For NRIs, the test of residence is minimum 182 days stay in India during the previous year while having stayed in India for at least 365 days during the four previous years preceding the previous year
The incidence of income-tax liability in India depends on whether one was a resident or non-resident during the relevant financial year, technically known as the previous year. For ordinarily residents, the scope of tax is clear-cut — the entire global income is taxable. And on the other extreme, for a non-resident, the scope of income tax liability is equally clear-cut — only their Indian income is taxable by the Indian government.
Immunity from Indian income tax on foreign income is what tantalises many into morphing into non-residents through clever manipulation of stay in India. For NRIs, the test of residence is minimum 182 days stay in India during the previous year while having stayed in India for at least 365 days during the four previous years preceding the previous year. Small wonder it is not unusual for Indians to meticulously time their stay in India so as to ensure that they do not overstay — steer clear of the 182-day danger mark by staying for 181 days or less during the relevant previous year or by steering clear of the 365-day danger mark by staying in India for 364 days or less during the four preceding previous years in aggregate.
But the coronavirus and the resultant lockdown has threatened to upset the non-residents’ apple-cart in general and NRIs’ in particular. So an NRI who had every intention of catching a return flight from India on the expiry of 181 days from the date of his arrival but couldn’t actually leave thanks to cancellation of flights from India or due to being quarantined gets caught on the wrong foot.
To spare him the tax liability on his foreign income, his unintended overstay would be discounted as per the CBDT circular dated May 8, 2020. To wit, suppose he was to leave India to the US on March 24, 2020, after spending 181 days in India but has been stranded unwittingly due to the lockdown and cancellation of flights, he would not be treated as resident of India for the previous year 2019-20 though he has crossed the Rubicon by staying in India for 188 days. The above CBDT circular holds good only for reckoning the residential status of non-residents for the previous year 2019-20. For the year 2020-21, which had started on April 1, 2020, they would need similar bailout and more.
The country has been in a lockdown mode with international flights suspended for the entire month of April. The month of May too is unlikely to let them take off to their foreign residences. Assuming all of them are allowed to fly back on June 1, 2020, a similar discounting of 61 days stay in India will have to be announced for the previous year 2020-21.
The Finance Act, 2020 that received Presidential assent and was notified in the Official Gazette on March 27, 2020, has ominous provisions for the NRIs. The 182 days leeway has been curtailed to 120 days. Some of them came before the suspension of international flights to partake in the joyous functions like marriages of their near and dear ones or to perform the last rites of their parents back home. Many a marriage has been put on hold. Let us say the marriage that was to be held on March 29, 2020, is rescheduled to the last week of January 2021. And should the international flights from India resume only on September 1, 2020, an NRI would have remained stranded in the previous year 2020-21 for 153 days, that is, from April 1 to August 31.
While the overstay by 33 days would be hopefully discounted by yet another circular, can he risk attending the marriage in the last week of January 2021? He might be able to afford the cost of flight but would he be given a third round of discounting by the CBDT? If it doesn’t, he may have to persuade his family to reschedule the marriage of his close relative to the next previous year, that is, 2021-22 so that he would get a fresh quota of 120 days stay in India without being branded a resident.
The writer is a Chennai-based chartered accountant