MUMBAI: Indian citizens who are working overseas (including the large Indian diaspora working in low or nil tax Gulf region) can finally breathe a sigh of relief. The Finance Bill, as passed by Parliament today, was suitably amended to ensure that overseas income will not be subject to tax in India, under the newly introduced deemed residency norms.
Under the Income Tax (I-T) Act, a tax resident of India, who is also an ordinarily resident, has to pay tax on his global income. All other individuals pay tax only on their India source income, such as interest on fixed deposits, rent from immovable property in India, to name a few. The Bill, as tabled in the Parliament on February 1, had introduced the concept of a ‘deemed resident’ for Indian citizens.
An Indian citizen, who is not liable to tax in any other country, by reason of his domicile, residence or any other criteria of similar nature would be a deemed resident for tax purposes, it had stated. TOI had correctly analysed in its Budget edition of February 2 that the Bill did not intend to tax Indian citizens who are bonafide workers in other countries on their overseas income.
Subsequently, CBDT had stated 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.”
Gautam Nayak, tax partner, CNK Associations, said, “The amendment ensures that an individual who is an Indian citizen, would be regarded as a deemed tax resident of India, only if his total income from Indian sources (including a foreign business controlled in India or profession set up in India) exceeds Rs 15 lakh. Such a person would be treated as a not-ordinarily resident and will be liable to tax in India only on his India-source income and not his global income.
“India source income is always taxable in India. Thus, in regular cases, this may not impact the tax position in India. However, concessional rate of tax for non-residents under the I-T Act, on dividend income of 20% (as opposed to applicable slab rate) may not be available. If the individual is covered by a tax treaty, the appliable rate would apply. To illustrate, UAE residents would be subject to a 10% tax on dividends earned from Indian companies,” explains Puneet Gupta, director, People Advisory Services at EY-India. “Further, by imposing a threshold of Rs 15 lakh, this amendment will ensure that Non-resident Indians (NRIs) with negligible income in India, would not be impacted,” adds Nayak.
Under the I-T Act, Indian citizens and persons of Indian origin (PIO) who were on a visit to India, are treated as a resident, only if they had been in India for an overall period of 365 days or more during the four previous years and had been in India for 182 days in that particular financial year.
While the Financethe Bill had proposed to reduce the period of 182 days to 120 days in all cases, the amendment restricts the applicability of 120 days only where the Indian citizen or PIO have India source income exceeding Rs 15 lakh. “Such individuals will be treated as resident but not ordinarily resident and will pay tax only on their Indian source income,” explains Gupta.
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