[Editorial Analysis] Amendments in residential status in 2020

Mains Paper 3: Economy
Prelims level: Amendments in residential status in 2020
Mains level: Highlights the Amendments in residential status in 2020

Context:

• The scope of taxability of an individual taxpayer is determined based on his/her residential status in India during the relevant financial year (FY).

• With the intention of checking misuse of residency provisions, Finance Act 2020 has introduced amendments which are applicable from FY 2020-21 onwards.

Categories of residential status:

• The residential status of an individual is categorised as Resident and ordinarily Resident (ROR), Resident but not ordinarily Resident (NOR) or Non Resident (NR) on satisfaction of the certain conditions.

• While ROR is taxable on worldwide income, NR and NOR are taxable on Indian sourced income. In addition, an NOR is taxable on income accrued outside India if the business is controlled / the profession is set up, in India.

The basic conditions for an individual to qualify as a Resident of India are as under:

• Individual is present in India for

• 182 days or more during the current FY; or

• 365 days or more in aggregate, in the preceding four FYs and for 60 days or more in the current financial year

• If the above mentioned conditions are not satisfied, then an individual will qualify as a NR in India.

• For FY 2019-2020, the additional conditions required for an individual to be considered as ROR are:

Individual should be:

• To present in India for more than 729 days (in aggregate) during preceding seven FYs, and

• Resident in India for two or more FYs out of previous 10 FYs

• In case the above conditions are not met he/she will qualify as an NOR in India.

Amendment to the basic condition for Indian citizen / PIO coming on visits to India:

• Earlier, the above mentioned 60-day criteria (point 2 of basic condition) was substituted with 182 days for Indian citizen or Person of Indian origin (PIO) coming on a visit to India.

• Now, as per the amendment, the 60-day criteria (as mentioned in the basic conditions) will now be substituted with 120 days / 181 days as per the below table:

• Amendment to the basic condition for Indian citizen / PIO coming on visits to India

New deeming provision for residency introduced:

• With the intention of covering individuals who were otherwise not liable to tax in any country by reason of their residency, a new provision has been inserted vide Finance Act 2020, wherein the following individuals will be considered as a NOR in India from FY 2020-21 onwards, irrespective of their stay pattern in India if the following conditions are satisfied:

• Is a citizen of India

• Has total income (other than foreign sourced income) exceeding INR 15,00,000 during the year

• Not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

• It is further clarified that where a person is already considered as a resident as per the basic conditions, then the above deeming provision will not apply.

• Pursuant to the above new provisions, NR individuals who were eligible to claim benefits under the Act and under the Double Tax Avoidance Agreement between India and the country the individual is a resident of (subject to conditions being met), would now have to relook at such eligibility as he would qualify as an NOR in India.

Way forward:

• The scope of taxability of an individual taxpayer is determined based on his/her residential status in India during the relevant financial year.

• With the intention of checking misuse of residency provisions, Finance Act 2020 has introduced amendments which are applicable from FY 2020-21 onwards.

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Prelims Questions:

Q.1) With reference to the Rashtriya Raksha University Bill 2020, consider the following statements:

1. The Bill establishes the Raksha Shakti University, Gujarat (established under the Raksha Shakti University Act, 2009) as a University called the Rashtriya Raksha University in Gujarat.

2. The Bill declares the University to be an institution of national importance.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: C

Mains Questions:

Q.1) What is the amendment proposed by the government regarding residential status in 2020? What are the key implications from these changes? What are the key benefits?

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