To prevent tax abuse, where “individuals, who are actually carrying out substantial economic activities from India, manage their period of stay in India,” so as not to declare their global income in India, exemptions provided for those who are considered residents of the country have been changed.
The Budget document said, “exception provided in clause (b) of Explanation 1 of sub-section (1) to section 6 for visiting India in that year be decreased to 120 days from existing 182 days”. Click here to read the LIVE blog
Also “an individual or an HUF shall be said to be “not ordinarily resident” in India in a previous year, if the individual or the manager of the HUF has been a non-resident in India in seven out of ten previous years preceding that year”. Plus, the Budget, “an Indian citizen who is not liable to tax in any other country or territory shall be deemed to be resident in India”.
The amendment will take effect from April 1, 2021 and will apply from 2021-22 assessment year.
The move is aimed at addressing the issue of “stateless persons” as, the Budget document said, “it is entirely possible for an individual to arrange his affairs in such a fashion that he is not liable to tax in any country or jurisdiction during a year”.
This is a tactic deployed by high net worth individuals (HNWI) to avoid paying taxes to any country. “The current rules governing tax residence make it possible for HNWIs and other individuals, who may be Indian citizen to not to be liable for tax anywhere in the world. Such a circumstance is certainly not desirable; particularly in the light of current development in the global tax environment where avenues for double non-taxation are being systematically closed,” the document said.
Earlier, sub-section (1) of section 6 of the Act provide that an individual shall be Indian resident in a year, if he has been in India for an overall period of 365 days or more within four years preceding that year, or is in India for an overall period of 60 days or more in that year.
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