Once a person becomes tax resident in India, his or her global income becomes taxable in India. India has been under lockdown since March 25, 2020 and suspended international flights even before that. As a result, there are foreign nationals stuck in India.
Due to forced residency, there was a risk of Income-tax implications in India for such persons due to the lockdown. OECD has given guidance on residency and many countries including US, UK and Australia have given exemptions regarding residency.The Delhi HC also directed the government to provide clarification and exclude forced stay in India.
The Central Board of Direct Taxes (CBDT) issued the much-awaited clarification regarding the same in Circular 11 of 2020, dated May 8, 2020. The article talks about the said clarification.
BACKGROUND
Section 4 of Income-tax Act, 1961 (“IT Act“) is the charging section which lays down that Income-tax shall be charged in respect of the total income of the previous year of every person.
Section 5 of IT Act provides for scope of total income of every person.
· For residents, global income is taxable is India.
· For non-residents, only the income received, accrued or arisen in India or deemed to be received, accrued or arisen in India is taxable in India.
Section 6 of IT Act contains provisions relating to determination of residency of a person
· The status of an individual, as to whether he is resident in India or a non-resident or not ordinarily resident, is dependent is upon the period for which the person is in India during the previous year or years preceding the previous year.
· As per provisions applicable upto FY 2020, any individual who stays in India for 180 days or more in a financial year or 60 days or more in a financial year and at least 365 days in the past four financial years is a tax resident in India.
· Recent amendment : The Finance Act 2020 amended the Income-tax Act saying Indian citizens or persons of Indian origin who have India sourced income exceeding 15 lakh will be regarded as Indian tax resident in the financial year if the stay is 120 days or more and atleast 365 days in the past four financial year.
Clarification in respect of residency under Section 6 of the Income-Tax Act, 1961
For the purpose of determining the residential status under Section 6 of IT Act during the previous year 2019-20, the CBDT circular clarified the following :-
· If an individual who has come to India on a visit before 22nd March, 2020 and has been unable to leave India on or before 31st March, 2020, his period of stay in India from 22nd March, 2020 to 31st March, 2020 shall not be counted.
· If an individual who has come to India on a visit before 22nd March, 2020 and has been quarantined in India due to COVID-19 on or after 1st March, 2020 and has departed on an evacuation flight on or before 31st March, 2020 or has unable to leave India on or before 31st March, 2020, his period of stay from the beginning of quarantine to his date of departure or 31st March, 2020 (as the case maybe), shall not be counted.
· If an individual who has come to India on a visit before 22nd March, 2020 and has departed on an evacuation flight on or before 31st March, 2020, his period of stay in India from 22nd March, 2020 to his date of departure shall not be counted.
Comment :
This circular is only pertaining to Previous year 2019-2020. Hence, clarification regarding previous year 2021-2022 is required to be given as the lockdown is still continuing beyond 31st March, 2020. Further, as per experts, issue may arise regarding what would constitute visit, whether quarantine includes self-quarantine etc.
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