NON RESIDENT TAXATION The residential status of taxpayers plays a key role in determining the scope of taxable income (Indian Income / Foreign Income) for a financial year in India and there by the tax payable. The residential status of an individual is based on the duration for which he/she is present in India. There are 3 types of Residential status.
• Resident & Ordinary Resident (ROR)
• Resident But not Ordinary Resident (RNOR)
• Non –Resident Indian (NRI)
According to a Ministry of External Affairs report, there are around 31 million NRIs and PIOs (Person of Indian Origin) residing outside India as of December 2018. Budget 2020 has proposed two significant changes with respect to calculation of NRI Residential Status and Taxability of Income of NRI. In this post, let us understand – What the new NRI Residency Status rules proposed in Budget 2020? What are the latest NRI Taxation rules in India for FY 2020-21 (AY 2021-22)? How to determine NRI Status as per the new rules in India? Latest NRI Residential Status & Income Taxation Rules |
Budget 2020-21 Budget 2020 has proposed two new rules with respect to NRIs residency status and Taxation, which are as below;
• Firstly, to be categorized as a non-resident, an Indian now has to stay abroad for minimum 245 days a year,against 182 days(2019-20), an Indian national, to claim the non-resident status, can’t stay in India for 120 days or more in a financial year.
• Secondly, a non-resident Indian, who is not taxed in any of the foreign country,and is Indian Citizen will become taxable in India. The government said it is introducing this provision to prevent tax abuse. Let us now understand these two amendments in detail.
1) Changes with respect to Residency Status of NRIs for FY 2020-21 As per the Budget 2020, an individual has to meet either of the below (new) eligibility criteria to become Non-Resident India; • He/She is in India for less than 120 days during the financial year. That means, if you stay abroad for minimum 245 days in previous year (financial year) then your residential status becomes NRI for taxation purposes. (OR)
• If you have stayed in India for less than 365 days during the 4 years preceding the previous financial year AND less than 60 days in the previous financial year.
Example 1 : If you stay for say 260 days abroad for FY 2020-21, then for AY 2021-22 your residential status would be NRI.
Example 2 : If you stay for say 125 days in India then you need to meet the second condition to become NRI. That is, you should have stayed for less than 60 days in FY 2020-21 AND less than 365 days during 4 financial years before the FY 2020-21 in India.
• Previous Year is period of 12 months from 1st April to 31st March. Number of days stay in India is to be counted during this period.
• Both the Day of Arrival into India and the Day of Departure from India are counted as the days of stay in India (i.e. 2 days stay in India).
• Dates stamped on Passport are normally considered as proof of dates of departure from and arrival in India.
• Keep track of no. of days in India from year to year and check the same before making the next trip to India. It is advisable to maintain a chart for the number of days stay in the current and in the preceding seven (7) previous years. 2) Budget (2020) Amendments with respect to Taxability of NRI Income for AY 2021-22 Below is the proposed amendment in Budget 2020 which will affect taxability of NRI Income; “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” This proposed new rule has created quite a confusion among the NRI fraternity.
However later CBDT clarified that the purpose is to tax those who try to avoid being resident of any of the countries by using the loophole in tax laws of different countries and not genuine NRIs staying in tax free countries. Forthe NRI’s income tax will be levied on the following:
• Salary received for services provided in India
• Capital gains earned on the transfer of assets located in India • Rental income from property owned in India
• Revenue from Fixed Deposits
• Interest on Bank Savings Accounts Tax deductions available for NRIs NRIs can avail of the tax deductions under Section 80C. Currently, a maximum deduction of up to Rs 1.5 lakh is permissible for tax deductions under the said section.
International Tax Assistant
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