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.
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