The Central Board of Direct Taxes (CBDT) of India has issued a Circular in which it clarifies the residency status of non-residents, or foreign visitors, whose duration of stay in India in the financial year 2020-2021 was extended due to the Covid-19 lockdown. A number of non-residents were not able to leave India as a result of the suspension of international flights and lockdowns in India and abroad which may have resulted in the change of their tax residential status.
Firstly, a non-resident of India, in the financial year 2019-2020, who was not able to leave the country during the financial year 2020-2021, due to Covid-19 lockdown and travel restrictions, may be classified as a tax-resident of India if he/she had been in India for 182 days or more in a calendar year. Additionally, an individual who is not a citizen of India would qualify as a tax-resident of India if he/she stays for 60 or more days in the country in a calendar year and has also stayed for 365 days or more in the past 4 years.
Secondly, regarding the double taxation avoidance agreements (DTAA) between India and countries worldwide, the CBDT has clarified that an individual would become tax-resident of only one jurisdiction using the so-called tie-breaker rule established under the relevant Article of the DTAA.
The CBDT also follows the guidelines provided by The Organization for Economic Cooperation and Development (OECD) in relation to the provisions of the DTAAs and its applications in the current Covid-19 lockdown situation. For instance, if an individual who was temporarily away from their home residency and stuck in another country, such individual would be unlikely to qualify as a resident per domestic tax law and even if he/she would qualify due to temporary residence in such country, according to the DTAA, there would not be any significant tax changes.
If a scenario arises where a specific income of an individual is subject to taxes in more than one country, the CBDT has accommodated the opportunity for such an individual to file a relevant form to his/her local tax-bureau in India explaining the nature of such income and the reason for why such taxation takes place. After evaluation of this form, the CBDT may allow for exemptions on a case-by-case basis.
Due to the Covid-19 pandemic and lockdown in India the question of tax residency has been on the agenda of many individuals. Luckily, the CBDT has clarified a number of provisions and rules that are applied to the tax-residency rules during the Covid-19 pandemic.
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