|ype of Assessee||Conditions for Assessment year 2020-21||Conditions for Assessment Year 2021-22|
|Residential Individual||The condition of Stay in India for ’60 days’ is substituted by ‘182 days’ for certain class of Individuals (i.e. Indian Citizens, etc.)||The condition of Stay in India for ’60 days’ is substituted by ‘120 days’ for certain class of Individuals (i.e. Indian Citizens, etc.)|
|Residential status of|
Indian citizens non-resident in any country
|No such provision||Indian citizens if not a ‘resident of any other country shall be deemed as ‘resident in India’|
|Not-Ordinarily resident in India||A resident individual is deemed as not-ordinarily resident in India, if he has been a non- resident in India for at least 9 years out of 10 years preceding the previous year.||A resident individual is deemed as not-ordinarily resident in India, if he has been a non-resident in India for at least 7 years out of 10 years preceding the previous year.|
|Not Ordinarily Resident HUF||A resident HUF is deemed as not-ordinarily resident in India, if Karta is’ non-resident’ in 9out of previous 10 years.||A resident HUF is deemed as not-ordinarily resident in India, if manager has been a ‘non-resident’ in 7 out of previous 10 years.|
Indian Citizens if not a ‘Resident’ of any other country shall be deemed as ‘Resident in India’ [Applicable from Assessment Year 2021-22]
As residential status of an individual is determined on the basis of number of days of his stay in India. An individual can arrange his affairs in such a fashion that he does not become a tax resident of any country during a particular year. He may carry out substantial economic activities from India but he can manage his period of stay in India so as to remain a non-resident in every country and not required to declare his global income in India. This arrangement is typically employed by High Net-Worth Individuals (HNIs) and crew members on ships.
The current rules governing tax residence make it possible for such individuals, who may be Indian citizens receiving income sourced from India, to not pay tax on that income anywhere in the world. Therefore, it has been proposed by the Finance Bill that an Indian citizen, who is not a tax resident of any country or jurisdiction, will be considered to be a tax resident of India.
The condition to substitute ’60 days with 182 days’ is changed from ’60 days to 120 days’ [Applicable from Assessment Year 2021-22]
The residential status of an individual is determined by the number of days of his stay in India. Under the existing Act, an individual is resident in India in a financial year if:
- he is in India for 182 days or more during the year; or
- he has been in India for 365 days or more during the 4 immediately preceding years and for 60 days or more during the financial year.
However, in respect of Indian citizens who leave India during the relevant financial year for the purpose of employment outside India or as a member of the crew of an Indian ship, and in respect of Indian citizens as well as persons of Indian origin who visit India during the year, the period of 60 days as mentioned in (b) above is read as 182 days. It has been observed by the authorities that the relaxation given by substituting the period of 60 days with 182 days is sometimes misused. Therefore, the Finance Bill proposes that the period of stay in India should be reduced from 182 days to 120 days.
Condition to become ‘Not-Ordinarily Resident’ partially relaxed [Applicable from Assessment Year 2021-22]
As per Section 6 of the Income-tax Act, a resident individual is deemed as not-ordinarily resident in India, if he satisfies any of the following conditions:
- He has been a non-resident in India for at least 9 years out of 10 years preceding the previous year; or
- He has been in India for 729 days or less during the period of 7 years preceding the previous year.
The category of ‘resident but not ordinarily resident’ has been introduced to ensure that a non-resident does not suddenly face the compliance requirements of a resident, merely because he spends more than 182 days in India during a particular year. These conditions specified in the present law have been the subject matter of disputes. Thus, the Finance Bill proposes to rationalize these conditions and provides that an individual shall be deemed to be ‘not ordinarily resident’, if he has been a Non-Resident in any 7 out of the 10 immediately preceding years. This will also help in avoiding any unintended hardship caused by the 120-day rule discussed above.
Indian Citizens who are ‘Bona Fide Workers’ : Clarification regarding Proposal in the Finance Bill 2020
The Finance Bill, 2020 has proposed that an Indian citizen shall be deemed to be resident in India, if he is not liable to be taxed in any country or jurisdiction. This is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdiction to avoid payment of tax in India.
The new provision is not intended to include in tax net those Indian citizens who are bona fide workers in other countries. In some section of the media the new provision is being interpreted to create an impression that those Indians who are bona fide workers in other countries, including in Middle East, and who are not liable to tax in these countries will be taxed in India on the income that they have earned there. This interpretation is not correct.
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. Necessary clarification, if required, shall be incorporated in the relevant provision of the law.