Budget 2021

Residency norms tightened for non-residents

Anand Kalyanaraman | Updated on February 02, 2020

BL Research Bureau


In a setback for many non-resident Indians (NRIs) and not ordinarily resident (NOR) Indians, the Budget has tightened the norms on residency provisions. The intent behind these modifications, the memorandum says, is to prevent tax abuse.

There are three changes. One, an Indian citizen who is not liable to tax in any other country shall be deemed to be a resident of India. So, such a person may become liable to pay tax in India.

Next, to qualify as non-resident, a person should now effectively be out of India for a longer period (about 240 days); earlier the time limit about 180 days. Third, now, a person will be NOR if he has been a non-resident in India in seven out of 10 previous years preceding that year; the rules were more liberal earlier.

NRIs and NORs enjoy tax advantages compared with resident Indians. In the case of residents, all their incomes (earned in India and abroad) are taxed in India, while in the case of NRIs and NORs, what is taxed in India is largely only incomes earned and/or accrued in India. The Budget Memorandum says that liberal residency norms have resulted in instances of tax evasion. But these changes could also have the unintended consequence of bringing into the Indian tax net incomes earned abroad by NRIs that are exempt from tax in those countries, for instance, in the UAE.

Published on February 01, 2020

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