Amid concerns that Non-Resident Indians may be brought in the tax net through changes introduced in Budget 2020-21, Finance Minister Nirmala Sitharaman Sunday clarified that NRIs will have to pay taxes only on income generated in India and not on earnings abroad.
The government has also proposed to reduce the number of days for individuals to be considered as Indian residents for tax purposes to 120 or more, from 182 or more at present.
In a media interaction, Sitharaman said: “What we are doing now is that the income of an NRI generated in India will be taxed here. If he’s earning something in a jurisdiction where there is no tax, why will I include that into mine that has been generated there?”
Earnings of NRIs, such as rental income from property in India, is intended to be taxed by Budget provisions, she said. “If you have a property here and you have rent out of it, but because you are living there (abroad), you carry this rent into your income there and pay no tax there, pay no tax here…since the property is in India, I have got a sovereign right to tax,” she said.
Meanwhile, Kerala Chief Minister Pinarayi Vijayan wrote to Prime Minister Narendra Modi voicing apprehensions that income of NRIs working in many tax-free jurisdictions such as Dubai and other locations in the Gulf region could be taxed in India.
In his letter, he said that reducing the number of days to be considered as Indian residents will cause hardship to many people from Kerala working in Gulf countries.
“The proposed reduction of the period from ‘182 days or more’ to ‘120 days or more’ is likely to adversely affect professionals leaving for employment in areas like oil rigs, who will be in India off duty after a period of arduous work schedule,” Vijayan wrote, demanding necessary changes in the Finance Bill 2020 to restore status quo.
The Finance Bill 2020 has proposed that an Indian citizen shall be deemed to be a resident in India, if he is not liable to be taxed in any other country or jurisdiction. In a subsequent clarification, the Finance Ministry said: “This is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdiction to avoid payment of tax in India.”
It said: “In order to avoid any misinterpretation, it is clarified that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession.”
Kerala’s economy, which is substantially supported by remittances comprising around 15 percent of our Gross State Domestic Product, especially from those in the Gulf countries, will be adversely affected by this amendment, Vijayan wrote.
“The Government of Kerala places on record its strong disagreement with the move in the Finance Bill, 2020, which is brought in under the guise of checking tax abuse, but will, in reality hurt those who toil and bring foreign exchange to the country,” the letter said.
It is requested that the Central Government may desist from going ahead with the amendment to section 6 of the Income Tax Act 1961, proposing to reduce the stay period of 182 days or more for Indian citizens or persons of Indian origin, to 120 days or more, for being treated as residents for tax purposes, the Chief Minister wrote.
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