Provisions of Tax Residency in India amended. Period of stay reduced to qualify as Non Residents

Provisions of Tax Residency in India amended. Days of stay reduced for visiting Indian Citizens/Persons of Indian Origin. Period shortened for not ordinarily residents

Modification of residency provisions

Section 6 of the Income Tax Act 1961 provide for different conditions/situations in which an individual is considered to be resident in India in a given previous year.

One of the condition provides that the individual shall be Indian resident in a year, if he,-

(i) has been in India for an overall period of 365 days or more within four years preceding that year, and

(ii) is in India for an overall period of 60 days or more in that year.

However, in the Explanation, it has been further provided that an Indian citizen or a person of Indian origin who being outside India comes to visit India then, he/she shall be Indian resident if stays in India for 182 days instead of 60 days in that year.

Thus, relaxation has been provided to an Indian citizen or a person of Indian origin allowing them to visit India for longer duration without becoming resident of India.

However, the Govt. had noticed instances where period of 182 days specified in respect of an Indian citizen or person of Indian origin visiting India during the year, is being misused.

According to the Government, individuals, actually carrying 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.

Further the provisions provide for situations in which a person shall be “not ordinarily resident” in a previous year. It has been provided that if the person is an individual who has been non-resident in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for an overall period of 729 days or less. Similar provision exists for the HUF.

This category of “not ordinarily resident” is aimed essentially to ensure that a non-resident is not suddenly faced with the compliance requirement of a resident, merely because he spends more than specified number of days in India during a particular year.

However, the Government believes that it is entirely possible for an individual to arrange his affairs in such a fashion that he/she is not liable to tax in any country or jurisdiction during a year. This arrangement is typically employed by high net worth individuals (HNWI) to avoid paying taxes to any country/ jurisdiction on income they earn.

Tax laws should not encourage a situation where a person is not liable to tax in any country. The current rules governing tax residence make it possible for HNWIs and other individuals, who may be Indian citizen to not to be liable for tax anywhere in the world.

Provisions of Tax Residency in India amended as under:

In view of the above mentioned concerns of the Government, provisions of Tax Residency in India are proposed to be amended as under-

(i) the number of days for stay provided for persons of citizen of India or persons of Indian origin visiting India in that year be decreased to 120 days from existing 182 days.

(ii) an individual or an HUF shall be said to be “not ordinarily resident” in India in a previous year, if the individual or the manager of the HUF has been a non-resident in India in seven out of ten previous years preceding that year.

(iii) an Indian citizen who is not liable to tax in any other country or territory shall be deemed to be resident in India.

Tax Residency India non residents

This amendment is  effective from 1st April, 2021 and will  apply to the assessment year 2021-22 and subsequent assessment years. 

Govt. Clarification-deeming tax residency as per Budget 2020 not apply to bonafide workers abroad

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