The Budget has tightened the screws to those who seek to escape taxes by exploiting their status as non-residents. Although it was previously possible to classify as a non-resident staying out of the country for 183 days or approximately six months in a year, it has now been improved, in effect, to 245 days.
The change was made because some taxpayers divided their time between India and abroad to avoid being categorized as tax residents in India. Once a tax resident is classified as an ordinary resident (OR), he pays taxes in India on his overall income, which would include interest income on bank accounts abroad.
As the partner and head of global mobility services (taxes) points out, “Indian citizens and people of Indian origin who were visiting India had an extended period of 182 days of stay in India (instead of 60 days ) before it could be considered as a resident from the perspective of income tax. It is proposed that this period be reduced to 120 days now.
As things stand, a person is a resident in India for a particular financial year if he has been here for a general period of 365 days or more in the previous four years and a general period of 60 days in that particular year. The 182-day relaxation was made available to Indian citizens and people of Indian origin.
Live plus Only stateless persons will be considered Indian and taxed
The Budget memorandum pointed out that this relaxed duration of 182 days was misused by individuals who had significant economic activity in India (say a business), managed their period of stay, so as to remain a nonresident in perpetuity. With such individuals now being required to stay out of the country for 245 days in a year, the misuse becomes plus difficult for those having business interests in India.
Gautam Nayak, tax partner at CNK & Associates cautions, “NRIs or Overseas Citizens of India, visiting relatives in India need to now be plus careful and limit their stays to less than 120 days in a year, or else they may face tax on their worldwide income.”
After having determined an individual as a tax resident, there is a secondary test to determine whether the individual qualifies as an ordinary non-resident (NOR) or ordinary resident (OR). There are currently complex rules to determine when a person is NOR. This has been simplified to say that a person is NOR for a particular financial year if they have not been resident in seven of the previous ten years. This determination is critical since while an NOR is only subject to income taxes from India, an individual who is an O is subject to income taxes worldwide.
Another change made is that an Indian citizen not subject to taxation in any other country or territory will be considered resident in India. At first glance, it seemed that the Indian diaspora that works in the Gulf countries (where there are no taxes on individual income) would be severely affected.
However, the finance bill added that this would be the case if the individual is not subject to taxes in any other country because of their domicile, residence or any other criteria of a similar nature. Nayak adds: The SC in the case of Azadi Bachao Andolan has argued that the term subject to taxation is not the same as it is really subject to taxation. The OECD Model Tax Agreement also states that a person does not have to be paying taxes to be taxable. If the host country chooses not to tax such income, it does not mean that they are not subject to taxes in that country. They may not yet be considered residents of India. However, the problem must be clarified to avoid litigation. Therefore, this provision may only affect Indian citizens who are not residents of any country at all. ”
ANI quoted the secretary of income, saying that only if an Indian citizen is not a resident of any country in the world, will he be considered a resident of India and his world income will be taxed. Amarpal S Chadha, partner and mobility leader of India in EY-India says: “The intention behind this amendment is to tax Indian citizens who are stateless and enjoy the privilege of not paying taxes in any country or jurisdiction, according With your tax planning. However, a formal clarification on this will be useful to avoid litigation.