The Central Board of Direct Taxes (CBDT) has received various representations requesting for relaxation in the determination of residential status for the previous year 2020-21 from individuals who had come on a visit to India during the previous year 2019-20 and intended to leave India but could not do so due to the suspension of international flights.

In this context, CBDT has issued a circular where it has been provided that if any individual is facing double taxation even after taking into account the relief provided by the relevant Double Taxation Avoidance Agreement (DTAA), he/she may furnish the specified information by 31st March, 2021. The information has to be submitted in Form –NR and is to be submitted electronically to the Principal Chief Commissioner of Income-tax (International Taxation).

“It is interesting to see that individuals will need to determine their Indian tax residency as well as income being subjected to double taxation well before the submission of Form-NR. This would need a detailed understanding of the tax laws (India and other countries) as well as the DTAAs. While there is a short and stringent timeline for submission of Form-NR, no timelines have been indicated for the tax authorities to respond to such applications,” says Jiger Saiya, Partner and Leader – Tax & Regulatory Services, BDO India.

Section 6 of the Income-tax Act, 1961 (the Act) contains provisions relating to residency of a person. The status of an individual as to whether he is resident in India or a non-resident or not ordinarily resident, is dependent, inter-alia, on the period for which the person is in India during a year.

“The Circular has stated that a general relaxation for 182 days may result in dual non-residency and thereby double non-taxation for an individual. It fails to appreciate that several countries have additional criteria apart from the number of days of stay, like citizenship, domicile, etc. For eg. US taxes the global income of its citizens. This Circular may not help individuals in case of genuine hardships such as countries with whom India does not have a DTAA or absence of short stay exemption,” adds Saiya.

Various representations have been received stating that there are a number of individuals who had come on a visit to India during the previous year 2019-20 for a particular duration and intended to leave India before the end of the previous year for maintaining their status as a non-resident or not ordinary resident in India.

However, due to the declaration of the lockdown and suspension of international flights owing to the outbreak of Novel Corona Virus (COVID-19), they had to prolong their stay in India. Concerns were expressed that they may involuntarily end up becoming Indian residents without any intention to do so.

In order to avoid genuine hardship in such cases, the CBDT has decided vide circular no 11 dated May 8, 2020, that for the purposes of determining the residential status under section 6 of the Act during the previous year 2019-20 in respect of an individual who has come to India on a visit before 22nd March, 2020 and:

• has been unable to leave India on or before 31st March 2020, his period of stay in India from 22nd March, 2020 to 31st March, 2020 shall not be taken into account; or
• has been quarantined in India on account of Novel Corona Virus (Covid-19) on or after 1st March, 2020 and has departed on an evacuation flight on or before 31st March, 2020 or has been unable to leave India on or before 31st March, 2020, his period of stay from the beginning of his quarantine to his date of departure or 31st March, 2020, as the case may be, shall not be taken into account; or
• has departed on an evacuation flight on or before 31st March, 2020, his period of stay in India from 22nd March, 2020 to his date of departure shall not be taken into account.

CBDT had earlier informed that a circular excluding the period of stay of these individuals up to the date of normalisation of international flight operations, for determination of the residential status for the previous year 2020-21 shall be issued after the said normalisation.