This has reference to amendments made by Finance Act 2020 to Explanation 1(b) to section 6(1) of Income tax Act 1961 to introduce a graded residency rule for NRIs/PIOs, who being outside India come on a visit to India. Prior to such amendment, they would be treated as resident in India only if their stay in India was more than 182 days in the relevant tax year. Post amendment, they may be non-resident or not ordinarily resident depending on their length of physical stay in India and quantum of India sourced income.
The above change has resulted in adding more complexity to the extended residency rule for visiting NRIs and PIOs. But after introducing such complexity, what the amendment has achieved is for NRIs/OCIs whose stay exceeds 365 days in preceding four financial years and 120 days in current year and India sourced income exceeds Rs. 15 lakhs, India sourced incomes get taxed at higher rates applicable to residents instead of lower rates applicable to non-residents.
It is submitted that the above referred amendment requires reconsideration and roll back for several reasons. The amendment has made the residency rule complex without commensurate positive revenue impact. On the contrary, it discourages NRIs/PIOs from spending more time in India which adversely impacts the tourism and hospitality sectors. The amendment appears to be made on an incorrect premise that individuals are able to carry on substantial economic activities in India without paying taxes by limiting their physical stay to less than 182 days. A roll back of the amendment will encourage NRIs/PIOs to spend more time in India which will have a positive impact on the Indian economy.
We are pleased to furnish our recommendations comprising an Executive Summary followed by detailed representation on the above issue for your kind consideration.
