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What NRIs need to know about the recent residency circular by CBDT

For one, the CBDT has refrained from giving any specific exemption in the number of days of stay for the financial year 2020-21

Many NRIs stayed longer than usual in India last year. Due to the onslaught of COVID-19 and the implementation of nationwide lockdown, international flights were cancelled which forced an extended stay. Inevitably, it impacted the residency status of some NRIs. 

The Central Board of Direct Taxes (CBDT) recently came out with a circular clarifying this. Here are a couple of takeaways:

1. No exemption

For one, the CBDT has refrained from giving any specific exemption in the number of days of stay for the financial year 2020-21. Earlier, for the financial year 2019-20, the Government had provided respite to the NRIs by not considering days from March 22 till March 31st of 2020 –for purposes of determining residential status. On these days, NRIs were unable to leave India due to lockdown. 

When does an NRI becomes a citizen of India?

If he stays during the previous year 2020-21 for 182 days or more; or

 if he stays during the previous year 2020-21 for 60 days or more and also stays for 365 days or more in the preceding four previous years.

What are the implications if you have stayed for more than 182 days in India during the financial year 2020-21?

It depends a lot on the country and the duration of the stay. For one, if you are staying in a country with which India has a Double Tax Avoidance Agreement (DTAA) then you are more likely to avoid being taxed twice. India currently has DTAA with 90-odd counties including Australia, Canada, Germany, Mauritius, Singapore, UAE, the UK, and the US. 

If by any chance you are getting taxed in both countries because of overstaying, you have an option to seek redressal. CBDT however insists that such a possibility is bleak given that most countries have 182 days of stay as criteria for assigning residency status.

However, if you still face double taxation issues, you can furnish the information in Form -NR and submit it electronically to the Principal Chief Commissioner of Income-tax (International Taxation). The last date for the submission is 31st March 2021 and these forms are available on the IT website. On a case-to-case basis, the tax authorities will explore the possibility of providing relaxation and general relaxation if need be. However, it hasn’t provided any timeline for such a redressal. 

2. Staying in tax-neutral nations

If you are staying in tax-neutral countries like Dubai, Saudi Arabia, Kuwait and other Gulf nations, any overstay will have tax repercussions. How is it so? 

That’s because these tax-neutral countries don’t have any taxes for their citizens and if in the process of overstaying in India, the individual becomes an Indian citizen, he will have to pay taxes on his global income as he becomes a Resident and Ordinarily Resident (ROR).  

To some extent, longtime NRIs will be saved from the taxing ordeal – if they qualify for the Resident but Not Ordinarily Resident (RNOR) status. It is accorded to those fulfilling any of the following conditions:

If you were an NRI for nine out of the previous 10 years preceding that year

Or

If you have stayed in India for 729 days or lesser in the previous seven years preceding that year.

An RNOR in India continues to enjoy tax benefits like an NRI. They will be taxed only on income earned in India, unlike Indian residents who have to pay tax on global income. 

Litigation in progress

The CBDT circular has come on the back of a writ petition filed by a Dubai-based Chartered Accountant Gaurav Baid in the Supreme Court of India. Interestingly, he has recently also filed a fresh writ petition before the Supreme Court challenging the new CBDT circular for not providing any relief to NRIs on the issue of losing their NRI status and hence being taxed on their global income. As of now, the only real option is to keep your fingers crossed and watch for the court verdict.

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