The Finance Ministry on Friday allowed discounting of prolonged stay period in India for the purpose of determining residency status from the taxation point of view.

This will help an individual to maintain Non-Resident Indian (NRI)Status.

The law said that any individual staying in India for 182 days or more in a financial year or 60 days or more and at least 365 days during the past full financial year will be called tax resident of India. Accordingly, his income earned globally will be taxed here. Now, problem is many of such individual have to spend longer period because of lockdown and suspension of international flights. New Finance Ministry circular aims to help these people.

According to the Ministry, as the lockdown continues during the financial year 2020-21 and it is not yet clear as to when international flight operations would resume, a circular excluding the period of stay of these individuals up to the date of normalisation of international flight operations, for determination of the residential status for the financial year 2020-21 shall be issued after flights resume.

To this effect, the Central Board of Direct Taxes (CBDT), the apex policy making body for direct taxes has decided that that for the purposes of determining the residential status under section 6 of the Act during the previous year 2019-20 in respect of an individual who has come to India on a visit before 22nd March, 2020 and has been unable to leave India on or before March 31, 2020, his period of stay in India from March 22 to March 31 will not be taken into account.

If such individual has been quarantined here on account of Covid-19 on or after March 1, 2020 and has departed on an evacuation flight on or before March 31, 2020 or has been unable to leave India on or before March 31, 2020, his period of stay from the beginning of his quarantine to his date of departure or March 31, 2020, as the case may be, will not be taken into account. Alternatively, if such individual has departed on an evacuation flight on or before March 31, 2020, his period of stay in India from March 22, 2020 to his date of departure shall not be taken into account.

It may be noted that, there are number of individuals who had come on a visit to India during the previous year 2019-20 for a particular duration and intended to leave India before the end of the previous year for maintaining their status as non-resident or not ordinary resident in India. However, due to declaration of the lockdown and suspension of international flights owing to outbreak of Novel Corona Virus (Covid-19), they are required to prolong their stay in India. The status of an individual whether he is resident in India or a non-resident or not ordinarily resident, is dependent, inter-alia, on the period for which the person is in India during a year.

Shailesh Kumar, Director at Nangia Andersen Consulting said this circular takes care of residential status only for FY 2019-20 and thus excludes period till March 31 2020 only. “One may expect a similar circular for FY 2020-21, providing exclusion of lockdown period for FY 2020-21 as well for determining the residential status,” he said.

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