NRI Taxation for FY 2020-21 (Part -2)

1. For “NRI Taxation for FY 2020-21 Budget 2020” (Part – 1), please check our previous blog dated 13^th March 2020 or Click here .

2. As Explained in Previous Blog i.e. Part-1, the period of stay in India of 182 days has been reduced to 120 days for F.Y 2020-2021. Now, an Amendment has been introduced in these rules of “Determining the Residential Status”. As per the amendment the reduced period of 120 days shall apply, only in cases where the Total Indian Income (i.e., Income Accruing in India or Taxable Income) of such visiting NRIs during the financial year is more than ₹15 lakh. Accordingly, visiting NRIs whose total income in India is up to ₹15 lakh during the financial year will continue to remain NRIs if the stay is less than 182 days, as was the case earlier.

3. As Explained in Previous Blog i.e. Part-1, Budget 2020 proposed that an individual who is non-resident in India in 7 out of the 10 years preceding that fiscal year shall be regarded as NOR (Not Ordinarily Resident). This proposal has also been Dropped and existing provisions for determining NOR has been restored i.e he should be non-resident in 9 out of 10 preceding years or stays in India for 729 days or less in 7 preceding years. Finance bill 2020 has also incorporated the following Additional Conditions to treat an individual as NOR(Not Ordinarily Resident):

(i) An Indian citizen or a person of Indian origin whose total income, other than income from foreign sources, exceeds ₹15 lakh during a fiscal year and who has been in India for a period of 120 days or more but less than 182 days; or

(ii) An Indian citizen whose total income, other than the income from foreign sources, exceeds Rs 15 lakh during the fiscal year and 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.

Therefore, as per any one of the above conditions, if NRI is treated as NOR than he is not required to pay tax in India on his Foreign Income (i.e., Income Accrued Outside India).

4. New Residency Rules can be taxing for NRIs stuck in India during lockdown. NRIs, who came to the country before the lockdown, don’t have any option to return till travel restriction are lifted. If the lockdown gets extended or international travel ban does not get lifted in India or in the country NRI wants to travel, in such a scenario some of them may qualify the criteria of being considered as resident for tax purposes.

However, the number of days an NRI stays in a Financial Year is not the only criteria to ascertain tax residency status. “Besides 120 days in a financial year, one should have stayed an aggregate of 365 days or more in the preceding 4 years. Also, the new rule of lower number of days is only applicable to those NRIs whose total income in India exceeds ₹15 lakh during the FY.

For example, If an NRI whose taxable income in India exceeds ₹15 lakh and stays in India for 120 days or more but less than 182 days in the previous year and had also stayed 365 days or more in the preceding four years then he will be treated as a Resident for income tax purposes but as NOR (Not Ordinarily Resident),” and thus not required to pay tax in India on their foreign income (i.e., income accrued outside India).