Union Budget 2020: Government proposes tax on all non-tax paying NRIs

The move is likely to generate widespread opposition from the diaspora, which the government has so far aggressively wooed.

Finance Minister Nirmala Sitharaman has moved a proposal in the Union Budget aimed at taxing non-resident Indians (NRIs) who do not pay income tax in other countries, a move that will potentially affect those Indians residing in countries such as United Arab Emirates and Bahrain where no income tax is payable.

The Modi government has also sought to tighten the definition of who will be considered an NRI to bring more such individuals under the tax net.

The move is likely to generate widespread opposition from the diaspora, which the government has so far aggressively wooed.

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“An Indian citizen who is not liable to tax in any other country or territory shall be deemed to be resident of India,” read the budget documents, effectively making these citizens liable to be taxed in India while reducing the number of days a person can stay in India in a year and still be considered an NRI.

“It is entirely possible for an individual to arrange his affairs in such a fashion that he is not liable to tax in any country or jurisdiction during a year. This arrangement is typically employed by high net worth individuals (HNWI) to avoid paying taxes to any country/ jurisdiction on income they earn,” the memorandum that is part of the budget documents said defending the move.

“Tax laws should not encourage a situation where a person is not liable to tax in any country. The current rules governing tax residence make it possible for HNWIs and other individuals, who may be Indian citizen to not to be liable for tax anywhere in the world,” it added.

Global income liable to be taxed

The new proposal means that citizens who are not residents in India would be liable to tax in India on their global income, said Amit Maheshwari, managing partner at Ashok Maheshwary and Associates LLP.

He added that individuals who leave the country for employment are considered non-resident if their stay in India is less than 183 days.

The time limit of 183 is now proposed to be reduced to 120 days.

“Hence, the non-residents are being cornered from two different sides wherein being stateless would lead to them becoming resident in India. Hence, to qualify as non-resident, they would have to ensure that they remain tax resident of any other country and they should be out of India for at least 246 days,” he pointed out, adding that residents who don’t pay taxes in other countries will be taxed in India.

Defending the government’s move, in a post-budget press conference, Revenue Secretary AB Pandey said the government has found instances in which some people are residents of no country in the world and hence escape paying taxes anywhere.

“So, in case of these Indian citizens, their worldwide income will be taxed in India,” he said.

This tax proposal has predictably generated opposition from residents in the middle-eastern countries.

“Soon after the news flashed, there was ambiguity as to what it meant and what the outcome will be. How can the government tax us when we are working in Dubai? This is a very bad move,” said Atul Pandey, a resident of Dubai.

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