Non-resident Indians (NRIs) who don't pay taxes in a foreign country will now be taxed in India, the Union Budget has proposed. It has also said that a person, to be categorised as a NRI, will now have to stay abroad for 240 days as opposed to the earlier stipulated period of 182 days.
Amending Section 6 of the Income Tax Act, the budget proposed that "notwithstanding anything contained in Clause (1), an individual -- being a citizen of India -- shall be deemed to be a 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 a similar nature".
The government said it has tweaked the provisions for according the NRI tag to prevent people from taking advantage of loopholes in the country's taxation system. "We have made changes to the Income Tax (system). Earlier, an Indian citizen would become an NRI if he stayed out of the country for over 182 days. Now he has to stay for 241 days. In many cases, we found that some people were residents of no country... we've said that if any Indian citizen, if he is not a citizen of India, is deemed to be a citizen of India and his worldwide income will be taxed," news agency PTI quoted Revenue Secretary Ajay Bhushan Pandey as saying.
In other words, a person will now be deemed as an Indian resident if he stays in the country for 182 days in any given year. "Some individuals who actually carry out substantial economic activities from India manage their period of stay in India so as to remain a non-resident in perpetuity and not be required to declare their global income in India," the memorandum to the budget read.
Gopal Bohra of NA Shah Associates, a reputed agency specialising in chartered accountancy, told PTI that the earlier provisions allowed certain "high net worth individuals" to work out their travel and residency arrangements in a manner that allowed them to not pay tax either in India or the country they are residing in. "This will adversely impact their plans to use the domicile mechanism to evade tax globally," he added.
Others pointed out that the move could have a negative impact too. "These changes in definition would deter people from coming to India, and some may even think of giving up Indian citizenship," Transaction Square founder Girish Vanvari told the news agency.
Several countries, including the United Arab Emirates, Panama and the Bahamas, do not require their residents to pay income tax.
(With inputs from PTI)