“How am I affected?”… that is the first question that comes to the mind of Indian Citizens residing outside India after witnessing the proposals made by Finance Minister of India in the Union Budget of 2020.
The Finance Minister of India Ms. Nirmala Sitharaman introduced her second budget on 1 February 2020 in which she announced various schemes, plans and amendments. Out of all the most discussed amendment is in respect of ‘Residential Status’ of an individual.
As per the previous act, a person is considered an Indian resident for a financial year:
i. When you are in India for at least 6 months (182 days to be exact) during the financial year, or
ii. You are in India for 2 months (60 days) for the year in the previous year and have lived for one whole year (365 days) in the last four years
If you are an Indian citizen working abroad or a member of a crew on an Indian ship, only the first condition is applicable to you – which mean you, are a resident when you spend at least 182 days in India. You are an NRI if you do not meet any of the above conditions.
The Finance Bill, 2020 proposes to replace 182 days with 120 Days which means that if one stays out of India for more than 245 out of India to be declared as Non-Resident of India.
Besides this amendment it also proposes to insert a clause which states an individual, being a citizen of India, shall be deemed to be resident in India in any previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.
To simplify, if an Indian Citizen maintains an Non-Resident status with every country he/she visits then he/she would be considered as a Resident in India even if he does not satisfy the condition stipulated, which means his global income will be taxable in India in accordance with the Provision of Income Tax Act,1961 and he/she has to oblige and disclose the details not limited to overseas trusts, foundations, bank accounts, investment in properties etc.
To answer the question whether the Income earned in UAE, where there is no Income tax, is taxable in India or not? The answer to this question is as follows:
- Salaried Employees : As a salaried employee holds Resident visa and can obtain Tax Residency Certificate, their global income will not be taxable in India, only the income generated in India is taxable, as long as they maintain an NRI status.
- Others (Business Owners): As Salaried employees stays 240 days outside they will fulfill the condition but the Business owners have to obtain Tax Residency Certificate (TRC) from the respective Government and stay less than 120 days in India. Having a residence status is now necessary as per the proposed amendment, and thus, it is necessary to have a UAE residence visa for obtaining TRC and NRI status.
The blog post is written by CA Rashid Ali, Tax Advisor at Flyingcolour Accounting & Tax Services. At Flyingcolour, we can guide and help you on Tax Residency Certificate registration and taxation in UAE as well. Feel free to call +971 4 4542366 today for a quality consultation or please send inquiry to info[at]flyingcolour[dot]com.