Two changes proposed in definition of residency in Union Budget 2020 – The Economic Times

The Union Budget 2020 has proposed changes in the definition of residency of an individual (with reference to tax residency in India) which determines how the person’s income tax liability will be calculated in a financial year. According to the proposal, if an individual has been a resident in atleast four out of last 10 financial years, then the individual will qualify as an ordinarily resident. This is bad news for the taxpayers as they will be required to pay tax on their foreign income and report foreign assets in their income tax return (ITR) in India.

Currently for a resident individual to be classified as ordinarily resident for income tax purposes in India, the individual has to satisfy two conditions. Budget 2020 has proposed changes in these conditions which determine whether a resident individual is a ‘Not ordinarily resident’ or ‘ordinarily resident’.

The Budget 2020 has proposed to remove the condition that the individual should be physically present for more than 729 days in last 7 years to become ordinarily resident. Further, second condition has been tweaked. Currently, second condition says that a person becomes resident individual if he/she has been resident individual in atleast 2 out of last 10 years. It has been proposed to hike this two years to four years.

However, on the flip side, this will make it easier for the tax authorities to determine residential status of such individuals without asking for their passport copies. Individuals may not be required to hold their old passports as a proof of physical presence in earlier years in India if their ITR is processed.

Further Budget 2020 also proposes that if an individual who is a citizen of India or person of Indian origin visits India for 120 days or more in a financial year and had spent more than 365 days in last four years, then such an individual will also become ‘resident’ in India.

Currently, as per income tax laws an individual qualifies as resident individual if he/she stays for more than 182 days in the country. This will widen the tax-base in the economy.

via Two changes proposed in definition of residency in Union Budget 2020 – The Economic Times