As India imposed the world's biggest lockdown to non-residential Indians (NRIs), who had been visiting the country were unable to return due to the coronavirus pandemic and the sudden imposition of tax implications on their stay left many stranded away from home. While work may not be disturbed in such a case, with work from home and minimal flights back, many are still working from India.
NRIs who came to India in FY20 have stuck due to curbs on international flight operation post the covid-19 outbreak since 23rd March. Although limited flights are being allowed for 16 countries which have been started from July’2020 and full-scale commercial flights are yet to resume. The Government came out with an interpretation in May exempting the period between 22nd March and 31st March for the calculation of residency status for FY20 still; no clarification has been issued for FY21 so far.
A change in the residency status may result in increased tax liability for some NRIs who have been forced to stay in India and who seek clarifications from the tax department. Every taxpayer has to do tax planning and compliance which includes payment of advance tax, TDS, etc.
Tax implications have changed significantly for these individuals. If you're an NRI stranded in the state, there are five things you need to note, to calculate the taxes you owe by the Indian Government.
1. Residential status
Income-tax in India depends on your residential status and place where services are rendered. You will be treated as a resident in India for FY21 if you have:
· Must have stayed in the country for 182 days or more in the present FY.
· Must have stayed in the country for 60 days or more during the present FY; and 365 days or more in the last 4 days, the 60-day rule enhance 182 days for those who have gone abroad to work or NRIs who are visiting India.
· If your income in Indian rupee is over Rs. 15 lakh, the relaxation from 60 days to 182 days gets restricted to 120 days.
2. Employer's position
If you are employed in a foreign company out of India, your company may be deemed to have a permanent establishment in India. It can become liable for tax for the part of its profit attributed to you. This condition can give rise to substantial litigation for the company.
3. Tax deduction
Most of the countries have similar provisions to TDS; this amount will be reduced by your foreign employer even if you are employed from India and filing tax returns here. However, you may be able to claim the TDS deducted abroad as credit while filing your ITR in India.
4. Foreign exchange rules
If you have been working abroad, possibly you will have an international salary account. When you transfer funds from that to your Indian bank account, you will need to pay extra charges. If you are getting your pay transferred to your Indian account directly, that would automatically become taxable.
5. Income through investment
All your income from various investments, like dividends, rent received, and capital gains will be taxable in India. Even returns on pension funds will be taxable.
In case an NRI qualifies as an Indian resident, the scope of income offered to tax increases. Hence individuals stranded in India must keep a check on the number of days he/she has spent in India while maintaining passport stampings handy, which will help in case of questions arising from tax authorities. If tax filing obligation is triggered, proactive measures would help complaint in India/ foreign country and ensure there is no taxation.
At Itseki Mercurius India , we assist our clients in dealing with various income tax compliances, including income tax assessments, TDS returns, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about Tax consequences on NRIs, kindly contact us.