The recent changes in Finance Act, 2020 and Finance Act, 2021 were approved by the President of India on 28 March 2021. Significant changes have been made to determine the residential status of non-resident Indians (NRIs) for the FY2020-2021. When it’s about NRIs and the government of India, the first thing that comes to the head is that it must be something related to the taxes and related rules.
Until FY2020-21, an individual was considered as a Resident but Not Ordinary Resident (RNOR) if he has been a non-resident Indian in 9 out of 10 previous financial years preceding that year or, has during the 7 previous years preceding that year been in India for 729 days or less.
As per the amended laws, the above conditions have been retained. Now an individual whose taxable income exceeds Rs 15 lakh and resides in India for 120 days or less than 182 days is still treated as RNOR. Such individuals’ foreign income (from a job or business) shall not be taxable in India.
An Indian resident shall be deemed to be a resident in India in any previous financial year if he is not ‘liable to tax’ in any other country because of his domicile or any other criteria. However, this rule is applicable only if his total taxable Indian income during the financial year exceeds Rs 15 lakh.
There was no such guideline in the Income Tax Act till FY2019-20. This provision of determining residential status for a stateless person is not applicable for overseas citizens of India (OCI) cardholders or international citizens.
‘Liable to tax’ implies that an income tax liability on a person concerning a country under the law of that country for the time being in force and includes an individual who has subsequently been relaxed from such liability acknowledging the law of that country.
Such a provision may confuse NRIs living in the Middle Eastern countries that do not impose income-related taxes on NRIs. As this is a relief to working NRIs in these countries, the Central Board of Direct Taxes (CBDT) clarified that this provision is an anti-abuse provision and does not apply to bonafide workers in foreign countries. It also said if an individual becomes a resident under Section 6 (1)(A) of the Income Tax, no tax will be levied on his foreign income unless it is earned from an Indian business or profession.
In most cases, this would not directly impact individuals with the statuses of non-resident (NR) or RNOR on their taxable income in India. But their Indian income still remains taxable in India and not the foreign income.