One of the major factors considered in taxability of Income in India depends upon the Assessee's (Taxpayer's) residential status as per the provisions of Income Tax, 1961 ("The Act"). The Act provides conditions for determining the residential status of an Individual considering the number of days stayed in India.
Due to the outbreak of Covid-19 pandemic, number of NRIs who had visited India before 22nd March 2020 or later and could not move back to their country of residence because of suspension of International Flights / Strict Quarantine Conditions were forced the extend their stay in India than intended number of days.
Government of India imposed nation-wide lockdown on 22nd March 2020, resulted in implementing strict quarantine, suspension of many International Flights resulted NRIs to overstay in India.
CBDT issued a circular no 01 dated 08th May 2020 considering the genuine hardship faced by NRIs which impacts their residential status for their extended period of stay in India.
(A). Relaxation for Financial Year 2019-20
Period of stay from 22nd March 2020 / from the date of quarantine in India (on or after 01st March 2020) till 31st March 2021 / date of departure from India wont be taken in account for the purpose of determining residential status.
(B). Residential status for Financial Year 2020-21
After receiving the various representations for relaxation in determining of residential status for FY 2020-21, CBDT further issued Circular No 02 dated 3rd March 2021.
Following are the facts considered by CBDT in determining residential status:-
1. Short stay will not result in Indian Residency
* A person will become resident in India for FY 2020-21 if he stays for more than 182 days unless he is covered by the above exceptions.
2. Possibilities of dual non-residency
If general relaxation of 182 days is provided, there may be cases of double non-residency and a person may not become a tax resident in any country in FY 2020-21 and end up not paying tax in any country even after staying more than 180 days.
3. Tie breaker rule as per DTAA
A person may become resident in India even if he stays less than 182 days in India which may leads to dual residency.
Due to applicability of DTAA such person will become resident of only one country as per the 'tiebreaker rule' in the DTAA.
For example, as per the provisions of the Indo-USA DTAA, a person can become resident of two
countries only in the following case:
(a) he has a permanent home available to him in both countries or in none of
the two countries
(b) centre of vital interests can not be determined
(c) he has a habitual abode in both States or in neither of them
(d) he is a national of both States or of neither of them
An Individual become resident in India
due to exceptional circumstances, he would most likely become 'not ordinarily resident' in
India and hence his foreign sourced income shall not be taxable in India unless it is derived
from business controlled in or profession set up in India.
4. Employment Income taxable only subject to conditions as per DTAA
As per the DTAA, the source jurisdiction has taxation rights only if the employee is present in that country for more than 183 days or the employer is a resident of the source jurisdiction, or
the employer has a permanent establishment in the source jurisdiction that bears the
remuneration.
Accordingly, if a USA resident under employment of a USA corporation has
got stranded in India and performs employment from India, its salary will not be taxable in
India unless he is present in India for 183 days or more during the PY 2020-21 or if the
salary is borne by Indian permanent establishment of such USA corporation.
5. Credit for the taxes paid in other country
A resident person in India shall be entitled to claim credit of the taxes paid in any
other country in accordance with the Rule 128 of the Income-tax Rules, 1962.
6. International Experience
The Organization for Economic Co-operation and Development (OECD) in its OCED policy states,
"Despite the complexity of the rules, and their application to a wide range of
potentiality affected individuals. it is unlikely that the COVID 9 situation will affect
the treaty residence position"
Two main situations could be imagined:
1. A person is temporarily away from their home (perhaps on holiday, perhaps
to work for a few weeks) and gets stranded in the host country by reason of
the COVID-I9 crisis and attains domestic law residence there.
2. A person is working in a country (the "current home country') and has
acquired residence status there but they temporarily return to their
"previous home country" because of the COV1D-19 situation. They may
either never have lost their status as resident their previous home country
under its domestic legislation, or they may regain residence status on their
return.
It has been recognized by the OECD that DTAAs contain the necessary provisions to deal with the cases of dual residency arising due to COVID-19 situations.
7. Relief by other countries
A study of the measures taken by different countries reveals that there is mix
response some of the countries have provided relief for certain number of days
subject to the satisfaction of prescribed conditions whereas some of the countries
have not provided any relief.
CONCLUSION:
After understanding the possible situations of double taxation,
the Board shall examine that:-
(i) whether any relaxation is required to be provided in this matter
(ii) if required, then whether general relaxation can be provided for a class of
individuals or specific relaxation is required to be provided in Individual cases.
Therefore, if any individual is facing double taxation even after taking into consideration the relief
provided by the respective DTAAs, he may furnish the information in Form -NR.
This form shall be submitted electronically to the Principal Chief
Commissioner of Income-tax (International Taxation) at
Form NR provided below for the reference
 Residential Status ){kind=link}
0 Comments