By Rupin Chopra and Nihit Nagpal
The Ministry of Finance vide its circular dated March 03, 2021[1] has notified relaxation in determination of residential status of Previous Year (P/Y) 2020-21 for the NRIs who had come on visit India during the P/Y 2019-2020 and intended to leave India but could not do so due to suspension of the Flights as a nationwide lockdown was imposed on March 25, 2020. This whole scenario however gave rise to another legal concern- whether the extended stay by stranded NRIs and foreign nationals in India could lead them to become Indian residents as per Section 6 of the Income Tax Act for determining taxation. Section 6 of the Income Tax Act, contains provisions for determining the residential status of a person.
In view of the aforesaid speculations, the CentralBoard of Direct Taxes(CBDT)on May 8, 2020 issued a Circular[2] clarifying the purpose of determining the Residential Status u/s 6 of the Act during the Previous Year 2019-2020 with respect to an individual who had come to India on a visit prior to March 22, 2020.
Relaxation for Previous Year 2019-2020
| S.No. | Basis | Relaxation |
| 1. | Unable to Leave India on or before 31st March 2020 | his period of stay in India from 22nd March 2020 to 31st March 2020 shall not be taken into account |
| 2. | a. has been quarantined in India due to Novel Coronavirus on or after 1St March 2020 and
b. has departed the flight on an evacuation flight before 31st March 2020 or c. has been unable to leave India on or before 31st March 2020 |
his period of stay from the beginning of his quarantine to his date of departure or 31st March 2020, as the case may be shall be taken into consideration |
| 3. | has departed his evacuation flight before 31st March 2020 | His period of stay in India from 22nd March 2020 to his date of departure shall not be taken into account. |
Residential Status of Previous Year 2020-21
[3]
The computation is undertaken through number of days and income of the individuals
Short Stay will not result in Indian Residency
| S.No | Basis(Total Income ofIndividual) | Relaxation |
| 1. | Total income from Indian sources (i.e., other than the income from foreign sources) does not exceed fifteen lakh rupees | he stays in India for 182 days or more during the PY 2020-21 |
| 2. | total income Indian sources (i.e., other than the income from foreign sources) exceed fifteen lakh rupees in PY 2020-21 | a. he stays during PY 2020-21 for 182 days or more; or
b. he stays during the PY 2020-21 for 120 days or more and c. Also stays for 365 days or more in preceding four previous years. |
An Individual who is not citizen of India or a person of Indian origin may become resident in India only in one of the following situations:
- if he stays during PY 2020-21 for 182 days or more; or
- if he stays during the PY 2020-21 for 60 days or more and also stays for 365 days or more in preceding four previous years.
Double Taxation Avoidance Agreement
[4]
Applying the Rule of 182 days in India, a person may become resident in India even if he stays in India for less than 182 days. It The Double Taxation Avoidance Agreement, if applied for example entered between Indo-USA DTAA, such person will become the resident of only one country as per the rule of Tie-Breaker in the DTAA.
A person becomes the Resident of two countries in cases:
- Permanent home available in the two countries
- Centre of vital interest cannot be determined
- Has habitual abode in both states or in neither of them
- He is a national of both states or neither of them
The Indo-US DTAA provides a resolution mechanism through Mutual Agreement Procedure.
Employment Income Taxable subject to conditions of DTAA [5]
The notification has used for the Employment Income to be taxable, the governance of the Rule 16 of the DTAA Indo-USA.
The DTAA distributes the taxation rights as:
- Between the employee’s jurisdiction of residence
- Place where the employment is exercised
- Salary is taxable where the employee is resident unless the employment is exercised in other country.
- Such country has taxation rights only if the employee is present in that country for more than 183 days.
For example, if a USA resident under employment of a USA corporation has got stranded in India and performs employment from India, its salary will not be taxable in India unless he is present in India for 183 days or more during the PY 2020-21 or if the salary is borne by Indian permanent establishment of such USA corporation.
Comparative Study
The response is recorded from various countries:
| S.No. | Countries | ReliefProvided |
| 1.
|
USA | Relief of 60 days |
| 2. | UK | Relief of 60 days |
| 3. | Germany | In the absence of double taxation, |
[1] https://incometaxindia.gov.in/communications/circular/residency-circular-02-of-2021.pdf
[2] https://itatonline.org/info/cbdt-circular-clarification-in-respect-of-residency-under-section-6-of-the-income-tax-act-1961/
[3] https://incometaxindia.gov.in/communications/circular/residency-circular-02-of-2021.pdf
[4] https://incometaxindia.gov.in/communications/circular/residency-circular-02-of-2021.pdf
[5] https://incometaxindia.gov.in/communications/circular/residency-circular-02-of-2021.pdf