Is there any tax relief available for stranded NRIs?

-Ayazur Rahman

Under the Income Tax Law, there are three types of residential status in India: non-resident (NR), resident but not ordinarily resident (NOR), resident and ordinarily resident (ROR). The rules for determination of residential status for an Indian citizen or a person of Indian origin have been amended with effect from FY21. For such a person, residential status is determined on the basis of:

• Physical presence of a person in India during a financial year (financial year), including working days and non-working days, and the last 10 financial years and

• Income earned in India

The housing situation is dynamic and requires new assessments each year.

A person who qualifies as ROR is taxable in India on his worldwide income and is required to report all foreign assets in India’s Income Tax Return (ITR).

A person who qualifies as NR or NOR is taxable on the following income (income derived from India): income earned or arising in India; income deemed to accrue or arise in India; and income received or deemed to be received in India. Additionally, in the case of NOR, income derived from or arising out of India from a business controlled in India or a profession established in India is taxable.

Due to COVID, the Income Tax Department had issued a circular stating that physical presence in India during the stipulated period will be disregarded for assessing tax residential status for FY20.

• Unable to leave India on or before 31 March 2020

• 22 March 2020 to 31 March 2020

• Quarantined in India on or after 1 March 2020 and left India in an evacuation flight on or before 31 March 2020

• From the beginning of the quarantine period to the date of departure

• Has been quarantined in India on or after 1st March 2020 and is unable to leave India on or before 31st March 2020

• Commencement of Quarantine Period till 31st March 2020

• Left India in an evacuation flight on or before 31 March 2020

• From 22 March 2020 to the date of departure

Therefore, a person who is stuck in India due to flight ban can first determine his residential status in India, residential status under the applicable double taxation deal and then find out benefits for double taxation avoidance .

Sonu Iyer is EY India’s Tax Partner and People Advisory Services Leader.