the proposals in the Union Budget regarding levy of tax on Non-Resident Indians, the Ministry of Finance on Sunday evening issued a clarification.

The Finance Bill 2020 proposed to amend Section 6 of the Income Tax Act 1961 to reduce the period of stay in India as 120 days from 182 days for claiming NRI status.

The Bill also had a proposal to add a provison in Section 6 to state that an Indian citizen will be deemed to be resident in India, if he is not liable to be taxed in any country or jurisdiction.

Stating that this is an "anti-abuse provision" to target those Indians who shift their residence to tax havens to evade tax, the Press Release issued by the Ministry sought to assure that Indian citizens who are bona-fide workers in other countries will not be affected.

"The new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries", said the Press Release.

"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", the Ministry said.

It was also said that necessary clarification, if required, will be incorporated in the law.

Following the Budget announcement, concerns arose from several quarters as to whether these changes would impact the earnings of Indians who are genuine workers in regions such as Middle East.

As per the present Income Tax Act, Indian citizens of persons of Indian origin are treated as Indian citizens, if they stay for 182 days or more in India. This period is sought to be reduced as 120 days with effect from April 1, 2020.

The Bill also proposes to add sub-section (1A) to Section 6, which reads that, "Notwithstanding anything contained in clause (1), an individual, being a citizen of India, shall be deemed to be 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 similar nature."

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