NRIs’ Income abroad won’t be taxed in India unless it is derived from an Indian business or profession

Every Indian citizen who becomes deemed resident of India under the changes proposed by Union Budget 2020, income earned outside India by him/her shall not be taxed in India unless it is derived from an Indian business or profession.

A provision in the Finance Bill, 2020 said that an Indian citizen who is not liable to be taxed in any other country or territory shall be deemed to be a resident of India and will be taxed in india. This is the matter of concern for NRIs working in countries that do not pay any tax on personal income would be taxed in India on their global earnings, similar to how residents are taxed on their global income. A 30% tax plus cess and surcharge on NRIs’ income abroad would leave less money in their hands.

This is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdiction to avoid payment of tax in India.The new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries. The intrepretation of the proposed provision that those Indians who are bonafide workers in other countries, including in Middle East, and who are not liable to tax in these countries will be taxed in india on the income that they have earned there is not correct as mentioned in press release also.

Non-resident Indians (NRIs) working in income tax-free jurisdictions such as the UAE will have to pay tax only on their income generated in India, and not on their earnings outside the country.

The Budget has also modified the residency provisions i.e earlier if you spent 182 days in India a year you are liable to pay tax in India now they have reduced it to 120 days which is a major change for NRIs and have provided exemption to NRIs from filing Income Tax Return in following cases if:

a)     his or its total income consists of only dividend or interest income 

b)     the TDS on such income has been deducted under the provisions of Chapter XVII-B of the Act

The amendment will take effect from 1st April 2020.

IRP Jugraj Singh Bedi(Chartered Accountant)

CS Shruti Mittal