COVID19: Residency Status Relief Allays Tax Worries for Visiting NRIs Stuck amid Lockdown in India

Before three days of announcing a COVID19 relief package worth a whopping Rs 20 lakh crore for boosting economy, India issued a relaxation in the tax residency status of NRIs stuck or stranded in India because of the continued lockdown and international travel restrictions. In a press release dated May 9, 2020, on the tax residency status of NRIs, Indian government relieved them of the worries of having to pay taxes in the home country due to the extension of their stay amid the lockdown.

NRI tax residency status COVID19

The tax status of NRIs is determined by the duration of their stay in India in the last fiscal or the past few financial years. A sizable number of visiting NRIs, including those on H1B, H4, H2 and EB5 visas, got stuck in India due to the COVID19-induced suspension of international flights. The unplanned extension of their stay could trigger a change in their status from ‘non-resident’ to ‘resident’ from the taxation perspective.

In view of travel disruptions amid the pandemic, however, the finance ministry of India has announced to exclude the extended stay of NRIs from the tax residency criteria under the Indian Income Tax Act. The duration of their stay stretched until resumption of international flight operations will be excluded in a circular on their residential status for the 2020-21 fiscal. The Central Board of Direct Taxes will issue the circular once India lifts travel restrictions to allow international arrivals and departures.

The tax residency status of NRIs will also be revised for the fiscal 2019-20 that ended on March 31. The additional days of their stay due to the lockdown across India from March 22 till March 31 will not be counted towards determining their residency status for tax liabilities.

The government of India announced relaxation even for those visiting NRIs who were quarantined upon arrival in India in March 2020. The number of days from the beginning of quarantine till March 31 will not be added to the period of their stay in India for the financial year 2019-2020.

The same relaxation in calculating the days of stay for tax residency status will apply to those who exited India on an evacuation flight on or before March 31, 2020. The days from March 22 till departure on or before March 31 will be excluded from the period of their stay in India for the fiscal 2019-20.

The exclusion of their extended stay from the period NRIs spent in India during the fiscal 2019-20 has been decided to mitigate their concerns about maintaining their non-resident status. A tax-paying individual is considered a resident of India if he or she stays minimum 182 days in India for a year or their stay in India accumulates to 365 days or more in the four preceding years.

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