A V MANOHAR –
MUSCAT: Amidst the various tax revision and simplification measures set out in India’s Budget 2020 by Nirmala Sitharaman, Finance Minister of India, on February 1, 2020, the amendment of Section 6 of the Income Tax Act, modifying the definition of Non-Resident Indians (NRIs) living outside India has nudged NRIs away from their comfort zones. Pertinent questions being asked NRIs residing in tax-free countries as in the GCC are: (a) Will I continue to be a Non-Resident, and (b) Is my tax-free salary earned outside India going to be taxed from now on?
Based on the amendment to Sec 6(1) of the Income Tax Act 1961, an Indian citizen is an NRI, if the individual fulfils either one of the following criteria:
1. The individual should not have stayed in India for more than 120 days in a year (reduced from the earlier 182 days).
2. The individual should not have stayed in India for more than 365 days during the past four years and not more than 182 days in the current year (increased from the earlier 60 days).
Due to this increase in the mandatory period of staying outside India, as a first step, Indian citizens working in Oman have to plan their days of stay in India from now on carefully.
The other amendment, “An individual being a citizen of India, shall be deemed to be 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 similar nature”, raises concerns for NRIs. A mere reading of the amendment conveys in affirmation that NRIs living in tax-free countries such as the Gulf will lose the distinct advantage of being NRIs and that their salaries earned outside India shall become taxable in India from next year.
But the spirit behind this amendment is not intended for NRIs working in tax-free countries. It is clarified that this amendment is meant to plug existing loopholes and to net such Resident Indians, who have abused this provision and hedged their global income away from Indian Income Tax, by cleverly organising their stay outside India beyond 182 day, either by way of business or holiday trips. Unfortunately, the amended words have struck a different chord, leaving much to ambiguity.
If the intention of the Indian government is to net unscrupulous elements, then a question arises whether “A person not liable to pay tax” and “A Person exempt from tax” is one and the same. The answer is “No” as there is definitely a vast difference. Liability to pay precedes an obligation to pay as per the rules of the country. Eg: An Indian citizen owning a business in Oman is liable to pay tax in Oman as per the rules and his business income is accordingly taxed.
But “Exempt from Tax” means “No obligation to pay Tax” and connotes a benefit or concession given towards fulfilment of something in return, which is the case in the context of those employed in such countries where tax-free salaries are offered. Here no liability to pay has arisen as there is no binding obligation to pay as per the existing rules.
Besides, Indian citizens working in Oman are residents under the definition of Double Taxation Avoidance Agreement” between Oman and India, signed on September 23, 1997, vide Royal Decree 29/1997.
Based on the above, one can reasonably infer that NRIs, who earn tax-free salaries abroad still continue to be classified as NRIs and their tax-free salaries is not subject to tax in India.
Since the matter is subject to various interpretations and having widespread ramifications, it is expected that the Ministry of Finance, India shall issue a suitable clarification soon, which will help the Indian community to keep their tax obligations in order. (The author is a Muscat-based financial professional. Email: email@example.com)