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22 April 2024

More NRIs may fall under India’s new tax net

By Bhaskar Raj

More non-resident Indians (NRIs) may fall under the tax net and will be required to pay taxes on their global income if the new Direct Taxes Code (DTC) proposal is approved by India’s Parliament.

The Direct Taxes Code (DTC) Bill proposes to impose a levy on their global income if they stay in India for more than 60 days in a year.

As per the existing Income Tax laws, an NRI is liable to pay tax on global income if he is in India in that year for a period or periods amounting to 182 days.

In case an NRI resides in India for a period of 365 days or more over a period of four years prior to the assessment year, he is also liable to pay tax on his global income, said a report in The Economic Times.
Experts feel that the DTC proposal could be a damper for NRIs visiting India to meet their relatives or for business promotion.

There would be liability on a resident belonging to a country where the tax rate is lower than India and there is a Double Taxation Avoidance Agreement (DTAA) between both the countries. The non-resident would be considered a resident if the threshold limit of stay has been exceeded for the purpose of imposing tax.
UAE residents will have to pay taxes on capital gains earned in India, according to the India-UAE Double Taxation Avoidance Agreement.

The new DTC Bill has proposed to make an NRI liable to pay tax on global income is he resides in India in a particular year for a period or periods amounting to 60 days, down from the existing provision of 182 days in the existing Income Tax Act.

However, the present dispensation for taxation of global income if an NRI resides in India for 365 days or more over a four-year period has been retained in the proposed DTC.

The DTC hopes to plug loopholes with the proposed changes with the aim of preventing tax evasion through this route, said a senior Finance Ministry official.

In addition, the DTC has removed the 'Resident Not Ordinarily Resident (RNOR)' category to simplify the tax laws, the official said.

Now, there will be only two categories, 'Resident' and 'Non-Resident', the official added.

Commenting on the proposal PwC Executive Director (Tax) Kuldeep Kumar said, "With this change, a non-resident would be at greater risk of becoming an ordinary citizen and become liable to pay tax in India as the threshold limit has been reduced."

In the case of a resident of a non-treaty country, which India has no DTAA with, the tax burden would be higher if he exceeds the threshold limit of stay in India, Kumar said, adding that he has to pay tax on all the global income in India as well as the country of residence as per the prevailing tax laws of that country.

At present, India has comprehensive DTAAs with about 74 countries, including the UAE, USA, Singapore, UK, Thailand, South Africa, Saudi Arabia, New Zealand and Australia.