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 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:
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.