As you are aware, Budget 2020 got a slew of changes for Non-Resident Indians (NRI). We endeavour to collate announced provisions and its impact for you.
Residential status criteria under section 6
There are three provisions announced, which you should take note of regarding Residential status.
- New provision for taxation introduced based upon residency status. – 1.If he is an Indian Citizen and 2.He is not liable to pay taxes in any other country
Impact – This is vaguely defined. Which are the means to be used to identify such citizens is not clear. Merchant Navy personnel may be likely to come under this provision if the amendment goes through irrespective of a number of days they stay in India. However, press release after budget clarified that – income earned outside India might not be taxable in India if it is not derived from Indian Business or profession.
- Indian Citizen visiting in India considered to be Resident Condition 1 – If you stay 182 days or more in a financial year Condition 2 – He is in India for more than 365 days in the last four years and 120 days in the current fiscal year
Impact – If NRI & PIO stay in India for more than 4 months, he becomes Resident. Suppose you come to India and your stay prolongs (more than 120 days) if you are taking care of seniors in family, if you have not spent 365 days in last 4 years you don’t fulfil residency criteria.
Merchant Navy people have to stay 246 days outside India to qualify as NRI.
As per FEMA – still, condition of 182 days stay in India is applicable. There could be an impact on eligibility to open & maintain NRE account, Exemption of Interest on NRE account. Income tax & FEMA rules may clash.
- Conditions of Not Ordinarily Resident (NOR)
Non Resident in 7 out of the 10 years preceding the concerned financial year
Impact – If you are an NRI for a long period, NOR status can be retained for 4 years now after returning to India. As long as you enjoy NOR status, you are not liable to pay taxes in India on your Global Income. Merchant navy personnel will enjoy this benefit for some time. Their income will not be immediately taxable being NOR. Exemption on interest on MRE account will continue.
Dividend Distribution Tax (DDT) – is abolished. Instead, dividend earned from equity stocks and MF is liable for 20% TDS (tax deducted at source). You can claim a deduction for this tax paid in your home country.
Benefit from Lower tax regime – If you receive some interest and rental income in India, you can avail a new lower tax regime. This is beneficial for you if you were not claiming any exemption under section 80C (for insurance, PF investments) in the existing system.