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).