Union Budget 2020 & NRI Taxation: An overview

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Union Budget 2020 & NRI Taxation: An overview

The period of recognising the person as resident vis a vis non resident has been proposed to undergo a sea change, as under:

  1. Tax Residency Period for Indian Citizens and Person of Indian Origin reduced from 182 days or more to 120 days or more along with stay of 365 days or more in India within 4 years preceding the financial year for determining as Resident in India.
  2. Individual or HUF to be treated as Not Ordinarily Resident in India only if the individual or manager of HUF h as been Non-Resident in India in 7 out of 10 previous years preceding financial year (earlier 9 out of 10 previous years). Also earlier condition of stay of 729 days or less in 7 years preceding the financial year removed.

More importantly, every Indian Citizen who is not liable to tax in any other country or territory shall be deemed to be resident in India.

However, on the very next day of the union budget, finance ministry has clarified by issuing a Press Release that an Indian Citizen who becomes deemed resident of India under this provision, income earned by him shall not be taxed in India unless it is derived from an Indian Business or Profession.

As a result, every Indian Citizens who are bonafide workers in other countries and Non Resident in India will not be taxed in India for the income earned through such employment outside India.

To summarise further,

Definition of Resident & Ordinarily Resident in India w.e.f. April 1, 2020 shall be as under:

  1. Indian Citizen or Person of Indian Origin
  • Period of Stay in India is 182 days or more in Financial Year

or

  • Period of Stay in India is 182 days120 days or more in Financial Year and Period of Stay in India is 365 days or more in 4 years preceding the Financial Year

♣ All Other Individuals

  • Period of Stay in India is 182 days or more in Financial Year

or

  • Period of Stay in India is 60 days or more in Financial Year and Period of Stay in India is 365 days or more in 4 years preceding the Financial Year
  1. Tax Return Filing

It may be noted that NRIs have been Exempt from filing Return of Income U/s 115A from FY 2020-21 in India, if Total Income consists only Dividend or Interest Income or Total Income consists only Royalty or Fees for Technical Services income received from Government or Indian Concern in pursuance of an agreement made after March 31, 1976 and not effectively connected with a Permanent Establishment, if any of NRI. Immunity from filing is on the condition that TDS on such income has been deducted at rates not lower than those specified under section 115A(1) of the IT Act.

One more important amendment is propopose din Budget 2020 with regard to remittance outside India by Resident India under Liberalised Remittance Scheme (LRS). All such LRS will now be subject to TCS Provisions (Withholding Taxes). Tax Collection At Source i.e., TCS @ 5% to be collected by Authorised Dealer from a person remitting amount in excess of Rs. 7 lacs in a financial year outside India under Liberalised Remittance Scheme of RBI. In non-PAN/Aadhaar cases, TCS rate shall be 10%.

Similarly, overseas tour package is also subject to TCS Provisions now. TCS @ 5% to be collected by a seller of an Overseas Tour Package who receives any amount from any buyer who purchases such package. In non-PAN/Aadhaar cases, TCS rate shall be 10%. Overseas Tour Package to mean expenses for travel or hotel stay or boarding or lodging or any other expense of similar nature or in relation thereto.

Above TCS provisions would not be applicable if the person remitting money is required to deduct TDS under any other provisions of Income Tax Act, 1961 or person remitting money is the Government or a Government authority.

Both of the above TCS provisions will result in withholding taxes on already Tax paid income resulting in cash flow issues for the person remitting money for genuine needs of their family members abroad.

As these amendments would be effective from April 1, 2020, one can plan their remittances earlier to avoid above withholding tax implications.

Further, following additional amendment is proposed by the union Budget 2020:

  1. 194LC – A concessional rate of TDS @ 5% by a specified company or a business trust, on interest paid to non-residents on the prescribed forms of borrowings (approved by the Central Government) made in foreign currency from sources outside India – cut-off date for issuing loan or bonds extended from 1stJuly, 2020 to 1st July, 2023.
  2. TDS shall be @ 4% on the interest payable to a non-resident, in respect of monies borrowed in foreign currency from a source outside India, by way of issue of any long-term bond or RDB on or after 1stApril, 2020 but before 1st July, 2023
  3. 194LD – TDS @ 5% in case of interest payments to Foreign Institutional Investors (FII) and Qualified Foreign Investors (QFIs) on their investment in Government securities and RDB of an Indian company.
  4. Sovereign Wealth Funds
  • 100% Tax exemption to investments done by Government of a Foreign Country in any infrastructure facility as defined in Sec 80-IA(4)(i) of the Act.
  • Investment in form of Debt or Equity
  • Investment to be done before March 31, 2024.
  • Lock in Period of investment of 3 years.
  • Subject to other certain conditions

 

 

  1. Dividend Distribution Tax & Non Residents – Dividend distribution tax (DDT)in the hands of the Company to be abolished and proposed to move towards classical system of taxing dividend in the hands of shareholders/unit holders. Dividend received by Non-Residents from Indian Companies will now be subject to tax as per the slab rates.

1 COMMENT

  1. No need to tax slab increase on any item only increase rate of needy things of house hold and public demnand every deficit account settled and income of increse automatically in all sector.increase 150rs per domstic gas clyinder.hotleincrease of foods on every thing if food rate increase all things increase in the market.madam tell the people of the country.which is dhara come in to this matter if the government of india loose elaction.

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