New Delhi: The government said on Monday it doesn’t intend to tax income that bona fide workers earn overseas, allaying concerns about a budget proposal relating to non-resident Indians (NRIs) that said those who weren’t taxed in another country were liable to pay tax in India. This had caused Indians working in the Middle East to panic as many countries in the region don’t levy income tax.
The government said the provision was an “anti-abuse” one and will only apply to income that is generated locally.
“Here’s a situation where an NRI is earning in some other country and he is not taxed there. He has some earnings in India as well, but because he doesn’t live here, he doesn’t pay tax here either. What we are saying now (in Budget) is to pay tax for the income generated in India,” said the Finance Minister.
“If he is earning in a no-tax jurisdiction, why would we include that into our calculations? If you have a property in India and have got a rent through it, therefore, you carry this income too, meaning no tax there or no tax here. We have corrected this because this income is in the jurisdiction of India,” she said.
“We have got full sovereign right to take consideration of the income from India property for those NRIs. I am not taxing what the NRI is earning elsewhere,” the Finance Minister told IANS in an interaction on Sunday.
The Union Budget 2020 proposed to tax Indians who are not residents in India, but their earnings” will be taxed.
So there was confusion if all their incomes from all sources all over the world will be taxed by India. Now the FM has cleared that it is only India income that would be taxed for NRIs.
Tightening the residency provisions, the Budget also proposed to reduce the period of stay in India to 120 days from 182 days earlier for persons of Indian origin (PIOs) to be categorized as non-resident Indians (NRIs).
Reworking the definition of non-resident Indians (NRIs), the Budget document said the I-T Act provides that an Indian citizen or a person of Indian origin shall be Indian resident if he is in India for 182 days in that year.
But with 240-day change, the government still has not confirmed what the definition of RONR now will be (RONR as in Resident but not ordinarily resident).
The RONR status applies to returning Indians where they got two years of continued tax-free status on offshore earnings.