Updated rules for Taxation of NRI, RNOR and ROR, as per Income Tax in India.

In the finance bill presented on 1st February 2020 by Ms. Nirmala Sitharaman in the form Budget, 2020 where she has mentioned about change in definition of the resident of India as per Section 6 of the Income Tax Act, 1961 and here is the reason behind updating this definition of resident

Instances have come to notice of the tax authorities where period of 182 days specified in respect of an Indian citizen or person of Indian origin visiting India during the year, is being misused. Individuals, who are actually carrying out substantial economic activities from India, manage their period of stay in India, so as to remain a non-resident in perpetuity and not be required to declare their global income in India.

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

 

Resident and Ordinary Resident (ROR) of India as per Indian Income Tax Act, 1961

An individual is said to be resident of India, if the individual is in India for the period of 182 days or more in total during relevant previous year i.e. financial year; or 365 days or more in India in four years immediately preceding that previous year and 60 days or more in previous year. However this 60 days replaced with 182 120 days for the person who leaves India as member of crew in merchant navy, citizen of India; or person of Indian origin (this 182 days replaced with 120 days through Finance Bill, 2020 that will take effect from 1st April, 2020).

And Indian citizen who is not liable to tax any other country or territory shall be deemed to be Resident of India (this clause being introduced through Finance Bill, 2020, will take effect from 1st April, 2020 by inserting sub section 1A to Section 6 of the Income Tax Act, 1961), further to clarify misunderstanding CBDT has issued press release 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.

For the removal of confusion created by media after budget CBDT has come with clarification through press release dated 2nd Feb, 2020 that The new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries. In some section of the media the new provision is being interpreted to create an impression that those Indians who are bonafide workers in other countries, including in Middle East, and who are not liable to tax in these countries will be taxed in India on the income that they have earned there. This interpretation is not correct. It is clarified 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

 

For Example the financial year 2019-20 someone, including foreigner is in India for 182 days or more in India totaling all the visits in India or during financial year 2019-20 60 days or more and during 1st April, 2015 to 31st March, 2019 totaling all the visits is in India is 365 days or more, his/her taxability for the said financial year 2019-20 or Assessment Year 2020-21 shall be as Resident of India i.e. all the income from anywhere shall be taxed in India as per Indian Income Tax Act, 1961.

 

Resident but Not Ordinarily Resident (RNOR) of India as per Indian Income Tax Act, 1961

An individual or Hindu Undivided Family (HUF) who is Non Resident of India 9 7 out of 10 previous years preceding that previous year, or has been in India for total 729 days or less in 7 preceding years to that previous year. (7 years replaced with 9 years through Finance Bill, 2020 that will take effect from 1st April, 2020 and the condition of 729 days removed)

Non Resident of India (NRI) as per Indian Income Tax Act, 1961

In Simple words if one is neither resident of  India as per limits mentioned above nor resident but not ordinarily resident(RNOR) then he shall be considered as nor Resident of India (NRI) as per the provisions of Income Tax Act, 1961

 

Updated flow chart for determining residential Status as per Income Tax Act, 1961

 

 

 

 

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