Double taxation sword hangs over NRIs’ heads, SC reduction to be sought once more


Gaurav Baid, the 27-year outdated NRI chartered accountant, whose writ petition earlier than the Supreme Court triggered a response from India’s direct tax authority, will as soon as once more knock on the courtroom’s door. Baid, who works in Dubai, would both transfer a contemporary petition or file an utility difficult the latest communiqué from the Central Board of Direct Taxes (CBDT) which gave no reduction to NRIs who, having overstayed in India because of the pandemic, now concern that their abroad earnings can be taxed by the Indian authorities.

“Mr. Baid intends to re-approach the Supreme Courtroom for applicable reduction… the federal government has refused to grant common rest sought by us,” mentioned Amish Tandon, accomplice, Innovatus Legislation Places of work which is representing Baid.

Not solely has CBDT avoided giving a blanket reduction, its round this week may have worsened the state of affairs for a lot of NRIs like Baid. Whereas the tax physique has promised there can be no “double taxation” — and, the willpower of residence shall be finished on the idea of related double tax avoidance agreement (DTAA) — such an assurance is meaningless for NRIs working in UAE, Bahrain, Oman, Qatar, Kuwait, Bahamas, or in every other nation the place there isn’t a direct tax on revenue.

Residency standing, below Indian regulation, is decided by the length of bodily presence within the nation: an individual is taken into account resident if the interval of keep in India is 182 days or extra; or, if the particular person has greater than Rs15 lakh home revenue and stays for 120 days or extra. In contrast to a resident whose international revenue is taxed, NRIs must pay tax on revenue earned in India however not on revenue earned outdoors India. So, most NRIs plan their go to and length of keep in India to fulfill the residency situation and keep away from paying tax in India on what they earn outdoors India.

“The CBDT round merely reiterates the present rules and gives no reduction which most NRIs had hoped for. No exemption for pressured keep in India on account of COVID has been given as the only goal of the round is to make sure that an individual doesn’t escape tax by being non-resident in each nations. However now NRIs have to use for particular reduction on a case to case foundation and the matter is left to the discretion of the tax division,” mentioned Mitil Chokshi, accomplice, Chokshi & Chokshi.

The tax board has requested NRIs who may expertise “double taxation” within the current monetary yr to file illustration in a prescribed kind by March 31. “However NRIs (like Baid) from the UAE, who needed to involuntarily reside in India for a interval of greater than 182 days and whose grouse may not be associated to ‘double taxation‘ however to ‘taxation of revenue in India’ which in any other case wouldn’t have been taxed in any respect on account of the tax impartial nature of UAE may not have the choice to make a illustration to the federal government,” mentioned Tandon.

Because of both suspension or disruption of flights, Baid, who works as an account supervisor with Kuber Buying and selling FZE in UAE, may depart India solely on October 5, 2020 — by when the 182-day residency situation had been breached. Quickly after the lockdown final yr, the federal government issued a rest to exclude the variety of days keep in India — from 22nd March, 2020 to 31st March, 2020 — for the monetary yr 2019-20. Baid’s prayer earlier than the apex courtroom was that an individual who was assessed as NRI in FY 2019-20, must be thought-about as NRI in FY20-21 on account of the pandemic, whatever the variety of days spent in India.

Based on senior chartered accountant Dilip Lakhani, “The tie breaker rule in DTAAs — which comes into play when an individual is taken into account resident of two nations — can even not assist NRIs stranded right here. The circumstances to be glad below this rule will typically result in NRIs having residency in India — thus exposing their international revenue to taxation right here.”

There are greater than 13 million NRIs unfold throughout 209 nations, and plenty of of them search employment and pursue enterprise in tax impartial jurisdictions like UAE. Certainly, the round may influence many NRIs who are primarily based out of nations the place the incidence of direct tax is decrease than that of India.

Based on company circles, extra NRIs are exploring authorized choices. “To many NRIs, the latest CBDT round comes throughout as a shock. First, final Could the finance ministry had mentioned that the variety of days in 2020-21 until normalisation of flights will probably be excluded in figuring out residency. Second, the courtroom in Baid’s case took word of the profit given for 2019-20. Within the curiosity of equity, CBDT ought to exclude, say, 90days starting April 1, 2021,” mentioned Sanjay Sanghvi, Senior tax accomplice on the regulation agency Khaitan & Co.

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