The India budget 2020-21 added to a lot of confusion over the issue.
The Indian budget on Saturday redefined Non-Resident Indians (NRIs) as those who stay abroad for 240 days and said a person who is a resident of no country and is out of India for as many days just to maintain the NRI status will be taxed back home.
Revenue Secretary Ajay Bhushan Pandey’s statement on the sidelines of budget presentation caused widespread confusion among Indian expatriates in the UAE, but leading tax consultants clarified that an Indian holding a resident visa in the UAE will not be taxed back home.
“You are a resident of UAE under the India-UAE Double Taxation Avoidance Agreements (DTAA) and holding a residence visa of the UAE. Therefore, you will not be covered by the law proposed in today’s budget. It may be recalled that the Double Tax Treaty UAE-India was signed in 1993,” said HP Ranina, a lawyer specialising in tax and exchange management laws of India.
“We’ve made changes in the Income Tax Act where if an Indian citizen stays out of the country for more than 182 days, he becomes non-resident,” said Revenue Secretary Pandey. “Now in order to become a non-resident, he/she has to stay out of the country for 240 days.”
A person who is a resident of no country and is out of India for 183 days (Now more than 240 days from April 1, 2020) just to maintain the NRI status will be considered a resident of India and his or her world income will be taxable. If a person lives 20 days in Dubai, 30 in the US, 50 in Europe etc, it means he or she is not a permanent resident of any country so in that case he will be deemed to be resident of India and his global income will be taxed, tax consultants clarified.
Krishnan Ramachandran, CEO, Barjeel Geojit Securities, said: “With the UAE-India DTAA in place, an NRI holding a valid residence visa will not be taxed in India with respect to his income in the UAE. This can be validated by furnishing a Tax Residency Certificate to the income tax authorities.”
Endorsing a similar view, Dixit Jain, managing director, Tax Consultants in DMCC, said:
“Amid a lot of confusion and outrage by NRIs around the world, the simple clarification came stating that only those individuals who are staying outside India just for the purpose of maintaining 182 days in order to claim NRI status to avail the benefits will no longer be able to do that. It means individual who cannot prove his residency of one particular country and is not a tax resident of one particular country will be assumed to be a tax resident of India and his worldwide Income will be taxed in India. However, a person holding a valid residence visa with economic relevance to that country need not worry on that. He will have to pay tax only on the income earned in India and no tax on his global income.”
The ambiguity over the tax structure received a lot of flak. Naveen Sharma, head accounting, Audit & Advisory Services Focus Group, said: “A lot of Gulf-based Indians start or expand their business and it is usual that they spend a lot of time in their new business but now they will have one more headache: Worry about their NRI status because if they lose that status, their entire global income will be taxable.”
Moreover, Indians working in Gulf countries visit India frequently to take care of their families and stay on for 4-6 months. Now, they have to worry about NRI status, experts said. “These are backward-looking budget proposals and will create a lot of anxiety among the hardworking Indian population in the Gulf region. This is one of the worst budget proposals in the last 30 years and the government should immediately withdraw this as it is against the interest of the hardworking Indian expats who remit billions of dollars every year to India,” Sharma added.
Expressing his disappointment, Ashish Mehta, managing partner, Ashish Mehta & Associates, said: “Union budget 2020 may discourage investments from NRIs whether in businesses or personal investments as it has dented the confidence of the Non-Resident Indians. NRIs may invest in their country of residence and other countries and in this instance the UAE tends to gain. In the past, NRIs have always assisted the government whenever foreign reserves required inflow of money. Hope the government will reconsider this move.”