CBDT clarification regarding Residency for NRIs in the Covid-19 Period. 

Providing relief to NRIs and foreign nationals stuck in India since the lockdown, the government issued a notification stating that their stay within the country during the period won't be counted for determining their residency status for taxation purposes.

The nationwide lockdown has caused the cancellation of international flights to contain the spread of COVID-19 which has forced non-resident Indians (NRI) and foreign nationals to prolong their stay in India.

There were apprehensions that this extended stay could lead to those individuals becoming Indian residents as per Section 6 of the Tax Act.

India’s Central Board of Direct Taxes (CBDT) brought the Circular No. 11 of 2020, on 8 May 2020 which clarifies the situation of residency of the Non-resident Indians (NRIs) and foreign visitors who stayed in India during the tax year 2019-20 longer than they expected because of the COVID-19 lockdown. This is often crucial because the taxability of overseas income and disclosure of overseas assets during a financial year depends on the individual’s residential status that is for how many days they stayed in India.

Why this matter?

Many taxpayers and their employers are concerned about the impact that additional unplanned days spent in India may cause them India's tax residency status.

CBDT’s additional guidance provides some clarity in cases where individuals have needed to spend additional days in India in wake of COVID-19-related travel and “stay at home” restrictions.

Background

Section 6 of the Income-tax Act, 1961 (the Act) deals with provisions concerning the residency of an individual. The residency status of anyone (“Ordinarily resident” or a “non-resident” or a “not ordinarily resident”) depends, on the amount of the individual’s stay in India during a specific fiscal year (FY) or past FYs.

Residential Status for the year 2020-21

There were various representations made requesting the Board for relaxing the norms in the determination of the residential status for the year 2020-21 for the people who had come on a visit to India during the previous year 2019-20 and intended to go back but couldn't do to suspension of international flights. The matter was henceforth determined by the Board and it came with the following points:

1. Short stay won't end in Indian residency

There could also be a situation where an individual, who was a non-resident during the previous year 2019-20, gets stranded in India because of the COVID-19 pandemic a few times during the previous year 2020-21 (`PY 2020-21′). In such situations, there are fewer chances that the person would acquire residence status in India during the PY 2020-21 just for this reason as explained below: –

1. A. A citizen of India or an individual of Indian origin may become resident in India only in one among the subsequent situations: –

(i) if his total income from Indian sources (i.e., aside from the income from foreign sources) doesn't exceed fifteen lakh rupees in PY 2020-21 and he stays in India for 182 days or more than it in the year 2020-21; or

(ii) if his total income from Indian sources (i.e., aside from the income from foreign sources) exceed fifteen lakh rupees in PY 2020-21

• he breaks throughout PY 2020-21 for 182 existences or additional; or
• he stays during the PY 2020-21 for 120, days or more and also stays for three hundred and sixty-five days or more in the preceding four previous years.

1. B. An individual who isn't a citizen of India or an individual of Indian origin may become resident in India only in one among the subsequent situations: –

• if he stays during PY 2020-21 for 180 days or more; or
• if he stays during the PY 2020-21 for 60 days or more and also stays for three hundred and sixty-five days or more in the preceding four previous years.

Thus, generally, an individual will become a resident in India for the PY 2020-21 as long as he stayed in India for 182 days or more unless he's covered by the exceptions discussed above.

1. Possibilities of dual non-residency just in case of general relaxation:

Many countries have this condition for a stay of 182 days or more than it for determining residency. Thus, an individual in most situations is going to be resident in just one country since there are three hundred and sixty-five days during a year. If general relaxation for the stay period of 182 days is provided, there could also be cases of double non-residency. In such a situation, an individual might not become a tax resident in any country in PY 2020-21 even after staying for quite 182 days or more in India leading to double non-taxation and find yourself not paying tax in any country.

III. Tie-breaker rule according to the Double Taxation Avoidance Agreement (DTAA):

As discussed above, an individual may become a resident in India in some cases albeit he stays for fewer than 182 days in India. therein situation, there could also be a case of dual residency. However, thanks to the applicability of the Double Taxation Avoidance Agreement (DTAA), such a person will become a resident of just one country as per the “tiebreaker rule” within the DTAA.

1. Employment revenue chargeable only topic to circumstances as per DTAA:

Further, the Article associated with employment income within the DTAA with different countries governs the taxation of employment income.

1. Credit for the taxes paid in another country:

Further, a resident person in India shall be entitled to say credit of the taxes paid in the other country by rule 128 of the Income-tax Rules, 1962.

Conclusion 

The Circular issued by CBDT aims to clear up the anomaly around the residency status of people by taking over board concerns of NRIs and other foreign nationals who arrived in India but couldn't return to their countries. this is often crucial because the taxability of overseas income and disclosure of overseas assets during an FY depends on the individual’s residency status, which, in turn, depends on his/her number of days of stay in India.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Consulting & Governance shall not be responsible for any errors caused due to human error or otherwise.