Government clarifies on Budget proposal to tax NRIs in India, workers in Middle East to be exempted
After the Finance Minister's clarification, the finance ministry issued a statement and said that the Indians working in the Middle East, as well as those in Merchant Navy, will not be taxed using the new provision.
After widespread confusion over the proposal of taxing Non-Resident Indians in Finance Bill, 2020, the government came out and clarified several points on Sunday.
Finance minister Nirmala Sitharaman said that NRIs will have to pay taxes on income generated only in India, and not on what they earn outside the country (unless it is derived from an Indian business or profession).
This clarification comes after the Finance Bill, 2020 proposed that an Indian citizen, who is not taxed in any other country or territory shall be deemed to be resident in India and will have to pay taxes in India.
This proposal created a lot of anxiety and confusion among the NRIs, especially among the ones who work in countries like the United Arab Emirates (UAE), which do not levy taxes on personal income.
This confusion too, was clarified by the finance ministry in a statement saying that the proposed tax on NRIs will not apply on bonafide Indians working in tax-free foreign countries and is intended to tax only those seeking to escape tax by exploiting their non-resident status.
The Union Budget for 2020-21 presented on Saturday had proposed to tighten the screws on those seeking to escape tax by exploiting their non-resident status. While earlier it was possible to be classified as a non-resident by staying out of the country for 183 days or about six months in a year, this has now been, in effect, enhanced to 245 days.
Revenue Secretary Ajay Bhushan Pandey said the new rule was "an anti-abuse provision planned to plug loopholes in the system and not intended to tax income earned by those working overseas".
"What we are doing now is that the income of an NRI generated in India will be taxed here. If he's earning something in a jurisdiction where there is no tax, why will I include that into mine that has been generated there," Sitharaman told reporters.
"Whereas if you have a property here and you have rent out of it, but because you are living there, you carry this rent into your income there and pay no tax there, pay no tax here ... since the property is in India, I have got a sovereign right to tax," she said in a post Budget interaction with media.
Revenue Secretary Pandey said Indians working in the Middle East, as well as those in Merchant Navy, will not be taxed using the new provision.
"Somebody who is a citizen of India and sitting in a tax haven and not paying taxes then he has to pay tax," he said. "By issuing clarification, we have kept them (workers in the Middle East) out. Same for merchant navy because their income is also not arising out of India."
Asked if raising the duration of overseas stay to qualify for NRI status would not deter Indians from making visits home, he said: "These are anti-abuse provisions. If someone faces any difficulty because of this, we will see what can be done. The policy that you make, you have to see that a larger section of people is benefitted because of this. If he is a non-resident, he has to live substantially out of India. Now, substantially out of India means what? Earlier it was 50:50. Now we have made 2/3rd: 1/3rd."
He said the new provision was brought in because people were taking advantage of the existing one. "These are the anti-abuse provisions, and not to inconvenience any genuine persons."