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NRIs’ residential status comes under I-T lens

An NRI is spared tax on income outside India. A resident is required to pay tax on global earnings.

, ET Bureau|
Updated: Jul 09, 2019, 11.53 AM IST
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Due to severe tax implications, many Indians carefully divide their time between India and abroad.
MUMBAI: The investigation wing of the income tax (I-T) department is going through the ‘residential’ status of non-resident Indians (NRIs) with a fine-tooth comb.

Several NRIs have received notices from the department for reopening tax assessments of the past five to six years and were also told to share photocopies of their passports.

A resident can attain NRI status by staying overseas for more than 182 days. The law also states that a person is a ‘resident’ if he has been in India for more than 60 days in the year in question and 365 days during the four years prior to that year.

Due to severe tax implications, many Indians carefully divide their time between India and abroad. While an NRI is spared tax on income from outside India, a resident is required to pay tax on global earnings.

Under the circumstances, persons who claimed NRI status (without fulfilling the norms on the period of stay) are being pulled up for alleged tax evasion and may be in for long litigation.
Details of India Stay
“Even if a person is forced to extend his stay in India beyond 182 days on genuine grounds like hospitalisation or marriage, there is no respite. The department has turned aggressive to ensure that foreign income of residents does not escape taxation,” said senior chartered accountant Dilip Lakhani.

Many notices were served to NRIs a month before the budget which proposed an amendment (with retrospective effect) in the black money Act to include NRIs in the definition of ‘assessee’ – a move that would make the laws more stringent.

In the tax return form for financial year 2018-19, NRIs have to give details of stay in India for the past four years to enable the assessing officer to determine their true residential status.

According to Mitil Chokshi, senior partner at Chokshi & Chokshi, it is advisable for NRIs, particularly those who have got that status in the past 6-7 years, to preserve relevant documents and clear evidence of source and application of funds as well as immigration details.

Sometimes, there is a dispute over how one calculates 182 days — whether departure and arrival dates are included or only the arrival date is considered in the period of stay. Under the 365-day rule, the law allows the tax office to let a person (who gives necessary explanation) claim NRI status even if he has overstayed beyond 60 days in the fifth year or the year under question. However, there are cases where the tax department has refused to extend the benefit of 182 days to persons who have stayed in India for more than 60 days in the relevant year.

It is equally important, says Chokshi, to explain the rationale for becoming an NRI — whether it is for employment, business, academic purposes or family matters. The I-T enquiries are driven by the suspicion that a person becomes an NRI to legalise undisclosed offshore assets and earnings emanating from them.

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