Double Taxation Worries addressed for NRIs stuck in India due to COVID-19 travel restrictions

NRIs stuck in India as a result of the COVID-19 travel restrictions had double taxation worries that were recently addressed by the government of India. Authorities have asked such non-residents who faced double taxation in the due course of their stay in India to submit the relevant information by the end of March. As a result of the Double Tax Avoidance Agreement (DTAA), “there shouldn’t be any situation under which the individual taxpayer would be under a hardship of having double taxation in two countries due to the Covid-19 situation” iterates Nishit Parikh, the partner, direct tax and regulatory services at Sudit K. Parekh & Co, a Mumbai-based chartered accountants firm.

Double Taxation Worries addressed for NRIs stuck in India due to COVID-19 travel restrictions
Double Taxation Worries addressed for NRIs stuck in India due to COVID-19 travel restrictions

Double Taxation worries of NRIs stuck in India: A Background

As a result of COVID-19, lockdowns were imposed in India that had all the domestic and international travel suspended. Under such conditions many NRIs got stuck in India who were on a short visit. Now, as per the Income Tax Act, 1961, there are certain criteria that define the residential status of an individual. Once someone becomes a resident of India, their global income becomes taxable in India. As a result of this many NRIs had to face a change in their taxation but a relief was given in the last financial year (2019-2020) to such individuals. 

In order to avoid genuine hardship in such cases, the CBDT has decided vide circular no 11 dated May 8, 2020, that for the purposes of determining the residential status under section 6 of the Act during the previous year 2019-20 in respect of an individual who has come to India on a visit before 22nd March, 2020 and:

  • has been 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; or
  • has been quarantined in India on account of Novel Corona Virus (Covid-19) on or after 1st March, 2020 and has departed on an evacuation flight on or before 31st March, 2020 or 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 not be taken into account; or
  • has departed on an evacuation flight on or 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.

Note: CBDT had earlier informed that a circular excluding the period of stay of these individuals up to the date of normalisation of international flight operations, for determination of the residential status for the previous year 2020-21 shall be issued after the said normalisation.

India’s Central Board of Direct Taxes (CBDT) said it received various requests for “relaxation in determination of residential status for year April 2020 to March 2021” from NRIs or non-resident Indians, who had to prolong their stay due to the movement restrictions.

DTAA Guide for NRIs

Relief from Double Taxation: What has happened?

In a notice on late Wednesday (3rd March), the CBDT said that NRIs who faced double taxation, even after the initial relief provided by the government, would need to provide requested information for the department’s review. Let’s take a glance at some important pointers around this relief from double taxation:

  • The information has to be submitted in Form –NR and is to be submitted electronically to the Principal Chief Commissioner of Income-tax (International Taxation)
  • The details are needed to be submitted by 31st March 2021
  • It is for individuals who are facing double taxation even after the reliefs provided by the government under DTAA

“It is interesting to see that individuals will need to determine their Indian tax residency as well as income being subjected to double taxation well before the submission of Form-NR. This would need a detailed understanding of the tax laws (India and other countries) as well as the DTAAs. While there is a short and stringent timeline for submission of Form-NR, no timelines have been indicated for the tax authorities to respond to such applications,” says Jiger Saiya, Partner and Leader- Tax & Regulatory Services, BDO India.

Top 10 Mistakes made by NRIs while filing ITR in India

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