NRIs need not pay tax on income earned abroad: FM
03 February 2020
Finance minister Nirmala Sitharaman on Sunday clarified that the government has no intention to tax global income of NRIs and that only income generated in India will be taxed.
The income of a non-resident Indian generated in India is not taxed in the country where he or she is resident and, according to the finance minister, the government has a sovereign right to tax such incomes.
The finance minister’s clarification comes after reports that the Union Budget 2020-21 has proposed that NRIs who don't pay taxes in a foreign country where they are resident will now be taxed in India if he or she remains in India for more than three months.
Also, for being categorised as NRI, a person will now have to stay abroad for a minimum of 240 days in a year as opposed to the 182 days stipulated earlier as per amended Income Tax Act.
As per the amended Section 6 of the Income Tax Act, "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 budget notes.
At a press briefing on Saturday after finance minister Nirmala Sitharaman presented the Union Budget 2020-21 in Parliament, revenue secretary, Ajay Bhushan Pandey had told a press briefing that an Indian national who wants to claim non-resident status cannot stay in the country for 120 days, or more, in a year.
“We have made changes in the Income Tax Act where, if an Indian citizen stays out of the country for more than 182 days, he becomes a non-resident,” said Pandey. “Now, in order to become a non-resident, he has to stay out of the country for 240 days.”
“If any Indian citizen is not a resident of any country in the world, he will be deemed to be a resident of India and his worldwide income will be taxed,” said Pandey.
The amendments in the I-T Act is intended to bring tax evaders who deliberatively remain in foreign countries with the sole intention of cheating on income tax. Such persons who remain abroad in countries such as Dubai, where the income tax is low or nil, will now be taxed in India if they fall in the income tax bracket.
This, however, may inconvenience those NRIs staying in India for more than 120 days for genuine reasons, experts point out.