NRI's to be taxed on their earnings from India: FM Nirmala Sitharaman

Giving an end to confusion on taxing NRIs, the finance ministry through a press release today clarified that there is no intention to tax global income of Non-Resident Indians (NRIs) and the income generated only in India will be taxed. The clause will be implemented on an Indian citizen who becomes deemed resident of India under the changes proposed by the Union Budget 2020.

It said the income earned by the person outside India will not be taxed in India unless it is derived from an India business or profession. Necessary clarification, if required, shall be incorporated in the relevant provision of the law.

Confusion

The clarification has come in light of misinterpretation of the Finance Bill, 2020 that proposed that an Indian citizen shall be deemed to be resident in India if he is not liable to be taxed in any country or jurisdiction. This is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdiction to avoid payment of tax in India, said the release.

Sitharaman's Statement

Giving an end to the confusion, the finance minister has said that we are going to tax income of an NRI that is generated in India. If he/she is earning something in a jurisdiction where there is no tax, why will I include that into mine that has been generated there?

During a post-budget interaction she said, "If you have a property here and you have rent out of it, but because you are living there, you carry this rent into your income there and pay no tax there, pay no tax here ... since the property is in India, I have got a sovereign right to tax." She added, "I am not taxing what you're earning in Dubai but that property which is giving you rent here, you may be an NRI, you may be living there but that is revenue being generated here for you. So that's the issue."

Finance Bill 2020

The Finance Bill, 2020 proposed that an Indian citizen shall be deemed to be resident in India; if he is not liable to be taxed in any country or jurisdiction.

It said, "The new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries. In some section of the Indian media, the new provision is being interpreted to create an impression that those Indians who are bonafide workers in other countries, including in the Middle East, and who are not liable to tax in these countries will be taxed in India on the income that they have earned there. This interpretation is not correct."

It added that to avoid any misinterpretation, it is clarified that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession.