NRIs expect a less cumbersome tax regime, lighter tax burden, clear definition of provisions and a relief on residential status in the forthcoming general budget to be presented by India’s finance minister on 1 February 2021.
Many NRIs were caught unawares and stuck in India during the long lockdowns following the covid-19 pandemic spread in 2020.
Those who visited India in March 2020 for a short duration were forced to extend their stay in India beyond April 2020 as international flights remained suspended and the host countries stopped incoming passengers.
This extended stay resulted in them losing their NRI status, impacting on their global income taxation.
India’s top tax authority, the Central Board of Direct Taxes (CBDT), issued a circular relaxing the methodology of computing the ‘number of days’ of stay in India for the purpose of defining the NRI status and tax obligation.
The circular stated that stays in India during the lockdown period were exempt from the threshold of 120 days to determine the residential status.
That relief was given for financial year 2019-20, ending on March 31, 2020.
NRIs now demand similar relaxation for financial year 2020-21 without which some NRIs will end up losing their non-resident status and will be considered as resident Indian thereby increasing their scope of taxable income in India.
“The finance minister has not yet given any indication of such a relief being extended. NRIs have represented to the government to consider this, as this being a genuine demand, expect that the finance minister would oblige,” said Sajith Kumar PK, chief executive and managing director, IBMC Financial Professionals Group.
“There needs more clarity with regards to the definition of NRIs and relaxation for NRIs stuck in India due to covid for four to five months. This will be the most awaited announcement for most the of the NRIs as their tax planning will completely depend on this.”
As per the existing rules, tax residency norms permit NRIs to stay in India for longer duration when compared to foreign citizens, without losing their non-resident status, if they are on a ‘visit’ to India.
But the term ‘visit’ has not been defined in the Income Tax Act.
There are no specified regulations listing the activities that are permitted when a person is on a ‘visit’.
This often gives rise to dispute by the tax authority when NRI taxpayers claim refund of tax collected at source.
It is expected that the term “visit” be defined or explained to avoid any anomalies.
Income in India
There are many Indians employed overseas with NRI status, but remain on India company payroll and receive salary in India.
They are subject to withholding tax on such salary, but can get exemption if they reside in a country with which India has signed a double taxation avoidance agreement (DTAA) for calculating tax at source as per Section 192 of Income Tax Act, which does not explicitly provide for such benefits.
“There is a grey area as far as interpretation of this section is concerned. It is expected that Section 192 be amended to expressly provide that benefit under the applicable DTAA shall be provided for while calculating tax at source by the employer at the time of payment of salary,” said Benoy Sasi, international lawyer at DIFC Courts.
Income from property
NRIs are subject to tax in India if they earn income in the country from house property, capital gains, income from business or profession and income from salary (for those employed in India and posted abroad).
The salary income is taxable when it is received in India or someone receives it on behalf of an NRI.
Many NRIs receive rental income on their properties in India.
As per the income tax laws; a tenant who pays rent to a non-resident owner must deduct tax at 30%.
The tenants are required to pay the rent to an NRI landlord after deducting 30% as tax, whereas for a resident Indian landlord the applicable tax is 5%.
NRIs expect that a similar provision as applicable to residents be introduced whereby the tax rate is lowered to treat them on par with resident Indians.
They are demanding that the government re-introduce simplified tax return forms for NRIs who have no capital gains or business/professional income in India.
They also call for special covid relief rebate for people suffering job losses or business losses.