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Clarification in respect of residency under section 6 of the Income-tax Act, 1961 |
Finance Minister Nirmala Sitharaman on Friday (8th
May, 2020) allowed discounting of prolonged stay period in the country for
determining the residency status, to provide relief to people who may have
technically become residents as per income tax rules due to travel restrictions
and are forced to offer their global income to tax here.
Henceforth Ministry of Finance, Central Board of
Direct Taxes (CBDT) vide their Circular No. 11 of 2020, Friday, May 08, 2020
issued a circular wherein it was clarified in respect of residency under Section
6 of the Income Tax Act, 1961 that the lockdown period
will not be counted to determine NRIs residency status for the purpose of
computation of tax liability.
This is a much welcome and awaited circular,
which takes cognisance of concerns of NRIs and other foreigners who arrived in
India but could not return. The nationwide lockdown since March 25 and
cancellation of international flights to contain the spread of COVID-19 has
forced non-resident Indians (NRI) and foreign nationals to prolong their stay
in India.
Section 6 of the
Income-tax Act, 1961 (the Act) contains provisions relating to residency of a
person. The status of an individual as to whether he is resident in India or a
non-resident or not ordinarily resident, is dependent, inter-alia, on
the period for which the person is in India during a year.
Bare language
from the circular:
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Various representations have been
received stating that there are number of individuals who had come on a visit
to India during the previous year 2019-20 for a particular durationand intended
to leave India before the end of the previous year for maintaining their status
as non-resident or not ordinary resident in India. However due to declaration
of the lockdown and suspension of international flights owing to outbreak of
Novel Corona Virus (COVID-19), they are required to prolong their stay in
India. Concerns have been expressed that they may involuntarily end up becoming
Indian residents without any intention to do so.
In order to avoid genuine hardship in
such cases, the CBDT has decided vide circular no 11 dated May
8, 2020, that for the purposes of determining the residential status under
section 6 of the Act during the previous year 2019-20 in respect of an
individual who has come to India on a visit before 22nd March,
2020 and:
- has been unable to leave India on or before 31st March 2020, his
period of stay in India from 22nd March, 2020 to 31st March,
2020 shall not be taken into account; or
- has been quarantined in India on account of Novel Corona Virus
(Covid-19) on or after 1st March, 2020 and has departed on
an evacuation flight on or before 31st March, 2020 or has been unable to
leave India on or before 31st March, 2020, his period of stay
from the beginning of his quarantine to his date of departure or 31st March,
2020, as the case may be, shall not be taken into account; or
- has departed on an evacuation flight on or before 31st March,
2020, his period of stay in India from 22nd March, 2020 to
his date of departure shall not be taken into account.
Further, as the lockdown continues
during the Financial Year 2020-21 and it is not yet clear as to when
international flight operations would resume, a circular excluding the period
of stay of these individuals up to the date of normalization of international
flight operations, for determination of the residential status for the previous
year 2020-21 shall be issued after the said normalization.
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Section - 6,
Income-tax Act, 1961
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Residence in India.
6. For the purposes
of this Act,—
(1) An individual is said to be resident in India in
any previous year, if he—
(a) is in India in that year for a period or periods
amounting in all to one hundred and
eighty-two days or more ; or
(b) [***]
(c) having within the four years preceding that
year been in India for a period or periods amounting in all to three hundred and sixty-five days or
more, is in India for a period or
periods amounting in all to sixty days
or more in that year.
Explanation. 1—In
the case of an individual,—
(a) being a citizen of India, who leaves India in any
previous year as a member of the crew of an Indian ship as defined in clause
(18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or
for the purposes of employment outside India, the provisions of sub-clause (c)
shall apply in relation to that year as if for the words "sixty
days", occurring therein, the words "one hundred and eighty-two
days" had been substituted ;
(b) being a citizen of India, or a person of Indian
origin within the meaning of Explanation to clause (e)
of section 115C, who, being outside India,
comes on a visit to India in any previous year, the provisions of sub-clause
(c) shall apply in relation to that year as if for the words
"sixty days", occurring therein, the words "one hundred and
eighty-two days" had been substituted.
Explanation 2.—For
the purposes of this clause, in the case of an individual, being a citizen of
India and a member of the crew of a foreign bound ship leaving India, the
period or periods of stay in India shall, in respect of such voyage, be
determined in the manner and subject to such conditions as may be prescribed.
(2) A Hindu undivided family, firm or other association
of persons is said to be resident in India in any previous year in every case
except where during that year the control and management of its affairs is
situated wholly outside India.
(3) A company is said to be a resident in India in any previous year, if—
(i) it is an Indian
company; or
(ii) its place of effective management, in
that year, is in India.
Explanation.—For the
purposes of this clause "place of effective management" means a
place where key management and commercial decisions that are necessary for
the conduct of business of an entity as a whole are, in substance made.
(4) Every other person is said to be resident in India
in any previous year in every case, except where during that year the control
and management of his affairs is situated wholly outside India.
(5) If a person is resident in India in a previous year
relevant to an assessment year in respect of any source of income, he shall
be deemed to be resident in India in the previous year relevant to the
assessment year in respect of each of his other sources of income.
(6) A person is said to be "not
ordinarily resident" in India in any previous year if such person is—
(a) an individual who has been a
non-resident in India in nine out of the ten previous years preceding that
year, or has during the seven previous years preceding that year been in
India for a period of, or periods amounting in all to, seven hundred and
twenty-nine days or less; or
(b) a Hindu undivided family whose manager
has been a non-resident in India in nine out of the ten previous years
preceding that year, or has during the seven previous years preceding that
year been in India for a period of, or periods amounting in all to, seven
hundred and twenty-nine days or less.
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Mr Sanjay Sanghvi, a partner at Khaitan & Co, said that given that
there is lot of uncertainty still persisting around Covid-19 lockdown/travel
restriction, it will be in the fitness of the things if the government can
defer the amended law concerning the number of days’ presence in India for FY
20-21 by at least a year.
Thanks.
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Ravi Garg, ACS
Company Secretary & Compliance Officer
csravi2014@gmail.com
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