Non-resident Indians (NRIs), who had to overstay in India due to the pandemic, are now in a fix over how to file their income tax return (ITR) for the financial year 2020-21. The deadline for filing returns is September 30, 2021. The NRIs now do not know whether to call themselves ‘resident’ or ‘NRI’.
An individual’s residence status depends on the duration of physical presence in the country. A person is a resident if (a) her stay in India is 182 days or more, or (b) his stay in India was 60 days or more during that year, and 365 days or more during the four years preceding that.
Tax experts say that NRIs and PIOs become Indian residents under category ‘b’ only if they have over Rs 15 lakh domestic income and spend 120 days or more than that in India.
According to tax laws, a person treated as an individual would have his earnings abroad under India’s tax net. NRIs, mostly those based in countries such as the UAE and Bahrain, which have no income tax, wish to avoid this.
Resident Indians’ global income is taxed. However, NRIs have to pay tax on income earned in India, not outside India. Therefore, NRIs generally plan their visits to meet the residency conditions and avoid paying tax in India on whatever they earn outside the country.
Their plans, however, were unsettled by the Covid-19 pandemic.
The NRIs are also required to disclose details of their ownership in stocks and properties overseas, as part of mandatory disclosures, to the Income Tax Department.
Such information, often shared with the Enforcement Directorate by the tax office, are feared by NRIs as it could trigger questions on the ‘source of the money and enquiries about ’round-tripping of funds.’
“The income tax return form has a schedule called FA (foreign assets), whereby every resident is required to declare all their foreign assets. As a ‘resident,’ this would be a big challenge,” Ved Jain, former president of the Institute of Chartered Accountants of India, was quoted as saying.
At the same time, people who file their tax return as an ‘NRI’ are mostly prepared to take on the tax department when the decision is challenged before a judicial authority.