The region of coastal Karnataka, beautiful though it is, suffers torrential rains of 3600 mm (state average 1139 mm, country average 1170 mm & global average 814 mm) in just about 4 months every year. The heavy rainfall for which we all keep eagerly waiting every year, nevertheless, washes off the topsoil of an undulating terrain and leaves it desiccated and relatively infertile. Our ancestors, therefore, much before the economists expounded the significance of “services” sector, realised that they could not solely depend on agriculture and sought to supplement their incomes by venturing into services that over time emerged as a model of development for many a resource poor region. Thus this region, with no industries or wealthy royal families, gave birth to some of the best known banks in the country, built a network of excellent educational facilities and commercially exploited them and gave the world, the much sought after Udupi cuisine, which swept the metros, particularly Mumbai wiping out the once ubiquitous “Irani” restaurants. But somewhere along the way, we seem to have lost the entrepreneurial streak. For instance, we have completely missed the “software” bus, in spite of boasting of a young, well educated and skilled workforce. But thereby hangs another tale.
Education and consequent honing of analytical skills has probably reduced the appetite for risk as more and more were held back from taking risk by what is referred to as “analysis paralysis”. Or, quite possibly education helped the young to look beyond their region and see how the world was opening up and how technology was shrinking it, eventually facilitating the spirit of enterprise morph into a spirit of adventure, prompting the youth to seek greener pastures in places distant from their homeland. So now this region has come to be blessed by a thriving, venturesome NRI diaspora.
Budget 2020 had caused some anxiety among NRIs as to taxability of their incomes. But now that the Finance Act 2020 is passed, clarity has emerged and it is important to understand the changes in the criteria to determine one’s residential status and consequent taxability of one’s income.
While Foreign Exchange Management Act 1999 defines a Non-Resident Indian (NRI) and Person of Indian Origin (PIO), Income Tax Act 1961 does not define an NRI. But the IT Act does lay down the criteria for determining the residential status. A person is a resident if she/he is in India for at least 182 days or more in a Financial Year(FY) or, has been in India for 365 days during four years preceding that year and at least 60 days in that year. A resident can either be a Resident and Ordinarily Resident (ROR) or, Resident but Not Ordinarily Resident (RNOR). A Non-Resident (NR) is one who does not fall in either of the above two categories. It should be noted that effective January 2015, the concept of PIO has been subsumed within the term Overseas Citizen of India (OCI) as per Section 7A of the Citizenship Act 1955.
Finance Act 2020 has categorised some individuals who were earlier NRs as RNORs. It has changed the conditions for residential status for two categories: one, an Indian citizen or a PIO visiting India and two “stateless persons”.
Earlier, an Indian citizen or a PIO coming to visit India was considered a resident if she/he stayed India for at least 182 days in an FY. Else she/he was an NR. From FY21 such an individual will be considered a resident if she/he meets either of the following two conditions.
(i). She/he stays in India for at least 182 days in an FY or,
(ii). Stays in India for at least 120 days in an FY and her/his stay in India in the preceding four FYs is at least 365 days.
But the change brought about through Finance Act 2020 in terms of item (ii) above will apply only to individuals whose income from Indian sources in the FY is over 15 lacs. But given that the lockdown has imposed unintended immobility on many an NRI, CBDT has issued a circular dated May 8, 2020, to spare NRIs of the tax liability on their foreign income by providing for waiver of such unintended overstay for FY 2020. However, since lockdown has been extended beyond 31.03.2020, such a circular covering unintended overstay in FY 2021 is also warranted.
The Finance Act 2020 has made some stateless persons, that is, those who do not qualify as residents or domiciled in any country/tax jurisdiction, deemed residents of India. As per the new provision, a citizen of India who is a stateless and with total income in India in excess of Rs 15 lacs in an FY will be deemed to be a resident in India in that year even if she/he does not visit India that year.
All income (Indian & foreign) is taxed in the hands of the individual if she/he is an ROR. Individuals for whom more stringent criteria to determine the residential status are specified as above, are however, not included under the category ROR. Such persons qualify as RNOR. The following table specifies the taxability of income depending on residential status.
