The Apex Court judgment directing the CBDT to consider the petition filed by a NRI who had overstayed in India due to Covid-19 for Financial Year 2020-21 requesting for a blanket relief has been meted with a disapproval in a Press Release issued on 3.3.2021 :-
CBDT has promised there would be no “double taxation”---and, the determination of residential status shall be done on the basis of relevant double tax avoidance agreement (DTAA)---such an assurance is meaningless for NRIs working in most Middle-East countries, or in any other country where there is no direct tax on income.
In case of employment income, the CBDT has clarified that if an employee of a foreign company has got stranded in India, and works from India, under the DTAA, his salary will not be taxable in India, unless he has been in India for 182 days or more. It has been pointed out that person treated as a resident in India will be entitled to tax credit for taxes paid in any other country. The CBDT has cited the observations of the OECD and the guidelines and clarifications issued by the US, UK, Australia and Germany in this regard, and come to conclusion that the possibility of double taxation does not exist as per domestic tax law read with the DTAAs due to forced stay in India.
However, in order to understand possible situations in which a particular taxpayer is facing double taxation, the CBDT has sought relevant information from individuals in a specified form, so that it can examine whether any relaxation is required to be provided in a matter, and if required, whether general relaxation should be given or specific relaxation for that individual. This form is to be submitted online by 31 March.
Many non-residents were forced to remain in India during covid and could not travel back to their home countries due to the absence of international flights or had to remain in India due to a complete lockdown in their home countries. In many such cases, the non-resident was in India for more than 182 days during the current financial year, and under tax laws would therefore be regarded as a person resident in India.
Given that the Central Board of Direct Taxes (CBDT) has issued a circular in May 2020 giving relief to such persons for Financial Year 2020, there was hope that a similar relief would be granted for Financial Year 2021. However, the budget contained no relief in such cases.
The CBDT said that in most cases, a short stay would not result in residency in India. It has then reasoned that since most countries have the condition of stay for 182 days or more for determining residency, in most situations, a person will be resident in only one country. “According to the CBDT, if a general relaxation of the 182 days, stay period is granted, it may amount to a case of double non-residency with no payment of tax in any country”.
The logic given is that even in cases where a person is a dual resident, the provisions of the Double Taxation Avoidance Agreement (DTAA) with his home country provide for a tie-breaker test to determine the country of which he is resident. It has further been explained that even if a person is resident in India, he would normally be a resident but not ordinarily resident (RNOR), with foreign income not taxable in India, except such income from a business controlled in, or a profession set up in, India.
The petitioner is considering to re-file a writ petition before the Hon’ble Supreme Court shortly.
# Time Limits for Filing I.T Returns
a) Belated Return: It has been proposed to prepone the due date of filing belated return of income to 31st December from the earlier time of 31st March of the next year, effectively reducing the window for filing the belated return of income by 3 month
# Safe Harbour Rule by way of amendment in Special provision for full value of consideration for transfer of Assests:
(i) The transfer of residential unit takes place during the period from 12 November, 2020 to 30 June, 2021.
(ii) The transfer is by way of first time allotment of the residential unit to any person.
(iii) The consideration received oraccruing as a result of such transfer doesn’t exceed INR 2 crore.
b) An amendment has been proposed to increase the safe harbour limit from 10% to 20% whereby, circle rate shall be deemed as sale/purchase consideration only if the variation between the agreement value and the circle rate is more than 20%.
The above amendments are proposed to be effective from 1 April 2021. The proposed amendment is in line with the announcement made earlier by the honourable F.M. It will bring some relief to real estate industry.
# TDS on payment of rent by certain individuals or Hindu undivided family (HUF):
It is mandatory for any person, i.e. individuals/HUF, who is not liable to audit, to deduct taxes for rent paid to a resident, exceeding INR 50,000 per month. If PAN is not furnished by the payee, the withholding tax rate would be 20 per cent or the rate in force, whichever is higher. It is now proposed to amend the existing Section to include the newly inserted section, providing for higher rate for TDS for the Non-filers of income-tax return. The amendment is proposed to be effective from 1July 2021.
# Deduction of tax in case of specified senior citizen and Relaxation from furnishing/filing of return of income to a senior citizen of age of 75 years:
This Section is proposed to be inserted which provides for relaxation from furnishing / filing of return of income to a senior citizen of age of 75 years in the year in which tax has been deducted by the specified bank after giving effect to the deduction allowable under Chapter VI-A of the Act and rebate under Section 87A. It may be noted that such Senior citizens need to satisfy the below requirements for applicability of the said Section:
i. Resident in India
ii. Aged 75 years or more during anytime during the previous year.
iii. He has No income other than pension and interest income from the same specified bank in which he is receiving his pension income.
iv. Furnishes a declaration to the specified bank containing particulars, in such form and verified in such manner, as may be prescribed
The above amendment is proposed to be effective from 1 April 2021. This new Section applies only to senior citizens who are having income in the nature of pension, and has no other income except the income of the nature of interest, received or receivable from any account maintained by such individual in the same specified bank, in which he is receiving his pension income. That means, if the senior citizen earns interest income from any other bank/banks, this Section shall not apply. Further, if the senior citizen has refund due, he/she will have to file a return of income. The object of the government to reduce compliance burden on the specified senior citizens seems laudable, the requirements that they should be earning only interest income apart from pension income from only bank seems unpractical and unrealistic and hardly some people will be able to take benefit.
# Taxation of proceeds of high premium Unit Linked Insurance Policy (ULIP):
a) Tax Exemption available for the sum received under a life insurance policy, including the sum allocated by way of bonus on such policy in respect of which the premium payable for any of the years during the terms of the policy does not exceed ten percent of the actual capital sum assured.
b) The proposed exemption shall not apply with respect to any unit linked insurance policy (ULIP) issued on or after 1 February 2021, if the amount of premium payable for any of the previous years during the term of the policy exceeds INR 2,50,000
c) If premium is payable by a person for more than one ULIPs, issued on or after 1 February 2021, exemption shall be available only to those insurances policies where the aggregate amount of premium does not exceed INR 2,50,000 in any of the previous years during the term of any of the policies.
# Meaning of the term ‘liable to tax’:
The term ‘liable to tax’has been defined by inserting a new clause. The term “liable to tax” in relation to a person means that there is a liability of tax on such person under the law for the time being in force of any country and shall include a case where subsequent to imposition of such tax liability, an exemption has been provided. The amendment is proposed to be effective from 1 April 2021.
It may be noted that the Income Tax Act presently does not define the term ‘liable to tax’ although the same is widely used in various provisions like determination of residential status under Double Tax Avoidance Agreements (DTAAs/Tax Treaties). Various tax treaties provide that in case a term is undefined in a tax treaty, then reference should be made under the domestic law. Hence, this amendment would impact the interpretation of various DTAAs.
# Concept of Deemed Residency Rule will put NRIs in Tax Trouble:
According to a change in the tax statute that become effective from the assessment year beginning April1, 2021, Indians residing overseas and earnings Rs15 lakh and abovefrom domestic sources such as fixed deposits, dividends, and rents from India will have to pay tax on what they earn outside if that global income is not taxed in any other country.
Revenue Secretary Ajay Bhushan Pandey said in a post budget interaction with media
“Indians working in Middle East as well as those in Merchant Navy shall not be taxed using the New Provision. Somebody who is a citizen of India and sitting in a tax haven and not paying taxes then he has to pay tax. By issuing 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. The new provision was brought in because people were taking advantage of the existing one. These are the anti-abuse provisions, and not to inconvenience any genuine persons”
Finance Minister Nirmala Sitharaman said in post budget interaction with media
“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. Indian earnings of NRIs such as rental income from property in the country is what is 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 in India. 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.”
Hence as per my view the new deeming provision for residency shall not apply to the seafarers working in Merchant Navy.