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Unplanned stay in another country due to Covid-19 poses a risk for the stranded travellers because of tax implications. Most countries (including India) determine tax residency based on the presence of the individual in a country during the tax year. The risk is far greater if the individual resumes work remotely from another jurisdiction. In the Indian context, the following are some examples of stranded individuals who would trigger tax implications either in India or outside India:
- Foreign employees on business travel to India continuing to work remotely from India
- Foreign citizens on secondment/assignment to India stranded overseas on visit and working for India remotely
- Indian employees on business travel stranded outside India and working for Indian firms entity remotely
- Indian outbound-assignees stranded in India on visit and working for the overseas entity from India
The Central Board of Direct Taxes (CBDT) issued a circular dated May 8, 2020, to exclude days of overstay in India due to the pandemic for determining the residential status for FY2019-20.
Relaxations
The circular is applicable to an individual who came on a visit to India before March 22, 2020, and
a) Has not been able to leave India on or before March 31, 2020 : In this case, the period of stay in India from March 22, 2020, to March 31, 2020, will not be counted for determining the individual’s residential status for FY2019-20; or
b) Has been quarantined in India on or March 1, 2020, and either (i) has departed on an evacuation flight on or before March 31, 2020, or (ii) has been unable to leave India on or before March 31, 2020 : For such individuals, the period of stay in India from the start of quarantine to the date of departure, March 31, 2020, as the case may be, will not be counted for determining their residential status in India for FY2019-20; or
c) Has departed from India on an evacuation flight on or before March 31, 2020 : In this case, the period of stay in India from March 22, 2020, to the date of departure will not be counted for determining residential status for FY2019-20.
The circular offers a relaxation for certain days of March and will largely benefit borderline cases of the NRI population (including overseas citizens of India and persons of Indian origin) and foreign nationals visiting India, who would have otherwise breached the threshold of 182-day presence in India and qualified as tax residents.
However, robust documentation substantiating facts and timelines may have to be maintained.
Gaps
This circular covers only individuals on visit to India.
It does not cover cases of individuals who were to leave India for employment outside India but had to start working from India while they awaited the end of the lockdown.
There is also no clarity on counting days in India in determining the past stay that is required to classify a resident as either ordinary resident or not ordinary resident. Further, it also does not address issues such as permanent establishment implications on prolonged presence of overseas employees in India.
The circular is applicable to 2019-2020 only.
A similar circular for FY2020-2021 is expected be issued once there is clarity on lifting/easing of the lockdown and international travel resumes.
Mistryis Partner with Deloitte India. With inputs from Mousami Nagarsenkar, Director, and Vivek Mistry, Manager Deloitte Haskins & Sells LLP
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