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Amended Residency rules for NRI – How are they going to impact you?

The Indian Government seeks to tax NRIs carrying economic activity from India

The Indian Government has also taken cognizance of the individuals who arrange their physical presence in India and abroad such that they are not liable to pay taxes in any country. CEO Varis Sayed explains the new ruling and its impact on NRIs.

Can you explain the changes in the rule of residency under Finance Act 20 and how it is going to affect NRIs income?

 Answer. The changes are made in section 6 of the income tax 1961, which deals with the “residential status of a person”. Up until the financial year 2019-20, an NRI would be liable to pay taxes as a resident if they stayed 182 days or more in the country or 365 days or more in preceding four years. However, from financial year 20-2021, the individual who is staying in India for 120 days or more and having income exceeding 15 lakhs (excluding foreign sources) will also be included to be considered as resident of India and would be liable to pay taxes under the jurisdiction of India. Another significant amendment is for Indian citizens who are not liable to pay taxes in other countries because of their domicile or residence, or any other criteria of similar nature. The condition applies only if the total income other than foreign sources exceeds 15 lakhs.

The second change is in the definition of NRI or “not ordinary resident”. The new rule retains the existing criteria for being qualified as “not ordinary residents” along with the addition in the definition. The added criteria classify individuals whose income exceeds 15 lakhs from sources in India, spending 120 to 182 days per year in India as “not ordinary resident “.

The changes seek to tax individuals who are carrying substantial economic activity in India; these changes would have an impact on the global income of these individuals.

 As many Indians are working in the Arabian Gulf, what impact would the new ruling have on them?

 Answer. India has a Double Tax Avoidance Agreement with the UAE; Indian ruling authorities have taken the view that” liable to tax” need not be equated with “payment of tax”. So, in this context any individual who stays in the UAE for more than 182 days in a year is eligible to get “tax residency certificate”, and hence, such person would not be covered in residency criteria.

 Being in residency and citizenship business, how this rule is going to impact your business?

 Answer. To minimize residency risks, wealthy NRIs may consider shifting from zero tax residence countries to the country with fewer taxes as compared to India. More Indians may also likely consider obtaining an alternative passport through various Citizenship by Investment Programs in the Caribbean and the EU.

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