The residential status of an individual for tax purposes is crucial for determination of the taxable income. In India, an individual is treated as either “Resident” or “Non-resident” (‘NRs’) for tax purposes. Residents are further classified into “Resident and Ordinary Resident” (‘ROR’)” or “Resident but Not Ordinarily Resident in India” (‘RNOR’). Generally speaking, RORs are subject to tax on their worldwide income whereas NRs and RNORs are subjected to tax on income which accrues or arises in India or is received in India. The residential status is determined for each tax year which is the financial year starting from 1 April – 31 March based on “physical stay” and “citizenship”.

 

For Non-Resident Indians (Indian citizens or Persons of Indian Origin who have been residing outside India), the Indian tax regulations contained very favourable provisions until 31 March 2020 and generally, NRIs who visited India could stay in India up to 181 days in a financial year and still maintain “Non-resident” status in India. The Finance Act, 2020 and the Finance Act 2021 (assented by the President on 28 March 2021) have made far reaching changes and clarifications resulting in a lot of confusion regarding the determination of residential status of NRIs for financial year ended 31 March 2021 and for the financial year 31 March 2022. The objective of this Newsflash is to provide clarity regarding the exact provisions now in force and the implications.

 

The Newsflash also discusses the current status regarding “exclusion of lock down period” for the purpose of computing period of stay in India.