Residency Tax Criteria for NRIs As Per Budget 2021

Amid the coronavirus pandemic and the expected economic turmoil, on March 23, 2021, the Indian Parliament passed Finance Bill 2021 with some significant relaxations.

At the initial stages of passing the Bill, the amendments initially proposed in determining ‘residential status’ in India of an individual under the Finance Bill 2021 were relaxed. This alteration would impact the non-resident Indians (NRIs) directly. On March 28, 2021, the president gave consent, and since then, it’s Finance Act 2021.

Here are the significant amendments you must know if you’re an NRI.

RNOR Criteria Liberalised

Suppose you are an NRI with a taxable income of over INR 15 lakh and stay in India for about 130 days or more for four preceding financial years. In that case, you will be treated as a resident individual for income tax purposes. This may ring alarm bells for many NRIs, but you will be treated as Resident but Not Ordinarily Resident (RNOR). This would be a relief for you as your foreign income shall not be taxable in India.

You will be treated as an RNOR if you meet the following conditions:

  1. A person who has been an NRI in 9 out of 10 previous financial years preceding that year, or

2. has been in India during the last 7 years preceding that year for 729 days or less

The above two rules are retained as per the current law.

According to the Union Budget for FY2020-21, an Indian resident, however, shall be deemed to be a resident in India in any previous financial year if he is not liable to pay tax in any other country or territory because of his domicile or residence or any other criteria of similar nature. However, this provision is applicable only if his total taxable Indian income during the financial year is over Rs 15 lakh. There was no such provision in the Income-tax Act till FY2019-20. Therefore, this provision of determining residential status for a stateless individual shall not be applicable for Overseas Citizen of India (OCI) cardholders or foreign citizens.

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In the case of an NRI who resides in UAE, Saudi Arabia and related countries that do not impose a personal tax and have taxable Indian income of over Rs 15 lakh, he is eligible to get a tax residency certificate if he stays in UAE for over 182 days in a year.

All the above amendments are in effect since April 1, 2021.

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