Residency rules determine how an NRI pays tax under the Indian Income Tax Act. The status of being a non-resident is itself determined by the number of days of stay rule. Per the IT Act A non-resident Indian may qualify as an Indian resident for tax purposes if one meets either of the following two conditions – i) stay in India for a year is 182 days or more or ii) stay in India for the immediately four preceding years is 365 days or more and 60 days or more in the relevant financial year. An individual who does not satisfy either of the conditions stated in (i) or (ii) would be an NRI for the year.
A lower limit of 120 days is applicable in place of 182 days if an NRI’s income from Indian sources is above Rs 15 lakh in the said financial year. If an NRI’s Indian taxable income is less than Rs 15 lakh, the 182-day would still hold good. Given these rules, the unexpected lockdowns and air travel restrictions across the world have played havoc as far as NRIs stuck in India are concerned. NRIs who had come down for a short visit in March 2020 and ended up being here for longer than planned were obviously a worried lot due to the tax implications.
Given the unprecedented nature of the Pandemic and its after-effects on a worldwide populace, the tax authorities had excluded days spent in India from March 22, 2020, to March 31, 2020, in determining the residential status for FY20. A relaxation was provided to individuals stranded in India due to coronavirus-related travel restrictions for FY 2019-20 via a circular dated May 8, 2020, by the Central Board of Direct Taxes (CBDT). As per the circular, for determining the residency status for an individual for FY 2019-20 in respect of an individual who came to India before March 22, 2020, and was unable to leave India on or before March 31, 2020, then in such cases, stay in India between March 22, 2020, and March 31, 2020, will not be considered for determining the residential status. The circular further clarified that individuals quarantined in India due to Covid-19 on or after March 1, 2020, and departed from India through an evacuation flight by March 31, 2020, or was unable to leave India by March 31, 2020, then in such cases, the stay in India from the start of quarantine to the date of departure or March 31, 2020, will not be taken into account for determining the residential status.
However, NRIs expecting a similar concession for FY 21 were in for a disappointment as no such relief was provided in the budget for the current fiscal. This would mean that the NRIs that become residents may need to pay advance tax to avoid additional penalties and interest. In the light of fiscal tightening due to the Pandemic and a scramble for revenue, it is unlikely that the government will provide further concessions. The best it can do and has done is remain tax neutral as far as individual taxation goes with neither additional taxes being levied nor concessions being given.