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"The Taxing Enigma of Resident becoming Non-Resident and Non- Resident becoming Resident Indian”
This Article penned down by our Founder Director Sh. Mayank Mohanka, FCA has been published in the renowned website taxmann.com with the citation (2021) 125 taxmann.com 120 (Article). Knowledge multiplies manifold by sharing, so for the benefit of our Readers, this Article is shared here.
Date: 3.3.2021; Time: 8:30 pm Indian Time
“Trin Trin Trin….”. My mobile phone’s screen flashed “Shukla Sir”. After 2 bells, I hurriedly picked it.
“Mayank, Have I become a Non-Resident Indian now?”, asked learned Shukla Sir in his anxious voice, to which I, in a reflex, responded, “what’s the matter sir?”, muting my favourite daily sop “Tarak Mehta ka Ulta Chashma” on SAB TV.
“Well, Mayank, as you know, I have come here in US to meet my son and daughter-in-law on 20.3.2020 for a week. However, since then I am stranded here in US only, due to lockdown being enforced, courtesy corona, and the resultant suspension in international flights. “
“I remember that while facilitating my NRI son’s tax-filings last year, you have told me that the taxability of a person depends upon his/her residential status in that particular financial year and almost in all countries world-over, the stay of 182 days or more in a particular country results in acquiring residential status of that country.,” Shukla Sir, continued in his gentle voice.
“So, as you can see very clearly that my forced stay (due to corona) here in US has crossed the threshold limit of 182 days in US in the current financial year 2020-21 and as a natural corollary, my stay in India in this FY 2020-21 will obviously be less than 182 days and infact it will be even less than 60 days, as I am still stranded in US. ”
“So, in that case, whether I am no more a Resident Indian for FY 2020-21 and if that being so, whether I am liable to pay advance tax now on my dividend and interest income in India, inspite of being a senior citizen and not having any business or professional income?” Asked Shukla Sir.
I paused for a minute and answered “Yes Sir, your understanding and apprehension is perfectly valid. As per section 6 of the Income Tax Act, a person is considered as a resident in India for a particular financial year, if his stay in India in that financial year is 182 days or more, or if his stay in that financial year is 60 days or more and 365 days or more in immediately preceding four financial years. And further, the benefit of non-payment of advance tax u/s 207 of the Income Tax Act, is available only to resident Indian senior citizen and not to a non-resident senior citizen.”
“Oh, that’s a trouble-some issue.” sighed Shukla Sir.
“And the more worry-some concern is the penal interest u/s 234B and 234C, which you may need to pay now, as you have not deposited the three installments of advance tax (15/6- 15%; 15/9-45%; 15/12-60%) for the FY 2020-21. The only saving grace is the immunity from paying penal interest u/s 234C in respect of your dividend income for the financial year 2020-21, till the date of its payment.”
“Oh that’s terrible”,
Haven’t the Indian Government or the Finance Ministry brought in some Circular providing the much-needed relaxation in this regard?”, asked Shukla Sir.
“Sir, ironically, till date no such Relaxation Circular has been brought about by CBDT for Resident Indians who are stranded in Foreign Countries due to corona, and are not able to complete their minimum stay of 182 days in India in the current financial year 2020-21.”, I answered.
“Mayank, I have heard about some CBDT Circular in this regard. What is that about?”, asked Shukla Sir.
“Yes Sir, infact today only i.e. on 3.3.2021, CBDT has brought in a Circular No. 2.2021 and earlier also CBDT has come up with its Circular No. 11/2020 dated 8.5.2020. But these two Circulars are only in respect of Non-Resident Indians who are stranded in India due to corona and are not in respect of Indian Residents who are stranded in foreign countries.”, I answered.
“Well, Mayank, in that case, don’t You think that CBDT should take cognizance of such genuine hardship of so many Indian Residents especially senior citizens like me, who are stranded in foreign countries due to corona and as such are not able to complete the minimum stay of 182 days in India for the FY 2020-21, and should come up with much needed Relaxation Circular, on similar lines for that of NRIs?”, asked Shukla Sir empathetically.
“Can’t agree more Sir. And infact in order to draw the kind attention of CBDT towards this undue hardship of so many Indian Residents especially senior citizens, who but for their forced stay outside India are resident individuals, I will definitely write one Article for the renowned and esteemed tax web-site TaxAaram.com very soon.”, I concluded our phone call and unmuted the TV to watch the remaining (sadly 10 minutes) episode of “Tarak Mehta ka Ulta Chashma”.
Date: 4.3.2021; Time: 4 pm
“Trin Trin”, my door bell rang. I opened the door and was pleasantly surprised to see my Dubai based Non-Resident Indian Friend Shashank.
Shortly afterwards, we both were cherishing the ginger tea and the delicious poha in my living room.
“Well Shashank, how long have you been here in India?”, I curiously asked Shashank.
“Today is the 338th day of my stay here in India. I have come here on 20th March, 2020 for some business expo and since then I have got stranded here only.” answered Shashank.
“And that is the precise reason for my visit today here at your home, Mayank.” Shashank continued.
“So, your cause of concern is the dilemma concerning your residential status for the FY 2020-21. Isn’t it?” I answered by questioning.
“Yes Mayank. Somebody was telling me that Indian Tax Authorities have brought in some Circular or so, regarding this.”, said Shashank.
“Yes Shashank, earlier CBDT has brought about Circular No. 11/2020 dated 8.5.2020 granting relaxation to the Non-Resident Indians by excluding the period of their forced stay due to corona, from 22nd March, 2020 to 31st March 2020, in India, for determining their residential status for the FY 2019-20.”
“However, in its recently issued Circular No. 2/2021 dated 3.3.2021, no such relaxation of exclusion of period of forced stay of Non-Resident Indians, has been provided for FY 2020-21. This Circular envisages and addresses the issue of double taxation only and not the issue of probable adverse tax consequences/increased tax liability of non-resident individuals, due to their changed residential status on account of their forced stay in India. This Circular surprisingly infers that it is very unlikely that a person will become resident of two countries simultaneously because of the fact that in a financial year there are 365 days only and almost in all the countries the prescribed minimum stay of period for determining the residential status is 182 days only. So, in such a scenario a person will be a resident in the country where his/her stay is more than 182 days and in the other country where his/her stay is less than 182 days, he will in any case be considered as a non-resident. Further in article 4 of DTAAs there are tie-breaker provisions for determining the residential status. So, the chances of double taxation are very rare. However, if the person is still facing double taxation even after taking into consideration the relief provided by the respective DTAAs, due to his/her forced stay in India he/she may furnish the information in Form NR electronically by 31.3.2021.” I explained emphatically.
“Well, Mayank, as you are aware that I have settled in Dubai, UAE since last 4 years and am a Non-Resident Indian. So, in these 4 years, my income in Dubai was tax-free, as per prevailing Tax Laws in Dubai, and further being a non-resident in India due to my stay of less than 182 days in each of these 4 years in India, I was having no liability to pay any tax in India on my global income. So, “Have I become a Resident Indian Now?” Will this forced stay of mine in India, due to covid, in current FY 2020-21, for more than 182 days, change my residential status in India from Non-Resident Individual to that of Resident Individual and if so, will my otherwise tax-free income earned by me in Dubai become taxable in India now?” asked Shashank anxiously.
“Well, my Friend, the said CBDT Circular somehow takes such serious and genuine hardship of so many NRIs like you, in a light and casual manner and suggests that in cases where the forced stay of NRIs in India exceeds 182 days in FY 2020-21, they will be considered as Not Ordinary Resident (NROR) and as such their global income will not be taxable in India.”, I answered.
“Is it true Mayank?” Asked Shashank.
“Well in some cases yes, but not in all cases. And unfortunately, in your case it may not be true as an individual qualifies as an RNOR only if he/she has been a non-resident in India in 9 out of 10 preceding years or if his/her stay in the preceding 7 years has been 729 days or less. And in your case since you have settled in Dubai since last 4 years only, so obviously you won’t qualify these prescribed conditions for having RNOR status which effectively means that by virtue of your forced stay in India for more than 182 days in this financial year 2020-21, you have acquired the status of resident individual in India, implying that your tax-free Dubai/global income in the financial year 2020-21, going by the present status, will become taxable in India.” I explained.
“Oh God. That’s terrible. What do I do now?” asked Shashank.
“You can do nothing but just fill the electronic Form NH by 31.3.2021 and pray to God that the Indian Tax Authorities take due cognizance of your genuine hardship.” I murmered.
“So, it seems that this CBDT Circular No. 2/2021 dated 3.3.2021 fails to recognise and appreciate that the moot question is not the double taxation issue but the probable adverse taxation consequences arising out of an individual’s changed residential status due to his/her forced stay of more than 182 days in India, in the financial year 2020-21, due to covid.” Shashank summed up our discussion and hurriedly asked me to open the electronic Form NH to be filed by 31.3.2021.
Concluding Remarks:
Key Takeaways from Above Two Anecdotes:
(i) The option of filing electronic form, similar to recently proposed ‘Form NH’ for Non Resident Indians, should also be provided to Resident Indians especially Senior Citizens, stranded outside India due to Covid, to address there genuine hardships in the form of increased taxation/advance tax liability, due to forced change in their residential status from resident individuals to non-resident individuals, on account of their forced stay of more than 182 days, outside India, for the FY 2020-21, due to covid.
(ii) Even for the Non-Resident Indians, the proposed option of filing electronic form NH by 31.3.2021, should be made more meaningful and fruitful to genuinely and sincerely address the hardships of such non-resident individuals not just on account of the probable double taxation but also their probable adverse/increased tax liability due to forced change in their residential status from non-resident individuals to resident individuals, on account of their forced stay of more than 182 days, in India, for the FY 2020-21, due to covid.
