CBDT issues clarification on the new provision pertaining to residence in India

The Finance Bill, 2020 has proposed that an Indian citizen shall be deemed to be resident in India, if he is not liable to be taxed in any country or jurisdiction. This is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdiction to avoid payment of tax in India.


SEC 6 – RESIDENTIAL STATUS


Clause (1): An individual is said to be resident in India in any previous year, if he


a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or


b) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.


Ø In the case of an individual being a citizen of India, or a person of Indian origin who, being outside India, comes on a visit to India in any previous year, the provisions of point b) (above) shall apply in relation to that year as if for the words "sixty days", occurring therein, the words "“one hundred and twenty days" had been substituted.


Ø Notwithstanding anything contained in clause (1) (above), an individual, being a citizen of India, shall be deemed to be resident in India in any previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.


Ø Amendment: not ordinarily resident

A person is said to be “not ordinarily resident” in India in any previous year, if such person is—

(a) an individual who has been a non-resident in India in seven out of the ten previous years preceding that year; or

(b) a Hindu undivided family whose manager has been a non-resident in India in seven out of the ten previous years preceding that year.


The new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries. In some section of the media the new provision is being interpreted to create an impression that those Indians who are bonafide workers in other countries, including in Middle East, and who are not liable to tax in these countries will be taxed in India on the income that they have earned there. This interpretation is not correct.


In order to avoid any misinterpretation, it is clarified that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession. Necessary clarification, if required, shall be incorporated in the relevant provision of the law.

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