CBDT to decide relaxation in ‘residency rule’ if forced stay in India due to COVID-19 resulted in double taxation

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Taxclue is an online news portal for reporting all news, articles, judgments, Circulars, orders, and notifications relating to various corporate and tax laws in India. We use the tagline ‘Simplifying Laws’. Our mission is to Simplify the Laws and make people aware of their rights and duties in relation to tax matters in order to equip them to participate in nation-building.

Section 6 of the Income-tax Act, 1961 deals with provisions relating to the determination of residency of a person. The status of an individual, as to whether he is resident in India or not is dependent, inter-alia, on the period for which the person is in India during a previous year or years preceding the previous year.

The Central Board of Direct Taxes (CBDT) has relaxed the conditions for individuals who overstayed in India due to the COVID-19 pandemic during the Previous Year (PY) 2019-20.

The board has received various representations requesting for relaxation in the determination of residential status for PY 2020-21 from individuals who had come on a visit to India during the PY 2019-20 and intended to leave India but could not do so due to the suspension of international flights.

The Board has clarified that most of the countries have the condition of stay for 182 days or more for determining residency. Thus, if general relaxation for the stay period of 182 days is provided, there may be cases of double non-residency. In such a situation, a person may not become a tax resident in any country in PY 2020-21 even after staying for more than 182 days or more in India resulting in double non-taxation and end up not paying tax in any country.

Even in cases where an individual became a resident in India due to exceptional circumstances, he would most likely become not ordinarily resident in India and hence his foreign-sourced income shall not be taxable in India unless it is derived from a business controlled in or a profession set up in India.

Further, in view of the provisions of the domestic income tax law read with the DTAAs, there does not appear a possibility of the double taxation of the income for PY 2020-21. However, if any individual is facing double taxation even after taking into consideration the relief provided by the respective DTAAs, he may furnish the information in Form -NR by 31-03-2021. The Form shall be submitted electronically to Pr. Chief CIT.

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