Budget time in India is usually one of anxiety and anticipation – both for residents and NRIs. This year’s budget addresses some taxation issues related to the Non-Resident Indians.
An NRI is liable to be taxed for income which he has earned/accrued to him in India. He is not taxed for his global income. For payment of tax in India, we need to check the residential status of the person and his income. There are instances of some Non-Resident Indians misusing their residential status to avoid tax payment.
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Table of Contents
Residential Status:
The budget 2020 has proposed new laws to determine the residential status of a person in India and check the said malpractice.
New proposals for residency:
- If a citizen of India or a Person of Indian origin has stayed for 120 days or more in India, he is a resident Indian, and his global income will be taxed as per Indian Tax Laws. The period of stay in India has been reduced to 120 days from 182 days.
- To be qualified as Non-Resident Indian, a person has to stay out of India for 245 days. Earlier the stay period was 183 days.
- A citizen of India will be deemed to be a resident of India if he is not liable to be taxed in any other country.
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Important Clarifications:
- An Indian Citizen who becomes deemed resident as per new provision will not be taxed for his Income outside India unless such an income is derived from Indian business or profession.
- A clarification has been issued by the Government of India that bonafide workers in other countries including Middle East who are not taxed there will not be taxed in India for income earned by them in that country.
Income Tax return:
Every taxpayer has to file an income tax return. However, tax laws in India provide relaxation to Non-Resident Indians from filing return in some cases.
- No need to file a return if the total income of an NRI consists only of Dividend or interest and TDS has been deducted on it.
- In Budget 2020, this relief has been proposed to be extended to income from Royalty or FTS, i.e. Fees for Technical Services, also.
RONR:
For taxation, there is another term “Resident but not ordinary resident” (RONR). It is a special status given to an NRI who returns to India.
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An Individual is regarded as RONR if he meets either of the two conditions:
- He is a non-resident Indian in 9 out of 10 previous years preceding the previous year;
- He has stayed in India for 729 days or less during 7 years preceding the previous year.
In budget 2020, the period of 9 years has been reduced to 7 years. For taxation purposes, RONR is treated in the same manner as an NRI. He is liable to be taxed for his Indian income only. Once RONR status is over, his income is taxable as other residents.