NRI tax: No tax over what you earn in Dubai, says Sitharaman

The
government on Sunday clarified that the proposed tax on NRIs will not apply on
bonafide Indians working in tax-free foreign countries and is intended to tax
only those seeking to escape tax by exploiting their non-resident status.

Finance
Minister Nirmala Sitharaman in her Budget for 2020-21 had proposed to tax
Non-resident Indians (NRIs) who do not pay taxes in any foreign country.

This
provision raised anxiety in the minds of those working in the Gulf region where
countries don’t tax income earned by individuals.

First
Sitharaman clarified that only Indian income of NRIs is proposed to be taxed
under the new provision, and later the tax department issued a statement to say
that “the new provision is not intended to include in tax net those Indian
citizens who are bonafide workers in other countries”.

“What
we are doing now is that the income of an NRI generated in India will be taxed
here. If he’s earning something in a jurisdiction where there is no tax, why
will I include that into mine that has been generated there,” Sitharaman
told reporters in Delhi on Sunday.

She said
Indian earnings of NRIs such as rental income from property in the country is
what was intended to be taxed by way of the new provision.

“Whereas
if you have a property here and you have rent out of it, but because you are
living there, you carry this rent into your income there and pay no tax there,
pay no tax here, since the property is in India, I have got a sovereign right
to tax,” she said in a post Budget interaction with media.

“I am
not taxing what you’re earning in Dubai but that property which is giving you
rent here, you may be an NRI, you may be living there but that is revenue being
generated here for you. So, that’s the issue.”

The Union
Budget for 2020-21 presented on Saturday had tightened the screws on those
seeking to escape tax by exploiting their non-resident status. While earlier it
was possible to be classified as a non-resident by staying out of the country
for 183 days or about six months in a year, this has now been, in effect,
enhanced to 245 days.

The Union
Budget has proposed to introduce a deeming provision that every Indian citizen
who is not liable to tax in any other country, by virtue of his domicile or
residence, shall be deemed as a resident of India. Consequently, his global
income would be taxable in India.

Tightening
the residency provisions, the Budget also proposed to reduce the period of stay
in India to 120 days from 182 days earlier for persons of Indian origin (PIOs)
to be categorised as non-resident Indians (NRIs).