Budget 2020: Resident definition changed – NRI can be taxed as a Resident

The Finance Budget 2020-2021 came as a big surprise for NRIs as it changed the definition of a “Resident” in India.

The Government noticed an individual managing his/her period of stay in India, so as to remain a non-resident in perpetuity and not be required to declare the global income in India and also an HNI arranging his/her affairs in such a way that he/she is not liable to tax in any country or jurisdiction during a year. To restrict such persons from evading the tax net, the government introduced changed the definition of a “Resident”. While, genuine NRIs need not worry, I think, it has far reaching impact on how NRIs are taxed in India.

The definition of a “Resident” is changed as follows:

  1. A foreign citizen (PIO) or an Indian citizen from outside India (NRI) on a visit to India would be considered as Indian resident for income tax purpose if he stays in India for 120 days (from 182 days) or more in a year.
  2. An Indian citizen who is not liable to income tax in any other country is deemed to be a resident of India. (new)

For easy understanding and for an NRI to relate its applicability to his/her own situation, the change is now summarized in the following table:

Citizenship

Permanent Resident of

Days Present in India

Residential Status (current)

Residential Status (Proposed)

India

Country with Income Tax (e.g. USA)

182 days or more

Resident

Resident

India

Country with Income Tax (e.g. USA)

120-181 days

Non Resident

Resident

India

Country with Income Tax (e.g. USA)

Less than 120 days

Non Resident

Non Resident

Country with Income Tax (other than India)

Country with Income tax (e.g. USA)

182 days or more

Resident

Resident

Country with Income Tax (other than India)

Country with Income tax (e.g. USA)

120-181 days

Non Resident

Resident

Country with Income Tax (other than India)

Country with Income tax (e.g. USA)

Less than 120 days

Non Resident

Non Resident

India

Country without Income Tax (e.g. UAE)

182 days or more

Resident

Resident

India

Country without Income Tax (e.g. UAE)

120-181 days

Non Resident

Resident

India

Country without Income Tax (e.g. UAE)

Less than 120 days

Non Resident

Resident

India

Non Resident of any other country (not paying tax)

0 – any days

Non Resident

Resident

Additionally, the conditions for “Not Ordinary Resident” is also changed for an Individual and HUF to

  • a person who has been a non-resident for 7 out of 10 preceding years.

The change is also explained in following table for easy understanding:

Left India

Returned to India

Residential Status (current)

Residential Status (Proposed)

1/4/2015 or later

2020-21

Ordinary Resident (730 days or more in last 7 years)

Ordinary Resident (Non-Resident for Less than 7 years)

1/4/2014 – 31/3/2015

2020-21

Not Ordinary Resident (< 730 days in last 7 years)

Ordinary Resident (Non-Resident for Less than 7 years)

1/4/2012 – 31/3/2013

on 2/4/2018 or later

Not Ordinary Resident (<730 days in last 7 years)

Ordinary Resident (Non Resident for 6 out of 10 years)

1/4/2010 or earlier

anytime between 1/4/17 – 31/3/18

Ordinary Resident (730 days or more in last 7 years)

Not Ordinary Resident (Non Resident for 7 or more years)

To understand the definition, following questions need to be asked:

  1. Are you an Indian citizen?
  2. Do you pay income tax in your resident / home / any country?
  3. How many days have you stayed in India?
  4. How many years you have been a resident of India?

Why “Resident” definition is important?

An NRI is required to pay tax only on income earned or received in India. However, once the status changes to “Ordinary Resident”, Global income is taxed in India. Also, s/he is required to report all the foreign accounts and foreign assets while filing income tax return. Many NRIs would come under the tax net because of this change.

The Government issued a press release clarifying that the new provision is not intended to include Indian citizens that are bonafide workers in other countries, including Middle East.

So, while it was important to plan for investments and taxation for NRIs, migrants or returnees, Budget 2020 makes is critically important.

I hope this blog helps to understand the requirement. Please post your comments. For understanding other provisions of Budget 2020, please visit blog Budget 2020: Important Changes that Affect Investments and Taxation in India. Thanks!

About Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)

Mr. Jigar specializes on NRI Investments and Taxation. He is proud to be one of only 21 CFA Charterholders in India working as consultants. (In 2011, when he became CFA Charterholder, out of 97,173 CFA Charterholders in the World, only 697 Charterholders were in India and only 3% work as consultant; Source: www.newcfa.org). He received his MBA (Finance) from University of Illinois, Chicago, USA, CPA from USA and a Chartered Accountant from India. Jigar has over 15 years of professional experience including more than 4 years with KPMG USA’s Risk Advisory Services. Currently, he provides Wealth Management and taxation consulting serving clients from USA, UK, Americas, Europe, Middle East, Asia, Africa, Australia and India.
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20 Responses to Budget 2020: Resident definition changed – NRI can be taxed as a Resident

  1. vyomesh shsh says:

    Dear Jigarji,

    Thanks for answering my question, in continuation of my question please let me know
    1 is there any tax implication on either of us
    2 can I deposit the amount which is obtained by way of LRS in my nre/fcnr account.

    Thanks

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. There is no tax in India. You need to check the gift tax rules of your resident country. However, generally, it would not be taxable. but, better to confirm with your accountant.
      2. Once money is in your foreign bank account, you can do whatever you want including remitting again to NRE/FCNR account. However, you may have to incur expenses related to conversion and wire transfer. And, if your ultimate objective is to keep money in NRE account, sometimes, it is better to receive in NRO and then transfer to NRE account. Thanks.

  2. vyomesh shah says:

    Dear Jigarji,

    I would appreciate if you kindly let me know the following,

    1 I am non resident and my father is resident in India, if my father loan/gift me 50L and I deposit that amount in my nro account latter with due procedure if I convert it in my nre account, in this case what shall be the tax liability on me as well as on my father.

    Thanks

    vyomesh shah

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      You may not remit loan funds out of India. The gift can be remitted. If your father is giving gift to you, I would recommend your resident father to directly gift to your foreign account under LRS. It would be easier, faster, cheaper and more convenient. Thanks.

  3. chandra says:

    Dear Mr. Jigar,
    As always your articles are very informative, educative. I appreciate your blog.
    1.I stayed in India for FY 2019-20 for 69 days as greencard holder, like to extend stay into subsequent financial year for another 45 days, will I be treated as resident or non resident ?
    2. My indian income is approx 15 lakhs rupees per annum, no US income. Can I benefit by new regime of IT return ? and Can I get tax credit for taxes paid in india in US taxes ?
    thanks you for your answers,
    chandra

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. For 2019-20, the limit is 182 days for NRIs so your status would be non-resident if you stay until March 31, 2020.
      2. Only if you are claiming deductions or exemptions of Rs. 250,000 or more, you would be better off in the old regime. Else, new tax slabs and rates would be beneficial for you. Also, any tax you pay in India, you will be able to claim foreign tax credit in your US tax return. Also, as an NRI, you can invest in NRE bank FD and not pay tax in India as interest on NRE bank deposits is exempt from income tax in India. thanks.

  4. vijay says:

    Hi jigar
    Thanks for good article
    I am seamen and my contact is maximum 6 to 7 month in year with one of UAE base company. Every year 183 days just manage to complete but with 240 day in new budget outside of India is difficult , is any exemption for seamen in budget ?

  5. Peeyush says:

    Hi Jigar,

    As always its good to see the new budget pointers on your blog.

    I have been working in UAE and my stay in India is never more than 30-40 days in a year which is for vacation purpose. I am looking at clarification on NRI status.

    I saw many articles and press release where government clarified that bonafide workers who are residing in UAE for a job or a business in UAE will not be affected with this new rule and the new rule applys only for people who are abusing tax loopholes and moving around outside india without being resident in any single country.

    Whats your take on this? What does the fineprint reflect? Is this government clarification ammended in the new rule? Please advice.

    Thanks

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      Thanks for your nice words.
      I think it would be introduced as amendment in the finance bill before it is approved in lok sabha and sent to rajya sabha for debate and discussion. So, don’t worry and have patience. It is just a proposal and not an act yet. You have more 53 days to go for any changes before it becomes a law. Thanks.

  6. Kaustubh Kirpekar says:

    I read that a person will be considered a Resident of India if his stay in Indian is:
    1) 120 days or more in the relevant year; and
    2) 365 days or more in the four years preceding the relevant year

    I am a US citizen, near retiring, and was hoping to spend at least 4 months a year in India. But according to item (2) above, it means I can spend only 91 days a year in India or will have to pay tax on my US income in India (unless I spend 4 months one year but only 2 months the next year etc.).

    Please clarify.

    Regards

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      The original provision was
      (1) 182 days or more in a year OR
      (2) 60 days of more in a year AND 365 days or more in last 4 years.
      There was a relaxation for (2) for NRIs and PIOs on a visit to India wherein the 182 days was required instead of 60 days.

      So for NRIs and PIOs the requirement was:
      (1) 182 days or more in a year OR
      (2) 182 days of more in a year AND 365 days or more in last 4 years.

      The budget reduced the condition from 182 days to 120 days. So the revised requirement for NRIs and PIOs would be:
      (1) 182 days or more in a year OR
      (2) 120 days or more in a year AND 365 days or more in 4 years

      In your case, you can stay in India for less than 4 months (upto 119 days) and continue with your NRI status. Thanks.

  7. VENU GANJI says:

    An OCI filing income tax returns in India/paying taxes in Canada, visiting India for 6 months in one year (calendar?) is deemed resident/nonresident?

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      From FY 2020-21, you would be considered as a Resident of India if you stay in India for 120 days or more. Again, you may not be considered as Ordinary Resident if your status was NRI in last 7 of 10 years. Please note that global income is taxed in India of only Ordinary Residents. Thanks.

  8. Gautam says:

    Thanks for the article. What about interest on NRE FD for a non resident who lives in Malaysia, if there is no source of income from India or Malaysia other than the interest from NRE FD. Is it taxable?

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      If you live in India for less than 120 days, you would be a non-resident as Malaysia has an income tax and you would be considered as a tax resident of Malaysia. Whether your income is taxable or not or whether you file your income tax return or not does not matter. As a result, your NRE bank FD would continue to be taxfree in India. Thanks.

  9. M Subramanian says:

    Well presented but there is one basic issue which needs to be cleared in your matrix. The bill clearly defines that person who is not liable to pay because of domicile or residency etc which means if a person does not fulfill that country’s requirement to be treated as residence then only the treatment in India as resident arises. Most of the middle East countries where is no personal tax decides your status based on your type of Visa and not based on your days. Similarly take the case of Singapore where a person holding long term visit pass but has business income will be treated as resident even if he stays less than 180 days if the trip is connected to his business. Further the second, third and subsequent years even if he stays for lesser number of days but will still be considered as resident considering cumulative stay. In those cases in India they would not be considered as resident.

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. If you are a tax resident of ANY country and you live less than 120 days in India, your status would be NRI.
      2. The government has already clarified that legitimate NRIs who are working in middle east would not be covered. I would expect an amendment in finance bill specifying nature of income and tax residency when it is being discussed and passed in the parliament.
      3. Also, the NRIs who have been out of India for 7 years or more need not worry as global income is taxed only for Ordinary resident. The definition of Ordinary resident is revised to anyone who has been a tax resident of India for atleast 7 out of 10 years. Thanks.

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