The Supreme Court (SC) has today directed a representation to be made to the Central Board of Direct Taxes (CBDT) on relief to be given to non-resident Indians (NRIs) in terms of the payment of tax under the Income Tax (I-T) Act for FY21 amid Covid-19.
Several NRIs, stuck in the country due to Covid-19 travel restrictions, have been seeking relief from paying income tax under the residency criteria.
A bench headed by Justice UU Lalit issued the directions, based on a plea filed by an NRI. He had sought direction from the SC that for purposes of income tax, his "non-resident status" should be maintained for FY21, regardless of the days spent in India amid the pandemic.
He also appealed that he should get immunity from the liability of paying tax in India on his global income for the current financial year. The top court observed that since in the previous fiscal year (2019-20), benefits were granted by the CBDT via its circulars, it would be appropriate for the petitioner to approach it. The apex court asked him to make a representation to the CBDT in three days, following which the authority will have to take final decision.
After the SC directive, it is expected that the CBDT may soon release a circular clarifying the exclusion of FY21 for determining the residential status.
Till the previous financial year, as per the tax residency rules under section six of the Income Tax Act, 1961, a person of Indian origin who comes to visit India qualifies as a non-resident in India for tax purpose if the person is present in India for less than 182 days. Any stay beyond the period makes the person liable to pay tax in India. This rule was applicable till the financial year 2019-20.
The Central Board of Direct Taxes (CBDT), vide circular dated May 8, 2020, exempted the period between March 22 and March 31 from residency rules for all those who could not leave on time due to lockdown. According to the circular, all those who were quarantined and left on or before March 31 last year or could not leave before March 31, were exempted from residency rule for the period between the start of quarantine and March 31.
Interestingly, in Budget 2020, this threshold period was reduced from 182 days to 120 days for FY21. However, with the pandemic hitting the country immediately after the Budget, and a nationwide lockdown in place, many NRIs could not go back and are now staring at tax liability.