Daijiworld Media Network - Dubai
Dubai, Feb 2: The union budget presented by finance minister Nirmala Sitharaman on Saturday February 1 has proposed to tax non-resident Indians (NRIs) who do not pay taxes in a foreign country.
Also, to be categorized as an NRI, a person has to stay aboard for at least 240 days and not 182 days as stipulated earlier.
The government’s new proposal aims to stop people from taking advantage of loopholes in the country's taxation system.
Revenue secretary Ajay Bhushan Pandey told media that earlier an Indian citizen became an NRI if he stayed out of the country for over 182 days. However, many a time, people took advantage of loopholes and stayed out of the country for the stipulated period to maintain NRI status. With this, they managed to become residents of no country. "Now one has to stay out of the country for 240 days," Pandey said.
The budget memorandum stated, "Some individuals who actually carry out substantial economic activities from India manage their period of stay in India so as to remain a non-resident in perpetuity and not be required to declare their global income in India."
However, leading tax consultants clarified that an Indian holding a resident visa in the UAE will not be taxed back home.
"You are a resident of UAE under the India-UAE Double Taxation Avoidance Agreements (DTAA) and holding a residence visa of the UAE. Therefore, you will not be covered by the law proposed in (the) budget. It may be recalled that the Double Tax Treaty UAE-India was signed in 1993," H P Ranina, a lawyer specialising in tax and exchange management laws of India was quoted by Khaleej Times.
Meanwhile, people who are not a permanent resident of any country, for example they stay a month in UAE, two months in US and a couple of months in UK and hence manage to stay out of India for 182 (now changed to 240 days) will be deemed as residents of India and their global income will be taxed.
Dixit Jain, managing director, The Tax Experts DMCC, told Khaleej Times, "Amid a lot of confusion and outrage by NRIs around the world, the simple clarification came stating that only those individuals who are staying outside India just for the purpose of maintaining 182 days in order to claim NRI status to avail the benefits will no longer be able to do that. It means individual who cannot prove his residency of one particular country and is not a tax resident of one particular country will be assumed to be a tax resident of India and his worldwide Income will be taxed in India. However, a person holding a valid residence visa with economic relevance to that country need not worry on that. He will have to pay tax only on the income earned in India and no tax on his global income."
The ambiguity over the tax structure has received a lot of flak. Naveen Sharma, head (accounting), Audit & Advisory Services Focus Group, told Khaleej Times, "A lot of Gulf-based Indians start or expand their business and it is usual that they spend a lot of time in their new business but now they will have one more headache: Worry about their NRI status because if they lose that status, their entire global income will be taxable."
Moreover, Indians working in Gulf countries visit India frequently to take care of their families and stay on for 4-6 months. Now, they have to worry about NRI status, experts said. "These are backward-looking budget proposals and will create a lot of anxiety among the hardworking Indian population in the Gulf region. This is one of the worst budget proposals in the last 30 years and the government should immediately withdraw this as it is against the interest of the hardworking Indian expats who remit billions of dollars every year to India," Sharma added.
CBDT issues clarification
The Central Board of Direct Taxes has issued a clarification to put to rest the confusion regarding NRIs paying tax and their residence in India.
A press release signed by the commissioner of Income Tax (Media and Technical Policy) and CBDT official spokesperson Surabhi Ahluwalia states, "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.
"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," the release highlights.
"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," the release states.