DTC Proposes To Do Away With Special Provision That Allows NRIs Liberalised Duration Of Stay In Country
THE new direct taxes code could bring a large number of global Indians under the tax net, as it does away with a provision that allowed individuals to escape tax in any country citing double tax avoidance.
The new legislation, introduced in Parliament on Monday, says an individual shall be a resident of India in any financial year if he is in the country for more than 59 days in that year, and has been has been India for more 365 days in four preceding financial years. A number of Indian industrialists including Vedanta's Anil Agarwal and Essar's Ravi Ruia have acquired non-resident status over the years.
The DTC has only attempted to clean up the provision in line with the laws globally. A phrase "being outside India" in the existing income tax law exempted individuals who stay outside the country for six months from paying taxes. This was prone to misuse and allowed individuals to escape tax in any country, the official said, requesting anonymity. The new code is expected to come into effect from April 1, 2012.
More than 25 million Indians stay overseas and one million visit the country every year. A large number of NRIs, particularly those working in the Middle East, usually visit India for longer duration.
This could result in a situation wherein the overseas income of NRIs may be subject to tax under certain situations. Amitabh Singh, partner at Ernst & Young, said this could become a dampener for the overseas Indian population who routinely visit India to meet their relatives and friends.
They will now have to restrict their stay to less than 60 or be in danger of becoming taxable residents. NRIs who have spent 365 days in the last four years, which is permissible under the current income tax law, are at the risk of becoming a resident and facing tax on their global income.
They will be given relief from payment of tax for two years on their global income in the transition period when they become resident from non-resident, a CBDT official said.
The income tax department can define the term "visit" more tightly to ensure that there is no misuse, instead of removing the provision altogether
