The Union Budget 2020 has introduced a new personal income tax regime, in an attempt to bring down the tax burden for individual tax payers. However, the changes don’t seem to be in favour of Non-resident Indians (NRIs) who aren’t paying taxes to date.
Finance Minister Nirmala Sitharaman in her recent Budget speech on February 1, proposed to tax Non-resident Indians (NRIs) who do not pay taxes in any foreign country.
Yes, this statement made NRIs anxious. Especially those working in the Gulf region where countries don't tax their income.
So, finance minister clarified that only Indian income of NRIs is proposed to be taxed under the new provision, and later Central Board of Direct Taxes (CBDT) also put out a clarification saying that "the new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries".
Well, if you’re thinking, what made the ministry to come up with such a change? The ministry said it was an anti-abuse provision amid growing instances of NRIs shifting their stay in low or no-tax jurisdiction to avoid tax payment in India.
Here’s what Sitharaman said in a press briefing on Sunday, “An NRI living in another country earns money there, which is not taxed there at all, but has some earnings through something in India and does not pay tax here either because he does not live here. What we are saying is this: for the income generated in India, pay a tax. If you have a property here that generates rental income, but because you live there, you carry this income there and pay tax neither there nor here.”
“Have I got even a sovereign right to take that into my consideration or not? I am not taxing what you earn in Dubai,” she added.
Well, in view of this the CBDT chairperson Pramod Chandra Mody said that the move is "essentially an anti-abuse provision". "Some study showed that people are trying to stay in multiple countries for a period lesser than that would make them a resident," he said.
And upon asking if these people are doing so to avoid paying taxes, he said it "appears" that tax evasion could be the reason.
"Now, in such cases of Indian citizens who are resorting to this system we are putting a provision that if they are not resident of any tax jurisdiction then they will be treated to be a deemed resident of this country." "And by virtue of that, their taxable income or to say their entire global income, will be taxed here," Mody said.
This means an NRI, who is not a resident of any country, will now be deemed an Indian resident and their income will be taxed here.
Mody said India now has multilateral tax treaties with other countries where "we continuously exchange information and hence getting information on such people will not be that difficult".
What’s more, tightening the residency provisions, the Union Budget 2020 has also reduce the period of stay in India from 182 days to...
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