India: ‘Non-resident Indian’ term to be redefined, what happens next

Dubai: A circular issued by the Indian Finance Ministry has raised concerns about the NRI (non-resident Indian) status.

The proposed circular simply means that NRIs outside India could lose his status if he or she resides in India for 120 days at a stretch, instead of the current 180-day stipulation.

What does the circular mean?

The circular states that any Indian expat — say someone between jobs and who ends up staying in India for 120 days or more at a stretch — is liable to pay taxes in India.

The number of days was reduced from the earlier stipulation of 180 days of stay in India.

What are NRIs saying?

There is also mounting concern in NRI circles about whether India is trying to widen its tax net to include them as well.

Because a new clause says that if a non-resident is not paying taxes in the country of his residence, then his global income will be taxed in India.

Many NRIs say they will need immediate clarity from India’s Finance Ministry about this change.

What are the consequences for NRIs?

This will have grave consequences for any NRI.

“There’s also a mention that if this is the case, any non-resident Indian earning outside (the country) will be required to pay taxes in India,” said Antony Jos, Executive Director of Joyalukkas Exchange.

New clause is a ‘googly’: What does it mean?

Banking and exchange houses, which received the circular, are in the dark about what any of this would mean for NRIs, irrespective of their income status.

What has changed? What is the new clause?

This is the new clause inserted to Section 6: “An individual being a citizen of India shall be deemed to be resident in India in any previous year if he is not liable to tax in any other country by reason of his domicile or residence.”

Now, what this means in plain English is that “NRIs who are citizens of India and not paying taxes in any other jurisdiction, their total global income may be taxed in India,” according to one banker.

How much is the tax that will be levied on NRIs?

By definition, the tax rate depends on the annual income an NRI has generated inside and outside the country.

What if I’m an NRI and my spouse resides in India for more than 120 days at a stretch and we have a joint bank account?

If the spouse of an NRI remains in India for 120 days or more, and they have a joint account in India, under the proposed circular, it’s not clear at this point whether or not they will come under the new tax definition.

When will the circular be implemented?

At this point, the re-definition of what constitutes an NRI is still a proposal being pushed by the Ministry of Finance. It remains to be seen when, if at all, it would be implemented.

Will NRIs in UAE have to pay tax in India?

No one knows for sure. Based on the interpretations of the new circular, it suggests that NRIs in the UAE should be paying taxes, if they stay 120 days or more.