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Budget 2020: Govt proposes tax on non-taxpaying NRIs

CNBCTV18 logo CNBCTV18 01-02-2020 CNBC-TV18

The budget is a little more demanding of the non-resident Indian. Firstly, to be categorized a non-resident, an Indian now has to stay abroad for 240 days, against 182 previously.

Budget 2020: Govt proposes tax on non-taxpaying NRIs © Provided by CNBCTV18 Budget 2020: Govt proposes tax on non-taxpaying NRIs

In other words, an Indian national, to claim the non-resident status, can’t stay in India for 120 days or more in a year.

“We've made changes in Income Tax Act where if an Indian citizen stays out of the country for more than 182 days, he becomes non-resident,” said Revenue Secy Ajay Bhushan Pandey.

“Now in order to become non-resident, he has to stay out of the country for 240 days.”

The second rule is more deadly: a non-resident Indian, who is not taxed in the foreign country, will become taxable in India.

Tax experts say it was entirely possible for high net worth individuals to arrange the stay in India and abroad in such a manner that they would not pay tax anywhere and nor in India.

Gopal Bohra, Partner, NA Shah Associates, on the new proposed tax residency amendments said, "Currently, if a person who is a Citizen of India or a Person of Indian Origin, managed his stay in India such that he remained a non-resident in perpetuity, he was not liable to pay tax on his global income in India.

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"It was entirely possible for high net worth individuals to arrange his affairs in such a fashion that he would not be liable to be taxed in any other country and also not in India." 

“If any Indian citizen is not a resident of any country in the world, he'll be deemed to be a resident of India and his worldwide income will be taxed,” said Pandey.

"It's a very big disadvantage for Indians residing overseas only to save on tax," said Dinesh Kanabar of Dhruva Advisors. He expects that many Indians stay abroad in countries, where the income tax is low or nil such as Dubai. Now they will be taxed in India if they are in the income tax bracket.

Parizad Sirwalla, Partner and Head, Global Mobility Services- Tax, KPMG in India said, "This amendment could potentially impact many Indians who may be working or staying in countries with no tax system. It is also believed that there is ambiguity in interpretation of the term “liable to be tax” which may require some further clarifications from the Government."

For Indians, finance minister Nirmala Sitharaman revised income tax rates and proposed new tax slabs. The new income tax rates will, however, not allow exemptions under Section 80C. Home loan exemption, insurance exemptions, the standard deduction will also not stay under the regime.

"The new tax regime will be optional and the taxpayers will be given the choice to either remain in the old regime with exemptions and deductions or opt for the new reduced tax rate without those exemptions," Sitharaman said while unveiling Budget. (with agency inputs)

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