Abstract
In India, an individual's residency status has a significant impact on how his or her income is taxed throughout the year. Non-resident Indians (NRIs) and people of Indian origin (PIOs) are generally cautious in planning their stay in India within a particular year so that their foreign earnings are not taxed in India. However, beginning March 2020, many NRIs and PIOs have already been forced to stay in India longer owing to circumstances without their control, including travel restrictions imposed by the global pandemic. This may result in a change in their Indian residency status for taxation purposes.
Introduction
A person's tax liability per Indian Income Tax legislation is determined by his residence status during the relevant financial year. The number of days spent in India during the applicable year as well as the previous ten years determines a person's residency status. The amount of income that is taxable in India varies depending on where you live. It is broadest in the case of a resident whose entire income is taxed in India, and it is narrowest in the case of a non-resident whose sole income received, accrued, or generated in India is taxed in India. As a result, a non-resident is usually exempt from paying taxes in India on his foreign earnings.[1]
Who is an Assessee?
Anyone who has been appraised for his income, the income of another person for which he is ascertainable, or the profit and loss he has incurred is referred to as an 'assessee.' A person who pays tax or any sum of money under the provisions of the Income Tax Act of 1961 is known as an income tax assessee.
Types of Assessee[2]
Normal Assessee
A typical assessee is a person who is responsible for paying taxes on income earned throughout a fiscal year. Every individual who generated any money or suffered and losses in the prior fiscal year are required to pay taxes to the government in the current fiscal year.
Representative Assessee
A situation may arise where an individual is responsible to pay taxes on the income or losses of a third party. A representative assessee is someone who fulfils this role.
When a non-resident, a minor, or a lunatic is liable for taxes, representatives are called in. Such persons will be unable to file their taxes on their own. An agent or a guardian can act as their representative.
Assessee-in-default
Assessee-in-default is a person who has failed to meet his statutory responsibilities under the Income Tax Act, such as not paying taxes to the government or failing to file his income tax return, is known as an assessee-in-default.
Deemed Assessee
The legal authorities may allocate an individual the responsibility of paying taxes, and such people are known as deemed assessees. The following are examples of deemed or presumed assessees:
The legitimate heir or oldest child of a deceased individual who died without leaving a will.
The executor or legal heir of a deceased person's property who has left his property to the executor in writing.
A lunatic's, an idiot's, or a minor's guardian.
A non-resident Indian's agent who receives money from India.
Residential status[3]
An individual's taxability in India is determined by his residency status in India for any given fiscal year. The phrase "residential status" was created by India's income tax regulations and should not be mistaken with an individual's Indian citizenship. Even though a person is an Indian citizen, he or she may become a non-resident for a year. Similarly, for tax reasons, a foreign person may become a resident of India for a given year. It's also worth noting that the residence status of different categories of people, such as individuals, businesses, and corporations, is decided in different ways.
Determining residential status: For the purposes of income taxation in India, taxable persons are classified as follows:
· a local resident
· a resident who is not normally a resident (RNOR)
· a non-citizen (NR)
Conditions to be a resident
If a taxpayer meets one of the following two criteria, he is considered an Indian resident:
A) Remained in India for 182 days or more in a year; or
B) Stay in India for 365 days or more in the preceding four years and 60 days or more in the relevant financial year.
If a citizen or person of Indian descent leaves India for employment within a fiscal year, he will only be considered a resident of India if he stays in India for 182 days or more. These individuals are permitted to stay in India for a period of time that is greater than 60 days but less than 182 days.
For those whose total income (other than foreign sources) exceeds Rs 15 lakh, the period is decreased to 120 days or more beginning in the financial year 2020-21.
An individual who is an Indian citizen and is not subject to taxation in any other nation shall be assumed to be a resident of India beginning in FY 2020-21. Only if his total income (other than from foreign sources) surpasses Rs 15 lakh and he has no tax duty in other nations or territories due to his domicile or residency, or any other similar conditions, is he considered to be a resident.
If a person meets the residency requirements, the next stage is to decide whether he or she is a Resident Ordinarily Resident (ROR) or a Resident Not Ordinarily Resident (RNOR). If he meets both of the following criteria, he will be a ROR:
a. Has lived in India for at least two of the past ten years, and
b. Has spent at least 730 days in India in the last seven years.
As a result, if an individual fails to meet even one of the aforementioned criteria, he will be classified as an RNOR.
An NR for the year is someone who meets neither of the conditions specified in (a) or (b) above.
Taxability
A resident will be taxed in India on his global income, which includes both incomes earned in India and income earned outside India.
NR and RNOR: In India, their tax responsibility is limited to the income they generate there. They do not have to pay any taxes in India on their foreign earnings. Also keep in mind that in the event of double taxation of income, when the same income is taxed both in India and abroad, one can use the Double Taxation Avoidance Agreement (DTAA) that India would have agreed to with the other country to avoid paying taxes twice.
Conclusion
People have suffered numerous difficulties as a result of the unexpected epidemic, including increased financial and compliance burdens due to unanticipated tax effects. Several of the NRIs '/PIOs' overseas income, which was previously not taxable in India, maybe temporarily shift to India's tax base. To decrease the cost of double taxation and avoid potential disputes with tax authorities, the appropriate remedy under domestic legislation and international treaties will need to be carefully evaluated and utilised.
References
1.https://cleartax.in/s/income-tax-assessee
Endnotes
[1] Vasudevan, S., 2021. How NRIs can use DTAA to avoid double taxation in India. [online] The Economic Times. Available at: <https://economictimes.indiatimes.com/wealth/tax/how-nris-can-use-dtaa-to-avoid-double-taxation-in-india/articleshow/86965918.cms> [Accessed 24 November 2021]. [2] Cleartax.in. 2021. Income Tax Assessee under the Income Tax act. [online] Available at: <https://cleartax.in/s/income-tax-assessee> [Accessed 24 November 2021]. [3] Pithisaria, R., n.d. Residential Status under Income Tax Act - TaxAdda. [online] Taxadda.com. Available at: <https://taxadda.com/residential-status-income-tax-act/> [Accessed 23 November 2021].