If an NRI stuck in India due to the Covid travel ban qualifies as a tax resident, is there any relief?
There are three types of residence status in India under the Income Tax Act: Non-Resident (NR), Resident But Non-Ordinary Resident (NOR), Resident and Ordinary Resident (ROR). The rules for determining residence status were changed with effect from FY21 for Indian citizens or persons of Indian origin. For such a person, the residence status is determined on the basis of:
• Physical presence of an individual in India during a fiscal year (FY), including working days and non-working days, and the previous 10 FY and
• Income earned in India
The residential status is dynamic and has to be determined anew every year.
A person who qualifies as a ROR will be taxable in India on their worldwide income and must report all foreign assets on the Indian Income Tax Return (ITR).
An individual who qualifies as NR or NOR is liable to tax on the following income (income from India): income accruing or arising in India; Income believed to be generated or generated in India; and income received or deemed to have been received in India. In addition, in the case of NOR, income that originates or originates outside of India from companies that are controlled or incorporated in India is taxable.
Due to Covid, the Income Tax Department had issued a circular stating that physical presence in India during the prescribed period will not be taken into account when assessing tax residence status for FY20.
• Cannot leave India on or before March 31, 2020
• March 22, 2020 to March 31, 2020
• Quarantined in India on or after March 1, 2020 and left India on an evacuation flight on or before March 31, 2020
• Start of the quarantine period until the departure date
• Quarantined in India on or after March 1, 2020 and unable to leave India on or before March 31, 2020
• Start of the quarantine period by March 31, 2020
• left India on or before March 31, 2020 on an evacuation flight
• March 22nd, 2020 until the departure date
So a person stranded due to the no-fly in India can first determine their residence status in India and the residence status according to the applicable double taxation treaty and then examine the benefits of avoiding double taxation.
Sonu Iyer is a tax partner and head of HR at EY India.
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