The non-resident Indians (NRIs) stuck in India during COVID-19 lockdown are a worried lot. As they take stock of their residential status for the financial year 2020-21, they expect a relief from the government on residency rules.
In order to determine the tax liability in India for those settled abroad, first we need to check their residency status for a particular financial year. A non-resident Indian may qualify as an Indian resident for tax purposes if she meets one 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.
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An individual satisfying neither of the conditions stated in (i) or (ii) would be an NRI for the year.
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A lower limit of 120 days gets 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 threshold will continue to apply to her.
"NRIs who were traveling to India before the lockdown were unable to return on time due to restrictions on air travel across the world. This has led to issues relating to their residential status as they ended up spending more number of days in India during the lockdown," says Harshad Chetanwala, Co-Founder MyWealthGrowth.com.
However, in line with a circular by Central Board of Direct Taxes (CBDT) in which it had relaxed the residency norms by a few days for the financial year 2019-20, they expect a similar relief for FY21. The CBDT had excluded days spent in India from March 22, 2020 to March 31, 2020 in determining the residential status for FY20.
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"No relaxation has been provided so far for FY21, but one could expect a wild card entry on this account in the Budget 2021. If no relaxation is provided, then the NRIs should pay the taxes as advance tax to avoid penal interest," suggests Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co.
Saraswathi Kasturirangan, Partner, Deloitte India agrees. "I wouldn't say it was only a travel restriction-related choice. It was also a personal choice that they wouldn't want to risk being stranded in a foreign country when their home base is India. So, if the employment is overseas and the salary is being received overseas, a practical approach from the government would be to not trigger a taxation in India due to an exceptional situation like COVID-19. The industry is eagerly waiting for these guidelines."