This article titled ‘Addressing NRI Tax fears in light of Gourav Baid v. Union of India.’ is written by Saptaparni Raha and talks about the NRI Tax fears by highlighting the case study of Gourav Baid v. Union of India, Writ Petition (Civil) No.136/2021.
I. About NRI Income Tax
According to Income Tax Act 1961, a non-resident Indian means one who earns from outside the home country. If any person is an Indian resident then his or her global income is taxable in India. If the person is a non-resident Indian then he or she shall pay tax from the income generated in India.
II. DTAA (Double Tax Avoidance Agreement)
There is a treaty between countries to avoid payment of double taxes. According to this treaty, people of the country that are signatories, need not pay taxes in their country of residence if they already paid taxes in India, but to avail benefits under this agreement, some documents are required such as a self-attested PAN card copy, self-attested visa, and passport copy, PIO proof copy ( if applicable), and tax residency certificate.
According to the Finance Act, 2013, an individual will not be entitled to claim any benefit under the Double Taxation Avoidance Agreement unless a person provides the tax residency certificate to the deductor. Now to receive the tax deduction certificate a person needs to make an application under Section 10 of Finance Act, Sections 90, 90 A of the Income Tax Act. After the successful procession of the application, the certificate will be issued in Form 10FB.
III. NRI Income Tax slab rates
|Income Tax Slab||Tax Rate|
|Up to 2.5 Lakhs||Nil|
|2.5 Lakhs to 5 Lakhs||5%|
|5 Lakhs to 7.5 Lakhs||10 %|
|7.5 Lakhs to 10 Lakhs||15 %|
|10 Lakhs to 12.5 Lakhs||20%|
|12.5 Lakhs to 15 Lakhs||25%|
|15 Lakhs and above||30 %|
IV. New circulars issued by Center Board of Direct Tax
According to the new circulars of the Center Board of Direct Tax issued on 22nd March 2020 due to covid 19 restrictions, the overstay of NRI shall not be taken into account to determine the residential status. It is mentioned under Section 6 of the Income Tax Act that if NRI has exceeded the mandated residency limit then the tax will not be levied on them.
It has been mentioned that if any NRI was quarantined in India for the Covid 19 on or after 1st March 2020 and departed on an evacuation flight on or before 31st March 2020 then his date of being quarantined and the date of departure shall not be taken into account or if any NRI has departed on an evacuation flight on or before 31st March 2020 and he or she has stayed in India from 22nd March then the date of departure shall not be taken into account.
V. Gourav Baid v. Union of India
1. Facts of the case
Saravana Bhawan, filed a petition before the Madras High Court to direct the Income Tax Settlement Commission, fashioned to settle complicated tax disputes to accept its utility. The petition was filed by Pitchai Rajagopal Shiva Kumar companion of M/S Hotel Saravana Bhawan.
The registry refused to accept the appliance because the provisions of the Finance Bill proposed to repeal the ITSC with rapid impact and an interim board could be constituted to eliminate all of the pending functions earlier than ITSC. Because of the above-mentioned reason the corporate could not file the appliance before ITSC on February 1, 2021.
2. The contention of the petitioner
According to the petitioner they had paid the full tax on the extra earnings provided. The Finance Bill was barely on a studying stage, not an Act so the ITSC had illegally denied the petitioner the right to file an application under Section 245 of the Income Tax Act.
3. The contention of the respondent
Gourav Baid a Dubai based non – resident Indian who overstayed in India responded by filing a writ petition by mentioning that an individual who has been assessed as NRI in the financial year of 2019-2020 needs to be considered as an NRI in the financial year of 2020-2021 on account of the pandemic.
Honourable Supreme Court directed the petitioner to make a representation within three days before the Central Board of Direct Tax and direct CBDT to give a reply within three weeks and disposed of the writ petition with other pending applications.
This case was closely watched by several NRIs and finally paved the way for a government directive. If any NRI is resident in India for 182 days or more than that they need to pay tax on basis of their global income but if they stay less than 182 days in Indian, in that case, they need to pay tax on the total income other than the income from foreign sources as long as earnings exceed rupees 15 Lakh.
Since last year, after the lockdown, the government issued a relaxation to exclude the number of days stayed in India. NRI who was unable to fly out from 22nd March 2020, to 31st March 2020 is expecting relaxation for the financial year 2020-21.
According to Amish Tandon, the legal counsel for Baid, the government issued the clarifications and relaxations for the financial year 2019-20 but nothing had been issued for the present year. The budget was also silent on the matter, so many NRI’s were anxious about it and there was a sudden fear of high tax outgo.
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- Gourav Baid v. Union of India. Writ Petition (Civil) No.136/2021
Author: Saptaparni Raha