The Hindu Business Line : Taking the lead

The non-dom tax of a flat 30,000 British pounds or actual tax on whichever is less, with effect from the financial year 2008-09, payable on foreign income by those who have been residents of Britain for at least seven years in a block of ten years but are domiciled elsewhere is not going to give sleepless nights to steel baron Lakshmi Mittal, Russian oligarch Boris Berezovski and thousands of other rich people who have made London their home, enamoured by the British tax law that did not tax a non-dom’s foreign income. Lesser mortals, however, could find the tax burdensome. The US, which has had a good relationship with the UK, has done its bit to make life easier for its citizens by agreeing not to tax once again the income that has thus been subjected to tax in the UK.

Origins in colonial times

The British government’s policy of not taxing the non-dom’s non-British income has its origins in its colonial times when it crafted a tax policy that was kind to the residents of Britain having their roots in its suzerains. This historical and colonial relic came to tantalise many high net worth individuals (HNIs) to make London their home but gave the British exchequer a troubled conscience — double standards that discriminated against British residents rooted in Britain.

India too had a similar dispensation. Till the financial year 2002-03, an individual got the hallowed status of resident but not ordinary resident if he was, or contrived to arrange his stay, in India in such a way that he either did not live in India for 730 days or more during the last seven years or did not satisfy the test of residence in nine out of ten years by once again being, or contriving his stay in India, principally by ensuring that he did not stay here for more than 181 days during the relevant years.

New norms

From the year 2003-04, things have changed to the consternation principally of Non Resident Indians (NRI) because the new norm is residence in India in any two years out of the block ten preceding years makes one a resident unless, of course, he has successfully contrived his stay in India during the preceding seven years to below the 730-day mark.

The long and the short of the story is a relatively tenuous link with India is now sufficient to bring one’s world income into the Indian tax net. Right from Independence, India has been following the British, its colonial masters in law making. But this once, it made the first move in taxing the one-foot-each-in-two-country residents more fully on a par with residents having both their feet firmly planted in one country. It also never set store by the concept of domicile. Instead it has all along gone by the more objective criterion of minimum period of stay in India. Furthermore, it has not indulged the British non-dom tax regime of £30,000 or the actual tax on foreign income, whichever is less does. One, however, can empathise with Britain. The threat of disgruntled non-doms voting with their feet never loomed as largely on India as it does on Britain, what with London being one of the major financial centres of the world. But this, however, does not justify a soft tax of £30,000 on billionaires who would have settled for more happily.

(The author is a Delhi-based chartered accountant. blfeedback@thehindu.co.in)

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