The forthcoming Income Tax Bill is set to introduce significant changes to tax residency criteria, particularly affecting Non-Resident Indians (NRIs) earning ₹15 lakh or more in India while not paying taxes in any other jurisdiction.
Under the proposed amendments, accessed by ET Online, such individuals will be classified as "residents" for tax purposes, making them liable to pay taxes on their Indian-sourced income. This initiative aims to close existing tax loopholes and curb the misuse of NRI status for tax avoidance.
Revised Tax Residency Framework
The bill outlines a revised framework for determining tax residency status. An individual will be considered a resident for tax purposes if:
- They spend at least 182 days in India within a financial year, or
- They are present in India for 60 days or more in a tax year and have stayed cumulatively for 365 days or more in the preceding four years.
However, key exemptions will apply:
- Indian citizens employed abroad or serving as crew members of an Indian ship will not be subject to the 60-day rule.
- NRIs visiting India will also be exempt from this provision unless their annual Indian income (excluding foreign-sourced earnings) exceeds ₹15 lakh, in which case the 60-day threshold will be extended to 120 days.
Aligning with Global Taxation Standards
India’s tax laws determine residency based on physical presence rather than citizenship. Currently, NRIs are taxed solely on their Indian-sourced income, while their global earnings remain untaxed in India. However, authorities have expressed concerns over individuals leveraging NRI status to sidestep taxation despite deriving substantial income from India.
The proposed amendments align with global efforts to enhance tax transparency and combat evasion. As part of broader fiscal reforms, these changes aim to plug revenue losses and strengthen tax compliance. High-net-worth individuals and NRIs must now reassess their financial planning and tax obligations in light of the new residency framework.
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