NEW DELHI/THIRUVANANTHAPURAM: A day after a Budget proposal to tax non-resident Indians triggered concern among expats, the finance ministry on Sunday clarified that the government is not eyeing NRIs’ income generated abroad; only their earnings from India will be taxed.
Finance minister Nirmala Sitharaman explained that only the domestic earnings of NRIs, such as rental income from property, would be taxed under the new provisions. The Finance Bill 2020 has proposed to tweak NRI classification and tax liability norms, in a bid to check tax evasion. Indian citizens will now have to stay 240 days outside India to be classified as NRIs, up from 182 days currently.
“Individuals, who are actually carrying out substantial economic activities from India, manage their period of stay in India, so as to remain a non-resident in perpetuity and not be required to declare their global income in India,” the Budget memorandum said. Earlier, Kerala CM Pinarayi Vijayan criticised the proposal to raise the number of days one has to stay abroad to be considered an NRI. Lakhs of Keralites are working in the Gulf and their remittances make up for 15% of the gross state domestic product. continued on:
Move to trap HNIs evading tax: FM
The Finance Bill 2020 had proposed that an Indian citizen shall be deemed to be a resident of India if he is not liable to be taxed in any country. As such, their earnings would be taxable by Indian authorities. The provision had led to fears among the millions of Indian workers in countries like the UAE, which does not levy any income tax, that earnings from outside India would also be taxed.
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The finance ministry said the new provision is not intended to include Indian citizens who are bonafide workers in other countries in the tax net. “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.”
The finance ministry’s intent behind the move is to net HNIs who shift base purely to evade tax. Such ‘Stateless’ persons, who don’t pay tax in any country, will be taxed in India. “Individuals, who are actually carrying out substantial economic activities from India, manage their (182-day) period of stay in India, so as to remain a non-resident in perpetuity and not be required to declare their global income in India,” the Union Budget memorandum says.