JOIN USNRI tax not to apply on bonafide workers in West Asia
The government on Sunday clarified that the proposed tax on NRIs will not apply on bonafide Indians working in tax-free foreign countries and is intended to tax only those seeking to escape tax by exploiting their non-resident status.
Finance Minister Nirmala Sitharaman in her Budget had proposed to tax Non-resident Indians (NRIs) who do not pay taxes in any foreign country.
This provision raised anxiety in the minds of those working in the Gulf region where countries don’t tax income earned by individuals.
Sitharaman clarified that only Indian income of NRIs is proposed to be taxed under the new provision, and later the tax department issued a statement to say that “the new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries”.
The Budget presented on Saturday had tightened the screws on those seeking to escape tax by exploiting their non-resident status. While earlier it was possible to be classified as a non-resident by staying out of the country for 183 days or about six months in a year, this has now been, in effect, enhanced to 245 days.
Revenue Secretary Ajay Bhushan Pandey said the new rule was “an anti-abuse provision planned to plug loopholes in the system and not intended to tax income earned by those working overseas”.
He also said the wording in the Budget document may have created confusion and so a clarification has been issued now.
“What we are doing now is that the income of an NRI generated in India will be taxed here. If he’s earning something in a jurisdiction where there is no tax, why will I include that into mine that has been generated there,” Sitharaman told reporters here on Sunday.
She said Indian earnings of NRIs such as rental income from property in the country is what was intended to be taxed by way of the new provision.
“Whereas if you have a property here and you have rent out of it, but because you are living there, you carry this rent into your income there and pay no tax there, pay no tax here ... since the property is in India, I have got a sovereign right to tax,” she said in a post Budget interaction with media.
“I am not taxing what you’re earning in Dubai but that property which is giving you rent here, you may be an NRI, you may be living there but that is revenue being generated here for you. So, that’s the issue.”
“Somebody who is a citizen of India and sitting in a tax haven and not paying taxes then he has to pay tax,” he said. “By issuing a clarification, we have kept them (workers in the Middle East) out. Same for merchant navy because their income is also not arising out of India.”