India will not levy income tax on non-resident Indians (NRIs) who have exceeded the mandated residency limits, Central Board of Direct Taxes (CBDT) clarified on Wednesday. The relaxation will remain in place till March 31, 2021, which means non-residents will not be taxed for FY21 even if they have overstayed. This comes as a relief for NRIs who had been stuck in the country due to COVID-19 travel restrictions.
In its clarification on the matter, CBDT said that it "received various representations requesting for relaxation in determination of residential status for previous year 2020-21 from individuals who had come on a visit to India during the previous year 2019-20 and intended to leave India but could not do so due to suspension of international flights."
"In this context, Circular No. 2 of 2021 has been issued by CBDT today. Vide the said Circular, it has been provided that if any individual is facing double taxation even after taking into account the relief provided by the relevant Double Taxation Avoidance Agreement (DTAA), he/she may furnish the specified information by March 31, 2021, in Form -NR annexed to the said Circular," the apex direct tax authority said.
CBDT has attached the Form-NR with the abovementioned circular, which can be accessed on www.incometaxindia.gov.in. This form is to be submitted electronically to the Principal Chief Commissioner of Income-tax (International Taxation).
A non-resident Indian is categorised as an Indian resident for tax purposes if she either stays in India for 182 days or more during a year, or stays in India for 365 days or more during four consecutive years and 60 days or more during the relevant financial year.
A lower limit of 120 days is applicable in place of 182 days if an NRI's income from Indian sources is above Rs 15 lakh in the said financial year. If an NRI's Indian taxable income is less than Rs 15 lakh, the 182-day threshold continues to apply to her.
With the ban on international flights, several NRIs were stuck in India, exceeding these limits. This raised the concern that they will be double-taxed on their income.
On February 10, the Supreme Court had directed a representation to be made to the CBDT on relief to be given to NRIs in terms of the payment of tax under the Income-tax Act for FY21 amid COVID-19.