Budget 2020 Impact on Residential Status of NRIs, OCIs, PIOs and Other Indian Citizens

Budget 2020 proposed three changes in Residential Status of Individuals. These new provisions of Budget 2020 will put a direct impact on the residential status of NRIs, OCIs, PIOs, Expatriates, Seafarers, other Indian citizens etc. Here is an analysis (by our NRI Tax Team) of the new proposals:

Budget 2020 Amendment 1 – NRIs PIOs Stay in India 181 Days Reduced to 119 days

Particulars Earlier Law (applicable till FY 2019-20) Budget 2020 Amendment (applicable from FY 2020-21)
Resident In India – General criteria (two criteria)

 

(i) Stay in India In Previous FY 60days or more + 365 days or more in preceding previous 4 year No change
(ii) Stay in India in Previous FY 182 days or more No change
Resident criteria for Indian Citizen leaving India for Employment Outside India or as a crew member of Indian Ship Stay in India in Previous FY 182 days or more No change
Resident criteria for Indian citizen abroad (NRI) or Person of Indian Origin (PIO) visiting India Stay in India in Previous FY 182 days or more  – No change (i.e. 182 days or more) If their total income (other than foreign source) is upto Rs 15 Lakh.

– Stay in India for 120 days or more If their total income (other than foreign source) exceeds Rs 15 Lakh i.e. If Income from Indian Source >15 Lakh Rs he/she will be resident if stay in India exceeds 119 days.

Analysis:

  • Hence, above change will directly impact NRIs, PIOs, OCIs who used to visit India and spend time here with their family, friends, travelling etc. However, it will impact only those NRIs, PIOs, OCIs, whose Total Income (from other than foreign sources) exceeds Rs 15 Lakh. We can also say that NRIs, PIOs, OCIS, whose Total Income from Indian sources are more than 15 Lakh Rs, they will be Resident in India in a year if their stay exceed 119 days.
  • Now, these NRIs, PIOs, OCIs (Indian Income > 15 Lakh Rs) will have to be careful about their time spent in India.
  • Earlier, these NRIs, PIOs, OCIs were allowed to spend 181 days in India without any impact on their residential status.
  • Foreign citizen of foreign origin (Expatriates) will not face any impact of this new provision, as they were not eligible for this clause earlier nor they will be now.
  • This new provision is introduced in Income Tax Act (via Budget 2020) as it was noticed by Govt. that many person are misusing this clause, who are actually carrying out major economic activities from India, and also maintaining their residential status as Non-Resident.
  • The proposed change would impact only those NRIs, OCIs, and PIOs who are visiting India. This does not affect Indians, who are leaving India for employment outside India or who are leaving India as member of Ship Crew.
  • This amendment will affect those NRIs, PIOs, and OCIs most who wish to sell a property in India. In property sale matter, there is a possibility of big amount of capital gain. Hence, Total Income may exceed Rs 15 Lakh. Therefore, in these circumstances, NRIs PIOs need to care to keep their India stay within 119 days in a year to keep them Non-Resident.
  • The above is final provision, which is passed by parliament on March 23, 2020. For the information of readers, it is important to know that initially (Feb 1, 2020) there was no clause of Rs 15 Lakh income in the initial draft. However, after lot of noise from various sections (NRIs, Media, Tax Consultants etc), the Finance Ministry has put this additional clause of Rs 15 Lakh in the provision. This way, this provision will not affect a mass scale of NRIs, who want to spend more time in India in a year with his family, friends, traveling etc.
  • Indian Govt., on the basis of some data with them, has made this amendment in the law, however, it is not going to affect general genuine NRIs, PIOs as they do not earn much income in India.
  • Total Income means Net Taxable Income (i.e. after deductions under section 80C, 80G, 80TTA etc) of Rs 15 Lakh Rs will not include NRE Interest Income as the same do not form part of Total Income.
  • Further, as per the amendment in NOR conditions of section 6(6), these person will be considered RNOR (i.e. Not Ordinary Resident) in that year if their stay in India in that year does not exceed 181 days. It means even their stay in India is more than 119 days (but less than 182 days), however, as an NOR in that year their foreign income will not be taxed in India unless it is from business or profession controlled from India. Also, as an NOR these person need not to report their foreign assets details in the Indian ITR.

Also Read: ITR Filing Process in India for Non-Residents (NRIs, PIOs, OCIs, etc) and Residents

Budget 2020 Amendment 2 – Stateless Indian Citizen To Be Deemed Resident in India

Particulars Earlier Law (applicable till FY 2019-20) Budget 2020 Amendment (applicable from FY 2020-21)
Deemed Resident In India – Indian Citizens

[New Concept Introduced via new sub section 6(1A) in Section]

 

No Law Indian Citizen

 – who is not liable to tax in any other country or territory by reason of his domicile, residency etc and

– whose Total Income (other than from foreign sources) exceeds Rs 15 Lakh

shall be Deemed Resident in India.

Analysis:

  • Memorandum of Budget 2020 expressed its concern over stateless persons who are arranging their affairs in such fashion that they are not liable to tax in any country.
  • It also mention that this arrangement is typically planned by High Net Worth Individuals (HNWI) to avoid taxes in any tax jurisdiction of the world.
  • Budget 2020 further express that as per current Income Tax Regulations (India as well International), it is possible for Indian Citizens to not to be liable for tax anywhere in the world.
  • Now, as per global developments, double non-taxation avenues are being closed.
  • Hence, the final version of Budget 2020 (as passed by parliament) provides that an Indian Citizen, who is Not Liable To Tax in any other tax jurisdiction or country in the world and his total income from Indian sources exceeds Rs 15 Lakh, shall be Deemed To Be Resident In India.
  • A controversy arose (Feb 1; Budget day) in News Media that what will be the impact of this new provision on Indian Citizens (NRIs) who are normally working & living in tax free countries like middle east countries (UAE, Oman, Qatar etc). News media interpreted the new proposal that these NRIs will have to pay taxes in India if they are not paying tax in their host country.
  • Though the memorandum of Budget was clear on this, however, on Feb 2, 2020 (on the next day), it is clarified by the Govt that there is no intention to tax those NRIs. Finance Ministry clarified that new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries (including middle east).
  • Also, budget proposed to cover those who are not liable to taxation in any country in the world. Not liable to tax Vs No payment of tax, are two different concepts. Indian citizens, who are working & living in tax-free countries (e.g. middle east countries), are not paying taxes but they are liable to tax in the country they are working (e.g. middle east country). They are not paying taxes because there is no tax levied by that country Govt. But, if their Govt. levies taxes, these NRIs will have to pay taxes there, as they are liable to tax there due to their residence as well source of earning there. Further, now, with the clarification by the FM, it is clear that the new deeming provision will not be applicable to NRIs working in tax-free countries.
  • In the clarification (Feb 2, 2020), finance ministry further clarifies that deemed resident concept is to apply in relation to business or profession income.
  • Now, in final version of Budget (passed by parliament on March 23, 2020) (now part of Income Tax Act), there has been added one more condition in this clause of Total Income of more than Rs 15 Lakh from sources other than foreign sources. Hence, with the condition of 15 Lakh Rs income condition, this section will not affect a very large range of NRIs who are genuine NRIs and working & living abroad.
  • This clause will affect Indian Citizens only. Hence, PIOs, OCIs, Other Foreign Citizens (Expatriates etc) will not affected by this provision. Also, genuine NRIs (normally working and living abroad) will not be affected by this provision. This provision will impact on those NRIs only, who are not tax resident of any other country.
  • NRIs, whose Total Income from Indian source exceed Rs 15 Lakh, need to check their facts and transactions considering this new clause. Also, Indian citizens (categorizing themselves NRIs in Indian ITRs), who are into business or profession, need to analyze their transactions, taxability and residential status under the new provision proposed.
  • Seafarer, Mariner may directly get affected from this new provision, as they are not liable to tax anywhere else in the world. However, considering 15 Lakh Rs condition, and also separate circular (13 / 2017 of April 11, 2017) providing relief to mariner, seafarer/mariner should not be affected by this new clause. Further, seafarers need to consult with their tax consultant to understand more on their taxation as per their facts.
  • Further, as per the amendment in NOR conditions of section 6(6), these Deemed Resident will be considered RNOR (i.e. Not Ordinary Resident). It means that their foreign income will not be taxed in India unless it is from business or profession controlled from India. Also, as an NOR these person need not to report their foreign assets details in the Indian ITR.

Also Read: How to File ITR in India for Last Years and claim refund?

Budget Amendment 3 – Not Ordinary Resident Definition Changes – Affecting Deemed Residents, NRIs, PIOs, and OCIs

Particulars Earlier Law (applicable till FY 2019-20) Budget 2020 Amendment (applicable from FY 2020-21)
Ordinary Resident In India (ROR)

A Resident Indian can be categorized as ROR:

if 2 conditions fulfilled i.e

(i) Stay in India in 7 Preceding Previous FYs for 730 days or more and

(ii) Resident in India in 2 years out of 10 Preceding Previous FYs

 

No Change

 

No Change

Not Ordinary Resident (NOR) In India

A Resident Indian can be categorized as NOR:

if any of following 2 conditions fulfilled i.e

(i) Stay in India in 7 Preceding Previous FYs for 729 days or less or

(ii) Non-resident in India in 9 out of 10 Preceding Previous FYs

If:

 

No Change

 

No Change

Two New Provisions Inserted Via Budget 2020 (applicable from FY 2020-21)  – NRI or PIO whose stay in India exceeds 119 days and he is determined as Resident in India (because of his Total Income from India exceed Rs 15 Lakh), but his stay in India does not exceed 181 days then that person will be determined as Not Ordinary Resident (NOR).

 – An Indian Citizen, who is Deemed Resident in India in a year (i.e. he is not Tax Resident in any other country and his income from Indian source exceeds Rs 15 Lakh) then he will be determined as Not Ordinary Resident (NOR) for that year.

Analysis:

  • Here, it need to understand that NOR taxation in India is like Non-Resident. Please refer below FAQ section to understand the impact of NOR.
  • Hence, actually there is no change in NOR provisions for general NRIs, PIOs, Expatriates etc.
  • Changes in NOR Provisions are only for those Residents who are determined Resident in India due to change in the provisions in Budget 2020 i.e. 120 days category (if their stay is within 181 days) or Deemed Resident (Indian Citizen not tax resident anywhere).
  • There are no change for Foreign Citizens of Foreign Origins (Expatriates) in Residential Status changes proposed by Budget 2020.
  • Change in NOR provisions to only mitigate the provision of converting them in Resident due to changes made in Budget 2020.
  • Here it need to remember that the proposal made in Budget 2020 (on Feb 1, 2020) i.e. NOR on the basis of 4 year Resident in preceding previous 10 years is not finally inserted in the law. Hence, that clause is deleted in the final version of the law. Now, only change is for two categories of person for whom law is changed in the main category of Resident.

NRIs, PIOs, OCIs, Expatriates, Others Residential Status in India: For more on residential status, please refer to Determination of Residential Status in India – NRIs, PIOs, Expatriates – CA Services.

NRI Tax, RBI Laws, Other Matters – Various CA Services in IndiaFor various services by our firm in relation to NRIs, PIOs, OCIs, Expatriates, please refer to our NRI services section.

Note: Here it is important to note that there are differences in the Residential Status provisions as proposed in Budget 2020 as presented (on Feb 1, 2020) Vs as passed by Parliament (on March 23, 2020).

Also Read: How to Link Aadhaar and PAN?

General FAQs

Q: I am an NRI/OCI/PIO. I am living in USA since last 15 years. Now I want to return back to India and settle in India. What will be tax impact?

Ans: Your status in India will be changed to Resident in India. However, there will not be any impact on your tax as per the changed made by Budget 2020. As per existing and ongoing law, you will remain a Not Ordinary Resident for 2 years. For 2 years, your foreign income will not be taxable in India. Also, you need not to report your foreign assets in India ITR for these 2 years.

Q: I am a foreign citizen of Indian origin. I wish to come to India for 6 months for my parent’s medical treatment. How the tax provisions would impact me?

Ans: If your stay in India exceed 119 days in a Financial Year then you will be treated as Resident in India (as per the new proposed rules) if your total income from Indian sources exceed Rs 15 Lakh. However, if your income from Indian sources does not exceed Rs 15 Lakh, then you can stay in India unto 181 days without having any impact on your residential status. However, if your status converts into Resident (because of your no of days more than 119 days but less than 182 days), you will be categorized in RNOR category due to amendment in RNOR provisions. For RNOR, tax provisions are like Non-Resident only.

Q: What is the impact of taxation if a person is Resident in India but Not Ordinary Resident (NOR)? Taxation of NOR in India?

Ans: If a person is Resident in India but he is Not Ordinary Resident (NOR), then his taxation impact will be as under:

  • If a person is Resident in India in any year, but he/she is not Ordinary Resident (i.e. NOR) then his taxability in India like Non-Resident only.
  • NOR foreign income is not taxable in India except it is a business/profession income controlled from India.
  • NOR need not to submit foreign asset details in the ITR Form in India.

NRI Tax Team – S Lohia & Associates, Chartered Accountants