Finance Minister Nirmala Sitharaman told Business Today.In that NRIs will be taxed only on Indian income, not on foreign income.
In an exclusive interview to Business Today.In, Sitharaman said that "income generated in tax free jurisdictions will not be taxed".
The Union Budget 2020 proposed to tax Indians who are not tax residents in India but are neither tax residents in any other countries. The budget proposes changes in the income tax law to make such individuals deemed tax residents of India.
"The Finance Bill, 2020 has proposed that an Indian citizen shall be deemed to be resident in India, if he is not liable to be taxed in any country or jurisdiction. This is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdiction to avoid payment of tax in India," the government said in a statement.
The government added, the new provision was not intended to include bonafide Indian workers in tax net who were working in other countries.
"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," government said.
At present, if an Indian or a person of Indian origin managed his stay in India such that he remained a non-resident in perpetuity, he was not liable to pay tax on his global income in India.
"In order to avoid any misinterpretation, 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," the government added.
Tightening the residency provisions, the Budget also proposed to reduce the period of stay in India to 120 days from 182 days earlier for persons of Indian origin (PIOs) to be categorised as non-resident Indians (NRIs).
Reworking the definition of non-resident Indians (NRIs), the Budget document said that the I-T Act provides that an Indian citizen or a person of Indian origin shall be Indian resident if he is in India for 182 days in that year.
According to experts, Indian citizens who do not stay in India but have significant economic activities in India would now find it difficult to escape paying taxes in India.