I have already covered effects of New Direct Tax Code on Individuals in my earlier post. However, I received numerous mails from all over the world seeking clarifications regarding the NRI definition as per New Direct Tax code and its Tax implication on their overseas income.
In the last month I have seen various headlines in Every news website as well as News Channels that new Direct tax Code may hit NRI’s badly as “More NRIs may fall under the tax net if the Direct Taxes Code (DTC) Bill proposal to impose a levy on their global income if they stay in India for more than 60 days in a year is approved by Parliament.” This has been highly misinterpreted as it doesn’t not says exactly what has been mentioned above. You will be surprised to know that even in Income tax act 1961 under Section 6 it said the same thing. Its really surprising that this has been published incorrectly by even most reputed media houses in India, and till date no one has pointed it out.
In the last month I have seen various headlines in Every news website as well as News Channels that new Direct tax Code may hit NRI’s badly as “More NRIs may fall under the tax net if the Direct Taxes Code (DTC) Bill proposal to impose a levy on their global income if they stay in India for more than 60 days in a year is approved by Parliament.” This has been highly misinterpreted as it doesn’t not says exactly what has been mentioned above. You will be surprised to know that even in Income tax act 1961 under Section 6 it said the same thing. Its really surprising that this has been published incorrectly by even most reputed media houses in India, and till date no one has pointed it out.
Please go through the exact wording of NRI definition Under New DTC as well as Income tax act 1961 and you will come to know that whatever is being said currently by media as well as leading websites wherein they Quote that "Experts believe that NRI's will be effected badly with implementation of new DTC" is completely baseless.
Clause 4 of New Direct Tax Code says
4. (1) An individual shall be resident in India in any financial year, if he is in India—
(a) for a period, or periods, amounting in all to one hundred and eighty-two days or more in that year; or
(b) for a period, or periods, amounting in all to
(i) sixty days or more in that year; and
(ii) three hundred and sixty-five days or more within the four years immediately preceding that year.
(2) The provisions of clause (b) of sub-section (1) shall not apply in respect of an individual who is—
(a) a citizen of India and who leaves India in that year as a member of the crew of an Indian ship; or
(b) a citizen of India and who leaves India in that year for the purposes of employment outside India.
Although this might appear tricky but it clearly says the following which is exactly same as mentioned in Income tax act, 1961
- Anyone who has stayed for more than or equal to 183 days outside India will be considered as NRI.
- Anyone who has stayed in India for more than 365 days in 4 financial years and has stayed in India for 60 days or more will not be considered as NRI except in cases where a person leaves India for the purpose of employment outside India or joins as Crew member of an Indian Ship. This means that even if you spend 365 days+ in last 4 years and spend 60 days + in India in that financial year, you can still be considered to be an NRI provided you leave India for the purpose of employment outside India or Join as a Crew member of Indian Ship. If at all you are outside India without any emplyment for other purposes like Higher studies, leisure etc, you will not be considered as an NRI.
Also we will go through Wordings as per Income tax Act 1961 under section 61 (Non Resident Indian Definition)
The residential status for the Income Tax Act is determined in section 6 as under:
1. An individual will be treated as a resident in India in any previous year if he fulfills any of the following two conditions:
(a) he/she is in India in that year for period or periods amounting in all to 182 days or more, or
(b) Having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more, and has been in India for 60 days or more in that year.
2. Under Explanation to section 6 (1) of the Income-tax Act, the residential status of an individual who is rendering service outside India and who visits India during leave or vacations in any previous year or an individual who is outside India and who comes on a visit to India in any previous year will be determined as under :
(a) An Indian citizen who leaves India in any previous year for the purpose of employment outside India or as a crew member of an Indian ship would be treated as a resident in India if he stays in India in that year for 182 days or more [instead of 60 days as stated in 1 (b) above ]. Conversely, if he stays in India for less than 182 days, he will be treated as non-resident for that year and his foreign income would not attract tax liability.
Further, w.e.f. 1st April, 1999, a crew member will be treated as non-resident in India if he is on board such ship outside the territorial water of India for 182 days or more during any year.
(b) An Indian citizen or a person of Indian origin who resides outside India and who comes on a visit to India in any previous year will be treated as resident in India if he stays in India in that year for 182 days or more [instead of 60 days as stated in 1 (b) above.]
Conversely, he will be treated as non-resident if he stays in India in that year for less than 182 days.
Who will be effected: No one, as the definition remains more or less the same as earlier. If at all it has changed it will probably benefit 1 segment i.e. Crew member of Indian Ship. Also “Not ordinarily resident” has been removed and now there can be only 2 types of person, i.e. Resident and Non- Resident.
New clause talks about people leaving India by joining Indian ship as Crew member will be considered as NRI and doesn’t talks about spending 183 days or more outside Territorial water as considered earlier. Earlier there was a differential treatment in the cases of Mariners (Crew member of a Ship) being qualified to become an NRI working on Indian ships and Foreign Ships. Presently, it is disadvantageous for person who are employed by Indian Ships, as person working on Indian ships, spending more than 182 days in Indian territorial water, is not considered as an NRI. However if the person works on a foreign ship, and even if they spend more than 182 days in Indian territorial waters, are considered as an NRI. I am sure all, mariners would be knowing about this and this change will benefit everyone working on Indian Ships.
