A tax breather soon for expats stuck in the eye of India's Covid storm

New Delhi: India could provide relief to individuals who have technically become resident in the country because they’ve been forced to extend their stay due to the lockdown. This will make their global income liable to tax in India under the Income Tax Act.“A clarification will be issued soon,” said a government official. The Central Board of Direct Taxes (CBDT) is examining the issue, said another official, adding that several representations had been received.The period of overstay in India due to the lockdown could be exempted, a formula prescribed by the OECD, which drafts global tax rules, said a person familiar with the matter. India has been under lockdown since March 25 and stopped international flights even before that.As per provisions applicable up to FY20, any individual who stays in India for 182 days or more in a financial year or 60 days or more in a financial year and at least 365 days in the past four financial years is a tax resident of India. His or her global income becomes taxable in India as well.The Finance Act 2020 amended the Income Tax Act, saying Indian citizens or persons of Indian origin who have India-sourced income exceeding Rs 15 lakh will be regarded as Indian tax residents in a financial year if their stay is 120 days or more and at least 365 days in the past four financial years. 75614478CII Approaches CBDT on IssueThe Confederation of Indian Industry (CII) and other lobby groups have approached the CBDT on the issue. Some investors have also flagged the matter with the Prime Minister’s Office (PMO).The US, UK and Australia are among those that have already announced relaxations in this regard. The OECD has issued a guidance that the number of days overstayed due to “force majeure” such as Covid-19 should be excluded, both for determining the business presence of a company as well as the residency of an individual.The Delhi High Court in a recent ruling directed the government to exclude “forced stay in India” when determining tax residential status in India.Experts said the government needs to provide certainty on the matter.“Given that this is an unprecedented time turning the world virtually upside down in a sense, it is only fair that the government grants some concessional days — say 60 to 80 days — as a relaxation in determining non-resident status of individuals to neutralise effect of forced (or) involuntary stay in India due to Covid-related lockdown (and) travel restrictions,” said Sanjay Sanghvi, partner, Khaitan & Co.“To provide certainty, and remove avoidable anxiety, it is recommended that CBDT should forthwith clarify this very important issue following the OECD guidelines,” said Sudhir Kapadia, national tax leader, EY.

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