Tax Residency Determination of Individual A Sea Change
Recently, the Finance Act, 2020 (FA 2020) has made changes to determination of tax residence of individuals under the Indian Income-tax Act, 1961 (IT Act), especially for Indian citizens and persons of Indian origin (PIO).
Earlier regime
Previously, if an individual was present in India for a period of:
|
Ø |
182 days in the relevant tax year (Tax Year) (Test I); or |
|
Ø |
60 days in a financial year (FY) and had been in India for a cumulative day count of 365 days or more in the previous 4 FYs prior to the Tax Year (Test II); |
then such individual was considered a tax resident of India. Further, if an individual was a resident – he/she was considered as ‘resident but not ordinarily resident’ (RNOR) if certain conditions were satisfied.
The day count threshold in Test II was to be read as 182 days for, inter alia, Indian citizens or PIO coming to visit India. This higher limit was essentially given so that Indians living outside India could visit their family and manage their investments for a longer period.
Revised Regime for Indian citizens / PIO
As per revised residency rule:
|
Ø |
day-count of 182 days in Test II for Indian citizens / PIO has been reduced to 120 days, provided that the Indian-sourced income of such an individual exceeds INR 1.5 million for that Tax Year. However, if the presence in India is more than 120 days but below 182 days in that Tax Year, then such Indian citizen/ PIO will be regarded as an RNOR; |
|
|
Ø |
an Indian citizen who is not otherwise present in India, may still be deemed tax resident of India if: |
|
|
|
§ |
he/she is not liable to pay tax in any country by virtue of his/her residence or domicile; and |
|
|
§ |
has Indian-sourced income exceeding INR 1.5 million in a Tax Year. |
|
|
|
Nonetheless, such a deemed tax resident will be considered as RNOR. |
A quick snapshot on determination of tax residency has been provided below for reference:
|
SR No |
Category of Individual |
Minimum number of days of stay in India in Tax Year |
Minimum 365 days in India in previous 4 FYs prior to Tax Year |
If Indian-sourced Income is more than INR 15,00,000? |
Whether tax resident of India? Resident (R) / Non-resident (NR) |
|
|
|
|
|
|
|
R / NR? |
RNOR? |
|
A |
Any individual other an Indian citizen or PIO |
182 |
Not relevant |
Not relevant |
R |
Yes (See |
|
60 |
Yes |
Not relevant |
R |
Yes (See |
||
|
B |
Indian citizen not liable to pay tax in any country by virtue of residence or domicile |
Not relevant |
Not relevant |
Yes |
R |
Yes |
|
C |
Indian citizen other than (B) above / PIO coming on a visit to India |
120 (but less than 182 days) |
Yes |
Yes |
R |
Yes |
|
120 (but less than 182 days) |
Yes |
No |
NR |
Not relevant |
||
|
120 (but less than 182 days) |
No |
Not relevant |
NR |
Not relevant |
||
|
182 |
Not relevant |
Not relevant |
R |
Yes (See |
||
|
D |
Indian citizen leaving on employment from India or as a member of crew of India ship |
182 |
Not relevant |
Not relevant |
R |
No (See |
|
Note 1:- Only if the individual has been a non-resident for 9 out of 10 financial years preceding the Tax Year OR has spent less than 729 days in India in 7 financial years preceding the Tax Year Note 2: Assuming that he/she has always been Indian tax resident in the past FYs |
||||||
Impact of the revision of residency rule?
An ordinary resident is required to pay taxes on its worldwide income, while an RNOR is required to pay taxes only on Indian-sourced income, like non-residents. However, if the RNOR receives income offshore from an entity which is controlled from India, then such income is taxable in India. Furthermore, while an ordinary resident has an additional obligation of reporting their offshore assets in his/her annual tax return; an RNOR is relieved from this disclosure. Interestingly, there has not been any change in such reporting obligation or the impact of being an RNOR.
The revised residency rules for Indian citizens or PIOs may have consequences and accordingly, this may trigger planning visits to India, citizenship planning, structuring of existing holdings – be it onshore or offshore.
- Bijal Ajinkya (Partner) and Shabnam Shaikh (Principal Associate)
For any queries please contact: editors@khaitanco.com
We have updated our Privacy Policy, which provides details of how we process your personal data and apply security measures. We will continue to communicate with you based on the information available with us. You may choose to unsubscribe from our communications at any time by clicking here.
For private circulation only
The contents of this email are for informational purposes only and for the reader’s personal non-commercial use. The views expressed are not the professional views of Khaitan & Co and do not constitute legal advice. The contents are intended, but not guaranteed, to be correct, complete, or up to date. Khaitan & Co disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident or any other cause.
© 2024 Khaitan & Co. All rights reserved.
Mumbai
One World Centre
10th, 13th & 14th Floor, Tower 1C
841 Senapati Bapat Marg
Mumbai 400 013, India
Mumbai
One Forbes
3rd & 4th Floors, No. 1
Dr. V. B. Gandhi Marg
Fort, Mumbai 400 001
Delhi NCR (New Delhi)
Ashoka Estate
11th Floor, 1105 & 1106,
24 Barakhamba Road,
New Delhi 110 001, India
Kolkata
Emerald House
1B Old Post Office Street
Kolkata 700 001, India
Bengaluru
Embassy Quest
3rd Floor
45/1 Magrath Road
Bengaluru 560 025, India
Delhi NCR (Noida)
Max Towers,
7th & 8th Floors,
Sector 16B, Noida
Uttar Pradesh 201 301, India
Chennai
8th Floor,
Briley One No.30
Ethiraj Salai
Egmore
Chennai 600 008, India
Singapore
Singapore Land Tower
50 Raffles Place, #34-02A
Singapore 048623
Pune
Raheja Woods
03-108-111, 3 Floor
8, Central Avenue, Kalyani Nagar
Pune - 411 006, India
Gurugram (Satellite Office)
Suite No. 660
Level 6, Wing B,
Two Horizon Center
Golf Course Road, DLF 5
Sector 43, Gurugram
Haryana 122 002, India
Ahmedabad
1506 - 1508, B-Blockr
Navratna Corporate Parkr
Iscon Ambli Road, Ahmedabadr
Gujarat - 380058