The year 2020 was something that the last three generations did not experience in any sense. There has been a major change in our lives right from our activities at home to the work culture we follow. People around the world have started embracing the “new normal” and are carrying on with their lives with more enthusiasm and hope than ever. On the flip side, certain sectors such as travel, hospitality, etc., were greatly affected and are only now showing signs of initial recovery.
During the initial days of COVID when there was a panic across the world with most of the countries imposing a strict lockdown, a lot of people were stranded away from their homes or had come home and were unable to go back especially the ones who were working outside India. Although Work from Home became a norm during the period, there were other implications that arose. One of the major implications was the residential status of the individual who was stranded in India but was still employed with a foreign company and receiving their salary abroad.
This becomes very relevant because as per the Income Tax Act in India, if you are a resident, then your global income becomes subject to taxation. Say, for example, Mr. A who is working for a US company had come to India during the mid of March 2020. The lockdown was imposed on the last week of March and Mr. A was restricted from traveling back to the US. Mr. A continued to work for the company in the US. He stayed in India until November 2020 before he went to the US. As per the Income Tax Act, a person becomes a resident in India if the period of stay in India exceeds 182 days during the Financial Year (April to March). In this case, Mr. A would be resident in India for tax purposes – meaning he has to declare his global income for tax in India. This would normally result in huge tax liabilities.
The Central Board of Direct Taxes (CBDT) had issued a circular in May providing exemptions to travelers stranded in India until the period March 31, 2020, by way of Circular No 11 of 2020 dated May 08, 2020.
A circular was issued on March 03, 2021 clarifying the residential status for the previous year 2020 – 21. As per the circular, the residential status is determined as below.
- If a person is a Citizen of India or a Person of Indian Origin, he/she may become a resident in India in the below-mentioned situation:
- If a person has stayed in India for a period of more than 182 days from April 2020 to March 2021.
- If a person is not a Citizen of India or a Person of Indian Origin, he/she may become a resident in India in the below-mentioned situations:
- If the person stays in India for a period of more than 182 days during the previous year; OR
- If the person stays for more than 60 days or more during the previous year 2020 – 21 and stays for a period of 365 days or more during the preceding 4 previous years.
In order to ensure that cases of “Double Non-residency” (Where a person is not a resident in any country) do not arise, the government has not given any general relaxations for persons who are stranded in India during the COVID Lockdown.
This will have tremendous relevance for individuals who are stranded in India due to the COVID lockdown but continued to work from home for a company outside India and received a salary in a foreign country. One needs to take extra precautions to ensure that the incomes are properly reported in India and the benefits of the Double Taxation Avoidance Agreements (DTAA) are properly utilized. It is of utmost importance to comply with the regulatory requirements whilst ensuring the income is not double taxed.
The NRI Taxation wing of GKM has supported more than 20000+ individuals with US and India Tax filings and DTAA Advisory. For more information, please visit our website www.gkmtax.in or contact us at info@gkmtax.com
