Changes in NRI Residential Status and NRI Taxation in Finance Act, 2020: Section 6 of the Income Tax Act, 1961 has been amended by the Finance Act, 2020 to incorporate changes related to the residential status of Non-Resident Indians (NRIs) and added additional conditions for determining resident, non-resident and resident but not ordinary resident. NRIs include an Indian Citizen and a person of Indian origin.
These amendments have been made in section 6(1) and section 6(6) only. Further, a new clause (1A) is added to section 6 of the Income Tax Act, 1961. This clause (1A) is different from the clause that was originally proposed in the Finance Bill, 2020.
Therefore, the amendments in the Finance Act, 2020 with respect to the residential status of Indian citizens or PIOs are of following three types-
Amendment 1: Amendment in section 6 for Indian citizens and PIOs reducing the period of stay from 182 days to 120 days in India in certain cases
Amendment 2: Amendment in section 6 for Indian citizens to be considered as 'deemed resident' in India
Amendment 3: Amendment in the provisions of section 6(6) for determining 'not ordinary resident'
When the Finance Bill, 2020 was presented in the Lok Sabha on Feb 1, 2020, it proposed certain changes for determination of residential status of NRIs. It includes restriction in the number of days to visit in India and deeming the residential status of a stateless person as a resident in India.
However, certain proposed amendments in relation to Indian citizens backfired and created a wave of panic among the Indian Citizens residing abroad. This prompted the CBDT to issue a clarification on the very next day on Feb. 2, 2020 to clarify that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession.
Thereafter, while passing the Finance Bill, 2020 certain amendments were carried out. The amendments, known as government amendments, have been incorporated in the Finance Act, 2020 and finally became the law.
The changes in the amendment in relation to the provisions of determining residential status of Indian Citizens and deeming resident in India provisions different from those proposed in the Finance bill, 2020 and the new amendments are enumerated below-
(i) NRI who comes on a visit in India and stays for 120 days to 181 days and his total income (excluding foreign source income) is more than Rs. 15 lakh, he will be a ‘not ordinary resident’ (RNOR). Thus if such an NRI stays for 182 days or more, he will become a resident directly.
(ii) NRI who is deemed to be resident in India shall become a ‘not ordinary resident’ (RNOR). (ITR disclosures requirements exclusively for Residents in respect of foreign assets shall not apply).
The proposed amendments in the Finance Bill, 2020 has changed the conditions of becoming resident but ‘not ordinary resident’ has been negated in the Finance Act, 2020 and the old provisions as it was before the proposed amendment is restored. However, the new provisions added certain other conditions of becoming ‘resident but not ordinary resident’.
One can find the details of proposed amendments in the Finance Bill, 2020 related to Non-resident Indians (NRIs) here and here.
The government amendments to the Finance Bill, 2020 approved in the Lok Sabha can be found here.
Since the amendments in section 6 of the Income Tax Act, 1961 introduced by the Finance Act, 2020 have become the law, hence the same are discussed in this article. The reference to original proposed amendments in the Finance Bill, 2020 on the issue has been discussed wherever found necessary for information purpose only.
Before we discuss the provisions related to the determination of the residential status of an individual, it is pertinent to understand the ‘scope of total income’ as defined in section 5 of the Income Tax Act, 1961.
‘Scope of total income’ as per section 5
According to section 5, the total income of any previous year of a person shall include all income from whatever source derived and is based on the residential status of the person.
In this case, we will be discussing only on a person being Individual since the amendment in section 6 by the Finance Act, 2020 is only in respect of an Individual.
Table-1
Residential Status
|
Scope of Income
|
Resident
and Ordinary Resident (ROR)
|
1.Income
received or deemed to be received in India
2.Income
accrues or deemed to be accrued in India
3.accrues
or arises in India
|
Resident
but not Ordinary Resident (RNOR)
|
1.Income
received or deemed to be received in India
2.Income
accrues or deemed to be accrued in India
3.accrues
or arises in India only if it is derived from a business
controlled in India or a profession set-up in India
(Since this article covers only an
Individual, it can refer to sole proprietor business only)
|
Non-Resident
|
1.Income
received or deemed to be received in India
2.Income
accrues or deemed to be accrued in India
|
A brief discussion on the scope of total income is considered important because it is basically the scope of total income which remains the main focus of cause due to the amendment related to the residential status of NRIs.
Hence, from the above table, it can be seen that in the case of a resident, Indian as well as foreign sources income is taxed in India. In other words, a resident is liable to pay tax in India on his global income.
On the contrary, a non-resident is liable only for the Indian source of income. In other words, a non-resident is liable to pay tax only on income that accrues or arises in India or is received or deemed to be received in India. He is not liable to pay tax in India on his foreign or global income.
In between, in case of an RNOR, he is liable to pay tax on income which a non-resident is liable to pay tax in India plus it covers only the following two foreign income-
(i) the income is derived from a business controlled in India, or
(ii) the income is derived from a profession set-up in India.
Since this article only covers an Individual, the business herein refers to a sole-proprietor business.
It is further clarified that once an income is included in total income on an accrual basis, the same will not be once again included when the income is received.
As seen above, the scope of total income is dependent on the residential status of an Individual.
Residential status under the Income Tax Act, 1961
Now, let us discuss the ‘residential status’ under the Income Tax Act, 1961. The determination of the residential status of a person including an Individual is given in section 6 of the Income Tax Act.
Determination of ‘resident’ and the Amendment therein
Section 6 as it stood before the amendment is discussed first. This will help us in understanding the amendment that is introduced by the Finance Act, 2020 and its implication more aptly.
6. For the purposes of this Act,—
(1) An individual is said to be resident in India in any previous year, if he—
(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more ; or
(b) [***]
(c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.
Explanation. 1—In the case of an individual,—
(a) being a citizen of India, who leaves India in any previous year as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words "sixty days", occurring therein, the words "one hundred and eighty-two days" had been substituted ;
(b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words "sixty days", occurring therein, the words "one hundred and eighty-two days" had been substituted.
Explanation 2.—For the purposes of this clause, in the case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed.
In simpler terms, an individual shall be a resident in India if-
(a) he stays in India for a period of 182 days or more in aggregate in a previous year, or
(b) has been in India for an overall period of 365 days or more within four years preceding that year, and he is in India for an overall period of 60 days or more in that year.
Important- To become a resident, the individual must satisfy any one of the given two conditions. He must satisfy either condition (a) or condition (b).
The ‘resident’ is also known as Resident and Ordinarily resident or ROR.
Explanation 1(a) is applicable for an Indian citizen who goes out of India whereas (b) is applicable for an Indian citizen who comes in India on a visit.
The amendment is being made in the clause (b) of Explanation 1. There is no change in clause (a).
Clause (b) of Explanation 1 to sub-section (1) provides that an Indian citizen or a person of Indian origin shall be Indian resident if he is in India for 182 days instead of 60 days in that year. This provision provides relaxation to an Indian citizen or a person of Indian origin allowing them to visit India for a longer duration without becoming a resident of India.
Note: The Finance Act, 2020 has amended this clause (b) of Explanation 1 to section 6(1), which is discussed later.
The above rule is illustrated in the following table-
Table-2
Determination of Resident
|
Applicability and exclusions
|
A person
who is in India for:
|
|
182 days or more (≥) or
|
Applies
to Indian and foreign citizens
|
365 days or more (≥) in last 4
years
|
Applies
to Indian and foreign citizens
|
and
|
|
60 days or more (≥) in the current year
|
Applies
to foreign citizens.
For
Indian Citizens, this period is 182 days instead of 60 days –
a)Who
goes out of India
b)Who
comes on a visit to India
|
Clause 42 of Section 2 defines the term ‘resident’ to mean a person who is resident in India within the meaning of section 6 and section 2(30) defines "non-resident" to mean a person who is not a "resident", and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6.
Hence, a ‘non-resident’ is a person who is not a resident in India and thus no rules have been prescribed to determine the residential status of a non-resident. If an Individual fails to satisfy the above conditions mentioned in section 6(1) then he becomes a non-resident.
There is one more category of ‘residential status’ which is called ‘resident but not ordinary resident’ or RNOR.
Once the status is determined as ‘resident’, then the next step is to determine whether the conditions of section 6(6) is fulfilled or not. If it is fulfilled, he will become RNOR or else he will remain ROR.
The pre-amended provisions of section 6(6) are reproduced below-
(6) A person is said to be "not ordinarily resident" in India in any previous year if such person is—
(a) an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less; or
(b) a Hindu undivided family whose manager has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.
The above rule is illustrated in the following table-
Table 3
Determination of a Resident
Section 6(1)
|
RNOR
Section 6(6)
|
|
182 days or more (≥) or
|
And
|
He is
9 out of last 10 previous years is a non-resident
|
365 days or more (≥) in last 4
years
|
OR
|
|
and
|
He is
in India for 729 days or less for last 7 previous years
|
|
60 days or more (≥) in the current year
For
Indian Citizens, this period is 182 days instead of 60 days –
a)Who
goes out of India
b)Who
comes on a visit to India
|
Note:
If an Individual is a resident u/s 6(1) then he has to satisfy any one
condition of sec. 6(6), then he will be a RNOR.
|
Amendment 1: in the ‘resident’ status of an Indian Citizen or PIOs under section 6(1) by reducing the period of stay
Finance Act, 2020 has amended the Explanation 1(b) to section 6(1) to reduce the period of 182 days to 120 days only in a case where a non-resident Indian Citizen or a person of Indian origin (PIO) comes on a visit to India.
Earlier, the Finance Bill, 2020 had decreased the number of days to 120 days in every case of non-resident Indian citizens.
However, the Finance Act, 2020 has filtered the blanket reduction and the reduced number of days of 120 days shall apply only in case of the citizen or person of Indian origin whose total income from Indian sources (i.e other than the income from foreign sources) is more than Rs. 15 Lakh during the previous year.
Therefore, where the total income of a non-resident Indian citizen comes on a visit to India he can stay up to 181 days if his total income from Indian sources is up to Rs. 15 Lakh in the current financial year. This rule is similar to the pre-amended provision. Hence, actually, there is no change in the rule for the period of stay in India for an Indian citizen if his total income from Indian sources does not exceed Rs. 15 Lakh.
The rule gets changed when his total income from Indian sources exceeds Rs. 15 Lakh he can stay in India up to 119 days without losing his non-resident status.
Since this rule is governed by section 6(1)(c), it is to be kept in mind that even if he stays for more than 119 days but up to 181 days (i.e from a period of 120 days to 181 days), he has to satisfy one more condition and that is his stay in India of at least 365 days in the last four financial years.
But if he stays for more than 181 days in India, he will simply become a resident in India by virtue of section 6(1)(a). (Then the satisfaction of conditions specified in section 6(6) needs to be checked to find out whether he can be a ‘Resident but not ordinary resident’ or not.)
What does total income from Indian sources mean?
Actually, the amendment refers to the expression ‘income from foreign sources’ which means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India). The amended Explanation 1(b) to section 6(1) provides for a reduced period of stay in case of an Indian citizen or a person of Indian origin having a total income, other than the income from foreign sources, exceeds Rs. 15 Lakh during the previous year.
In simpler terms, this is referred to as ‘Indian source’ of income which shall include all the income that accrues and arises in India and income derived from a business controlled in or a profession set up in India.
Since the provision used the expression ‘total income’ which shall mean the total amount of income referred to in section 5, computed in the manner laid down in this Act. [Section 2(45)]
As a result, only the Indian sourced income which is includible in total income is considered. Thus any exempt income, like interest income on an NRE account, is not required to be included while computing the Indian sourced total income.
Normally, an NRI may have the following nature of incomes in India-
(a) Income from NRE account
(b) Income from NRO account
(c) Dividend income if invest in shares in India
(d) Rental Income if any he owns any property
(e) capital gains, if any Indian asset is sold, etc.
Thus, the amended Explanation 1(b) to section 6(1) reads as follows-
(b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words "sixty days", occurring therein, the words "one hundred and eighty-two days" had been substituted and in case of the citizen or person of Indian origin having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year," for the words "sixty days" occurring therein, the words "one hundred and twenty days" had been substituted.
The same is illustrated in the following Table-2A
Table-2A
Determination of Resident
|
Applicability and exclusions
|
|
A
person who is in India for:
|
||
182 days or more (≥) or
|
Applies
to Indian and foreign citizens
|
|
365 days or more (≥) in last 4
years
|
Applies
to Indian and foreign citizens
|
|
and
|
||
60 days or more (≥) in the current year
|
Applies
to foreign citizens.
For
Indian Citizens, this period is 182 days instead of 60 days –
a)Who
goes out of India
|
|
b)Who
comes on a visit to India,
|
||
If Total Income is up to Rs. 15 Lakh
|
If Total Income exceeds Rs. 15 Lakh
|
|
182
days
(no
change)
|
120
days
(reduced)
|
|
From the above table, the followings can be inferred-
1. The amendment is effective if the total income from Indian sources exceeds Rs. 15 Lakh.
2. Since the total income is related to the current financial year, the Indian citizen should well calculate his estimated total income from Indian sources well in advance.
3. His stay period in India will be decided by his total income from Indian sources.
4. If the relevant total income is upto Rs. 15 Lakh, he can stay upto 181 days. This rule is similar to pre-amended provision.
5. If the relevant total income is more than Rs. 15 Lakh, he can stay upto 119 days without losing his non-resident status. This new rule is introduced by an amendment in the Finance Act, 2020.
Let us understand Amendment 1 with some examples.
Mr. Rakesh, an Indian Citizen but a non-resident, has come to India on a visit in the previous 2020-21. His stay in India for the PY 2020-21 and the last 4 previous years is given below and determined his residential status for the PY 2020-21 accordingly assuming his total income from India in PY 2020-21 is a) less than Rs. 15 Lakh and b) more than Rs. 15 Lakh.
If total income from Indian sources is up to Rs. 15 Lakh during the previous year 2020-21
Previous year
|
Case-I
(in days)
|
Case-II
(in days)
|
Case III
(in days)
|
Case IV
(in days)
|
Case V
(in days)
|
2020-21
|
190
|
135
|
110
|
125
|
110
|
Last
4 Previous Years
|
|||||
2019-20
|
0
|
0
|
0
|
0
|
30
|
2018-19
|
160
|
160
|
160
|
160
|
130
|
2017-18
|
150
|
150
|
150
|
150
|
110
|
2016-17
|
60
|
60
|
60
|
0
|
41
|
Total
|
370
|
370
|
370
|
310
|
311
|
Residential Status
|
Resident in PY 2020-21
|
Non-Resident in PY 2020-21
|
Non-Resident in PY 2020-21
|
Non-Resident in PY 2020-21
|
Non-Resident in PY 2020-21
|
Reasoning-
Case-I: Since his stay in India exceeds 182 days, he becomes a resident. Refer Condition of section 6(1)(a), no need to check for section 6(1)(b). [This is subject to satisfaction of anyone condition of section 6(6)(a), then he will be RNOR.]
Case-II: Since his stay in India in PY 2020-21 is less than 182 days and in the last 4 previous years exceeds 365 days, he failed to satisfy both the conditions of section 6(1)(b). Since in this case, total income is less than 15 Lakh, the period of 120 days is irrelevant.
Case-III: Even though his stay in the last four years exceeds 365 days but his stay during 2020-21 is less than 182 days and hence both conditions of section 6(1)(b) failed to satisfy.
Case-IV: His stay in PY 2020-21 does not exceed 182 days (120 days has relevance when total income exceeds Rs. 15 Lakh) and also his stay during the last four years does not exceed 365 days and hence both conditions of section 6(1)(b) failed to satisfy.
Case-V: Neither condition of section 6(1)(a) nor conditions of section 6(1)(b) satisfied.
In cases II, III, IV and V, Mr. Rakesh will not lose his non-resident status but in the first case, he will become a resident in India.
If total income from Indian sources is more than 15 Lakh during the previous year 2020-21
Previous year
|
Case-I
(in days)
|
Case-II
(in days)
|
Case III
(in days)
|
Case IV
(in days)
|
Case V
(in days)
|
2020-21
|
190
|
135
|
110
|
125
|
110
|
Last
4 Previous Years
|
|||||
2019-20
|
0
|
0
|
0
|
0
|
30
|
2018-19
|
160
|
160
|
160
|
160
|
130
|
2017-18
|
150
|
150
|
150
|
150
|
110
|
2016-17
|
60
|
60
|
60
|
0
|
41
|
Total
|
370
|
370
|
370
|
310
|
311
|
Residential Status
|
Resident in PY 2020-21
|
RNOR in PY 2020-21
|
Non-Resident in PY 2020-21
|
Non-Resident in PY 2020-21
|
Non-Resident in PY 2020-21
|
Reasoning-
Case-I: Since his stay in India exceeds 182 days, he becomes a resident. Refer Condition of section 6(1)(a), no need to check for section 6(1)(b). [This is subject to satisfaction of anyone condition of section 6(6)(a), then he will be RNOR.]
Case-II: Since his stay in India in PY 2020-21 is more than 120 days but less than182 days and in the last 4 previous years exceeds 365 days, he satisfies both the conditions of section 6(1)(b). Since in this case, total income is more than 15 Lakh, by virtue of provisions of section 6(6)(c), he will become ‘not ordinary resident’ or RNOR.
Case-III: Even though his stay in the last four years exceeds 365 days but his stay during 2020-21 is less than 120 days and hence both conditions of section 6(1)(b) failed to satisfy.
Case-IV: Even though his stay in PY 2020-21 exceeds 120 days (120 days has relevance since total income exceeds Rs. 15 Lakh) but his stay during the last four years does not exceed 365 days and hence both conditions of section 6(1)(b) failed to satisfy.
Case-V: Neither condition of section 6(1)(a) nor conditions of section 6(1)(b) satisfied.
In cases III, IV and V, Mr. Rakesh will not lose his non-resident status but in the first cases, he will become a resident in India. Due to the amendment in section 6(1), he will become RNOR in case-II.
What if his total income from Indian sources exceeds Rs. 15 Lakh and his stay also exceed 119 days but does not exceed 182 days.
Such an Individual will be considered as ‘resident but not ordinary resident’ in India for the relevant previous year. This is due to a corresponding amendment in section 6(6) which expressly provides that a citizen of India, or a person of Indian origin, having a total income, other than the income from foreign sources, exceeding Rs. 15 Lakh during the previous year, as referred to in clause (b) of Explanation 1 to clause (1), who has been in India for a period or periods amounting in all to 120 days or more but less than 182 days is said to be "not ordinarily resident" in India.
This is covered in detail in division Amendment 3 below.
For this purpose, a new clause (c) is added in section 6(6) to provide as follows-
(c) a citizen of India, or a person of Indian origin, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year, as referred to in clause (b) of Explanation 1 to clause (1), who has been in India for a period or periods amounting in all to one hundred and twenty days or more but less than one hundred and eighty-two days; or
Hence, such Indian citizen stays for, say, 170 days in India in a previous year, then he will not become a ‘resident’ but will be ‘resident but not ordinary resident’ in India for that previous year.
However, remember, if he satisfies another condition of staying in India for 365 days or more in the last 4 financial years then he will become a resident in India. But since at the same time he has satisfied the condition (c) of section 6(6), he will be a ‘resident but not ordinary resident’.
Amendment 2: Introducing the concept of 'Deemed Resident' for Indian Citizens [Section 6(1A)]
The Finance Act, 2020 has introduced a new clause (1A) to section 6 to provide that an Indian citizen who is not liable to tax anywhere would be deemed to be resident in India if his total income from Indian sources exceeds Rs. 15 Lakh during the previous year.
It is provided that an Indian citizen who is not liable to tax in any other country or territory shall be deemed to be a resident in India if his total income from Indian sources exceeds Rs. 15 Lakh during the previous year.
The new clause (1A) under section 6(1) of the Income Tax Act provides for a non-resident Indian citizen to be a deemed resident in India is reproduced below-
“(1A) Notwithstanding anything contained in clause (1), an individual, being a citizen of India, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be deemed to be resident in India in that previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature;
This clause is a modified version from the clause (1A) that was proposed in the Finance Bill, 2020. The Finance Act, 2020 has added a condition that only those stateless Indian Citizens will be covered under this clause if his total income from Indian sources exceeds Rs. 15 Lakh during the previous year. The meaning of ‘total income from Indian sources’ is the same as stated in Amendment 1 above.
The Finance Minister during her budget speech has not mentioned anything about the said amendment. However, in the last sentence of para 6.6 to ‘Annex to Part B of Budget Speech’, it has been stated that ‘It is also proposed to provide that an Indian citizen who is not liable to tax anywhere would be deemed to be resident in India.'
The explanatory memorandum to the Finance Bill, 2020 set outs the intention of introducing the provision.
The issue of stateless persons has been bothering the tax world for quite some time. It is entirely possible for an individual to arrange his affairs in such a fashion that he is not liable to tax in any country or jurisdiction during a year. This arrangement is typically employed by high net worth individuals (HNWI) to avoid paying taxes to any country/ jurisdiction on income they earn. Tax laws should not encourage a situation where a person is not liable to tax in any country. The current rules governing tax residence make it possible for HNWIs and other individuals, who may be Indian citizen to not to be liable for tax anywhere in the world. Such a circumstance is certainly not desirable; particularly in the light of current development in the global tax environment where avenues for double non-taxation are being systematically closed.
In the light of above, it is proposed that an Indian citizen who is not liable to tax in any other country or territory shall be deemed to be resident in India.
Therefore, the intention of the government is to tax those incomes which are enjoying the benefit of double non-taxation by virtue of becoming a non-resident in every state.
One more related amendment is made in the Income Tax Act, 1961 by the Finance Act, 2020 which was absent in the Finance Bill, 2020.
Section 6(6) has been amended to provide for ‘resident but not ordinary resident’ status to a person who is deemed to be a resident under section 6(1A). In other words, an Indian citizen who is deemed to be a resident in India by virtue of section 6(1A) will always be treated as a ‘resident but not ordinary resident’ and not an 'ordinary resident'.
For this purpose, a new clause (d) is inserted in section 6(6) which reads as follows-
(d) a citizen of India who is deemed to be resident in India under clause (1A).
Important points to be noted for newly inserted section 6(1A):
1. Clause (1A) begins with the non-obstante clause ‘Notwithstanding anything contained in clause (1)’ which means we have to ignore the provisions of section 6(1) while reading these provisions. In other words, the provisions for determining the residential status of a stateless person is independent of provision contained in clause (1).
This means even if a person has not stayed in India for 182 days or more, he can still be considered as ‘resident’ in India by virtue of section 6(1A).
2. It covers only an individual who is a citizen of India. It does not cover a person of Indian origin who does not have Indian citizenship.
3. This clause (1A) will apply if the total income, other than the income from foreign sources, exceeds Rs. 15 Lakh during the previous year. This will not apply if such income does not exceed Rs. 15 Lakh. This it intends to cover high net worth individuals.
4. The individual must not be liable to tax in any other country or territory outside India due to-
(i) his domicile or
(ii) residence or
(iii) any other criteria of similar nature
5. He will be assessed to tax in India as a ‘resident but not ordinary resident’ and not as a ‘resident and ordinary resident’. This is by virtue of section 6(6)(d). Thus such a person is liable to tax in respect of following incomes in India-
1. Income received or deemed to be received in India
2. Income accrues or deemed to be accrued in India
3. Income accrues or arises in India only if it is derived from a business controlled in India or a profession set-up in India.
(Since this provision covers only an Individual, it refers to sole proprietor business only).
6. This provision is independent of the number of days he spent in India. In other words, this deeming provision shall apply to a stateless Indian citizen irrespective of the days spent in India.
Amendment 3: Amendment in provisions related to ‘Resident but not Ordinary resident’ [Section 6(6)]
When the Finance Bill, 2020 was introduced, many people, especially students enjoyed it because the methodology to determine the ‘Resident but not Ordinary resident’ (RNOR) status was made very simple.
The Finance Bill, 2020 proposed to amend section 6(6) to provide for only one and simple condition to determine the RNOR status. However, the Finance Act, 2020 has negatived the proposed amendments and restored the old provisions in the statute. Hence, after the enactment of Finance Act, 2020 there is no change in sub-clauses (a) and (b) of section 6(6). The two sub-clauses remain as it is in the statute.
However, the Finance Act, 2020 has amended section 6(6) and inserted two new sub-clauses (c) and (d) to provide for the followings-
1. To provide for RNOR status in case of a person covered in clause (b) of Explanation 1 to clause (1) to section 6.
This has been discussed in detail in the above relevant paragraphs. Just to recap, it covers an Indian citizen whose Indian sourced income is more than Rs. 15 Lakh and stays in India for a period of 120 days or more but less than 182 days, then he shall be treated as RNOR. [Section 6(6)(c)]
2. To provide for RNOR status in case of an Indian Citizen covered in clause (1A) to section 6.
This covers an Indian Citizen who is not liable to pay tax in any country by virtue of his residence, domicile or others and whose Indian sourced income is more than Rs. 15 Lakh. [Section 6(6)(d)]
The text of the provisions reads as follows-
(c) in clause (6), in sub-clause (b), for the words ‘‘days or less’’ occurring at the end, the following shall be substituted, namely:—
‘‘days or less; or
(c) a citizen of India, or a person of Indian origin, having total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year, as referred to in clause (b) of Explanation 1 to clause (1), who has been in India for a period or periods amounting in all to one hundred and twenty days or more but less than one hundred and eighty-two days; or
(d) a citizen of India who is deemed to be resident in India under clause (1A).
It must be remembered that once a person becomes a resident under clause (1) or clause (1A) then he should check the conditions specified in clause (6) to ascertain whether he can be categorized as RNOR or not.
Table 3A
Determination of Resident
Section 6(1)
|
RNOR
Section 6(6)
|
||
182 days or more (≥) or
|
And
|
He is 9 out of last 10
previous years is a non-resident
|
|
365 days or more (≥) in last 4
years
|
OR
|
||
and
|
He is in India for 729
days or less for last 7 previous years
|
||
60 days or more (≥) in the current year
For
Indian Citizens, this period is 182 days instead of 60 days –
a)Who
goes out of India
b)Who
comes on a visit to India,
|
If an
Indian Citizen is deemed to be a resident in India u/s 6(1A), he will always be a RNOR
|
||
If
Total Income is up to Rs. 15 Lakh
|
182 days
(no change)
|
||
If
Total Income exceeds Rs. 15 Lakh
|
120 days (reduced)
|
If an
Indian Citizen resides for 120 days or more but less than 182 days, then he
will be RNOR.
|
|
To sum up, one should remember that there is no change in residential law if the total income from Indian sources does not exceed Rs. 15 Lakh. Even the ‘deemed resident’ provision will not apply in this case.
The amendments are effective only if such total income exceeds Rs. 15 Lakh. Further, such persons - visiting Indians and stateless Indian citizens, shall be classified as ‘not ordinarily resident’ or RNOR, thereby, their global income will not be taxed.
Remember, this is a year on year test, where the days' count and total income from Indian sources criteria has to be examined every financial year.
Further Readings:
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