Won’ t tax global income of NRIs: FM after budget
Sitharaman assuages concerns of non-residents, says new tax regime beneficial
NEWDELHI: Finance minister Nirmala Sitharaman said on Sunday the government has no intention of taxing the global income of non-resident Indians (NRIs), with a proposal announced in Saturday’s Union budget only covering their earnings generated in India.
While presenting the Union budget in Parliament on Saturday, the finance minister proposed to tax those NRIs who neither pay tax in India nor in any other country. “It is also proposed to provide that an Indian citizen who is not liable to tax anywhere would be deemed to be resident in India,” she said in the budget speech.
The Union budget for 2020-21 offered an estimated ₹40,000 crore of tax concessions to individual taxpayers resorting to a budgetary stimulus to revive the economy. It also increased government spending, the second way to deliver a budgetary stimulus, albeit by a modest amount, but with a focus on capital expenditure. The 2020-21 budget comes against the backdrop of the slowest rate of growth in 10 years.
Sitharaman clarified on Sunday that such NRIs will be taxed “only for their income generated in India”. “I’m not taxing what you are earning in Dubai,” she told reporters while replying to a specific query on this matter and said the government will soon issue a clarification.
Later in the day, the Central Board of Direct Taxes (CBDT)
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”.
“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 CBDT said in a statement.
It said the new provision is not intended to include in tax net those Indian citizens who are bona fide 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 bona fide 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 statement said.
“Necessary clarification, if required, shall be incorporated in the relevant provision of the law,” the CBDT added.
The budget provision regarding taxing NRIs is a move to prevent tax abuse, as it is possible for an individual to avoid paying tax in any country or jurisdiction, the budget memorandum said. “This arrangement is typically employed by high net worth individuals 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,” it said.
The budget also proposed to reduce the time of stay in India from 182 days to 120 days for an Indian citizen or a person of Indian origin to become a resident in India. Consequently, it is proposed to relax the provision of “resident but not ordinarily resident” so that a resident who has been non-resident in seven out of 10 previous years would be resident but not ordinarily resident, the finance minister said in the budget.
Shefali Goradia, partner, Deloitte India said: “Reducing the threshold of physical presence to 120 days in a year will make visiting NRIs more conscious of their travel dates. On one hand, the Government has been keen to attract talent and onshore the funds and fund managers whereas on the other hand, this move will disincentivise people from spending more time in India. Businesses are mobile and with a view to attract entrepreneurs to India, FM should consider restoring the prior threshold.”