Lockdown Will Not Impact NRI Status

The government of India confirmed in a circular that Non-resident Indians (NRIs) and foreign visitors held up in India due to the suspension of international flights will not have to count the duration of their extended stay while deciding their tax residence status.

The Central Board of Direct Taxes eased the rules determining residency status as per the Income-tax Act for the Non-resident Indians (NRIs) and foreign visitors who are stranded in India due to travel restrictions through a circular “in order to avoid genuine hardship”.

The announcement comes in after earlier concerns and speculations that travel bans will result in additional tax payments for the NRIs held up in the home country.

The relief applies to all the individuals who came to India on a visit before 22nd March 2020. For the purpose of determining residential status, following days have been discounted as per the CBDT circular:

• An individual’s period of stay in India from 22nd March 2020 to 31st March 2020 shall not be taken into account if he/she has not been unable to leave India on or before 31st March 2020
• An individual’s period of stay from the beginning of his quarantine period to his date of departure or till the 31st of March 2020 will be discounted, if he/she has been quarantined in India due to Covid-19 on or after 1st March 2020 and has been unable to leave India on or before 31st March 2020 
• An individual has departed on an evacuation flight on or before 31st March 2020, CBDT will exclude his period of stay in India from 22nd March 2020 to his date of departure

An NRI is defined by the time spent in the country in the previous financial year or years as per the Income Tax rules which were amended recently. Read more on Tax Exemptions. 

The relief allowing discounting of prolonged stay period is crucial as Indian residents have to file tax returns in India on their global income, while NRIs only have to pay taxes in India on the income earned in India.

In short, Non-residents lose their NRI status and will have to follow tax laws applicable to a resident in India if:

• They stay in India for 182 days or more during a financial year
• If they stay in the country for 60 days or more during a financial year
• 365 days or more within 4 years preceding that financial year

Amid the chaos of the pandemic and uncertainty on international travel restrictions, the Tax Board will issue a separate circular for the next financial year after international travel bans are lifted and normal international flight operations resume.