COVID-19 AND INDIAN TAX REGIME RESIDENTIAL STATUS

COVID-19 and Indian Tax Regime Residential Status

Introduction

According to The Income Tax Act, 1961, a person is liable to pay taxes in India under the Indian Income Tax Regime if he is a resident in India. This means that unless and until you fall within the ambit of the definition of the Income Tax Act, 1961, you are not liable to pay taxes in India. However due to the suspension of International air travel by India for an indefinite period of time, many people are now mandated to prolong their stay in India.

Does this mean that they will also be liable to pay taxes in India to the Indian Income Tax Authority? Prima-facie the answer would have been yes, if the relief had not been granted by The Ministry of Finance (MoF) in this regard.

Definition of Resident

According to Section 6 of The Income Tax Act, 1961, a person is treated as a Resident in India if he has lived in India for –

1.) A period of 182 days or more during the relevant previous year ; or

2.) A period of 60 days or more in the relevant previous year and an aggregate period of 365 days or more during the four years immediately preceding the relevant previous year.

COVID – 19 and Indian Tax Regime Residential Status

However, according to the Notification no. F.No.370142/18/2020-TPL (Circular 11 of 2020) issued by the Central Board of Direct Taxes on 08th May, 2020 under the powers conferred to the department u/s 119 of the Income Tax Act, 1961, for computation of residential status u/s 6 of The Income Tax Act,1961 (refer previous paragraph) , the following period shall be excluded for an Individual who has came to visit India before 22nd Mar, 2020 –

1.) Period upto 31st March ,2020 (if he is unable to leave India)

2.) If a person was quarantined in India, on account of COVID-19, on or after 01st March,2020, then the period from the beginning of his quarantine to the date of his departure (on an evacuation flight) or 31st March,2020

3.) Any other person who departed India on an evacuation flight on or before 31st March,2020, then his period of stay In India from 22nd March,2020 to his date of departure.

Points worth a Consideration

> The above benefits have been awarded only to an Individual. Hence the residential status of body corporate depending upon the POEM still remains unaltered.

> The above relief is granted only in respect of Individuals, who arrived in India before 22nd March, 2020.

> Relief has been granted with regards to the previous year 2019-20. There is no explicit / deemed implication of the same on the previous year 2020-21.

Wrapping Up

The relief granted by The Central Board of Direct Taxes is a very welcome and highly appreciated step, as in absence of the same there was considerable ambiguity. This step acts as a mental relief in a scenario of high trauma for people who are already stuck away from their home in a pandemic and the NRI’s. Further the clarification definitely reduces considerable unwarranted litigation, which the assesses who might otherwise would have resorted to, thereby making the time, efforts and skills of multiple resources available for more productive use.

I hope, your all doubts are now cleared on “COVID-19 and Indian Tax Regime Residential Status”

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AUTHOR : CA HEER GAJJAR (CLICK HERE TO VIEW PROFILE)

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