NRI needs to pay tax on global income in India? (Important updates for NRI in Budget 2020)

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Budget 2020 was announced on 01.02.2020 by our Finance Minister Nirmala Sitharaman wherein many amendments have been made and all such amendments would be applicable for calculating income of F.Y. 2020-21.

There were also amendment in section 6 which deals with residential status and income of NRI:

First amendment:

The first amendment was made in the definition of a resident as per Income Tax act and the new definition is as follows:

“in clause (1), in Explanation 1, in clause (b), for the words “one hundred and eighty-two days”, the words “one hundred and twenty days” shall be substituted;”

Thus earlier for a person to be a resident he needs to be in India for 182 days or more and therefore many people used to make trips to foreign or even Nepal to save themselves from the status of resident and therefore saving tax on their global income.

However now a person would be a resident in India if he stays in India for 120 days or more. Thus now if you wish to get a status of NRI you need to be out of India for 246 days or more.

Second Amendment:

A new clause was inserted as (1A) which can be read as under:

“(1A) Notwithstanding anything contained in clause (1), 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.”

Thus the above provision created a fear for many Indian citizen working in Dubai and such other countries where there is no tax on income, that now their income would be taxed in India and such provision received a huge backlash as it was taxing global income on non resident in India.

Therefore CBDT vide Press release Dated 02.02.2020 clarified that “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.”

Thus the above Press release made it clear that global income of salaried employee in other countries won’t be taxed in India if they are working in a company outside India.

Third Amendment:

The third amendment has been made in the definition of resident and ordinary resident:

As per the earlier provision a person is said to be a resident and ordinary resident if:

“an individual who has been a resident in India in two out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more;”

As per the new amendment this definition has been changed to:

“an individual who has been a resident in India in four out of the ten previous years preceding that year”

Thus the limit has been increased from 2 years of residence to 4 years of residence in India and the condition for number of days has been removed. This will be a great relief for those individuals who return to India after working outside India and have NRE FD in India as now they can earn tax free interest for more years on such FD.

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