Resident or not? Overstaying NRIs in a fix over status in tax returns

Over the subsequent month, 1000’s of visiting non-resident Indians (NRIs) who had been pressured to overstay because of the pandemic, should determine methods to go about submitting their revenue tax return (ITR) for the monetary yr 2020-21. Because the September 30 deadline for tax submitting approaches, many are in a dilemma over whether or not to name themselves ‘resident’ or ‘NRI’.

As soon as a resident, their earnings overseas would come underneath the tax internet in India, one thing members of the Indian diaspora — significantly these primarily based in nations such because the UAE and Bahrain, which haven’t any revenue tax — are determined to keep away from.

However greater than coughing up tax, what they discover uncomfortable is sharing particulars of their possession in shares and properties abroad with the Indian Revenue Tax (I-T) Division.

They worry such data, which the tax workplace commonly shares with the Enforcement Directorate, may set off a flurry of questions on the ‘supply of the cash’ and enquiries about ‘round-tripping of funds.’

“The revenue tax return kind has a schedule known as FA (overseas belongings), whereby each resident is required to declare all their overseas belongings. As a ‘resident,’ this might be a giant problem,” mentioned Ved Jain, former president of the Institute of Chartered Accountants of India.

Alternatively, these submitting their tax return as ‘NRI’ are mentally ready to tackle the tax division sooner or later when the latter challenges the choice earlier than a judicial authority.

Assembly Residency Situations Hit by Covid
The division can invoke the cruel Black Cash Act if it suspects that an individual has misrepresented the residency standing to cover data on overseas wealth.

Even after the lockdown was lifted in June 2020, many NRIs weren’t able to fly out resulting from non-availability of flights, curbs imposed by many nations, and the worry generated by Covid-19. Consequently, many ended up spending longer right here than they’d deliberate.

Residency standing, underneath Indian regulation, is determined by the period of bodily presence. An individual is taken into account resident if (a) her keep in India is 182 days or extra; or, (b) his keep in India was 60 days or extra throughout that yr, and three hundred and sixty five days or extra through the 4 years previous that yr.

An NRI or a PIO turns into an Indian resident underneath class (b) if he or she has greater than Rs 15 lakh home revenue and spends 120 days or extra in India.

In contrast to a resident, whose international revenue is taxed, NRIs need to pay tax on revenue earned in India, however not on revenue earned outdoors India. So, most NRIs meticulously plan their visits to fulfill the residency circumstances and keep away from paying tax in India on what they earn outdoors. The pandemic unsettled their plans.

Dubai to London


Prosperous NRIs, who’ve constructed their enterprise over years in locations equivalent to Dubai and Bahrain and have sizeable earnings from India, are relocating from the Gulf to acquainted cities like London.

That is the result of final yr’s authorized amendments aimed to tax those that ran numerous companies in India however escaped tax right here by establishing a second house in zero-tax jurisdictions such because the UAE. The regulation now says that if such individuals — described as ‘deemed residents’ — primarily based out of tax havens, spend greater than 120 days (however lower than 182 days) in India, their revenue generated in India will probably be taxed, so long as it exceeds Rs 15 lakh.

In response to Sachin Kumar Bangre, chief strategic accomplice at Manohar Chowdhry & Associates, “The definition of “liable to tax” launched by means of the Finance Act 2021 ensures that people residing in nations which haven’t any private revenue tax (Dubai, Bahrain and so on) shall not be thought of as “liable to tax” in these nations.”

“Consequently, they might be thought of as ‘stateless individuals’ and, being Indian residents or PIOs, can be thought of as ‘deemed residents’ in India. Many developed nations have such a coverage in place to ban people from country-shopping and stop lack of tax income. Thus, the change within the tax coverage is in tandem with the worldwide legal guidelines,” he mentioned.

Rajesh P Shah, who heads the worldwide taxation panel of the Chamber of Tax Consultants, mentioned, “Many extremely HNIs are shifting to the UK from the UAE, as they’ve realised it’s higher to maneuver to low tax jurisdiction slightly than be in no-tax jurisdiction. The Authorities of India has amended the Revenue tax Act to distinguish between NRIs staying in nations which haven’t any tax versus nations which levy some tax. In case you are an Indian passport holder, you haven’t any alternative however to fall consistent with the latest amendments within the Revenue Tax Act.”

Whereas such deemed residents need to pay extra tax than NRIs, they aren’t required to reveal their overseas belongings.