Alerts:

Tax Alert: Relaxation of Residency conditions for individuals stranded in India

13 May 2020

The taxability of income in India depends upon the taxpayer’s residential status. Section 6 of the Income-tax Act, 1961 (‘the IT Act’) provides the necessary conditions for determining the residential status of an individual either as resident; or not ordinarily resident; or non-resident. The main criteria for determining this status is period of his/her stay in India.

With the Novel Corona Virus (COVID-19) pandemic outbreak, the Indian Government has taken various unprecedented measures such as declaring a nationwide lockdown, implementing strict quarantine requirements, suspension of international flights, etc. Due to these measures, number of individuals who were visiting India during Fiscal Year (FY) 2019-20 for a particular duration and intended to leave India before the end of the FY were forced to extend their stay in India. Consequently, their stay has exceeded beyond the period of their visit and thus threatening them to be regarded as resident / not ordinarily resident. Taking cognisance of this genuine hardship faced by such individuals, the Central Board of Direct Taxes (CBDT) has recently issued Circular[1] to provide relaxation in the methodology of computing the ‘number of days’ of stay in India for the purpose of section 6 of the IT Act. We, at BDO in India, have analysed and summarised this circular.

The Circular provides that for the purpose of determining residential status under section 6 of the IT Act for FY 2019-20 in respect of an individual who has come to India on a visit before 22 March 2020, following days shall be excluded:

Sr. No.

Category of person

Exclusion period

1

Unable to leave before 31 March 2020

22 March 2020 to 31 March 2020

2.

Quarantined in India on account of COVID-19 on or after 1 March 2020 and

  • Departed on an evacuation flight; or
  • unable to leave India

on or before 31 March 2020

Period beginning of his quarantine to:

  • departure date; or
  • 31 March 2020

3.

Departed on an evacuation flight on or before 31 March 2020

22 March 2020 to departure date

 

BDO Comments

This is a welcome move by the CBDT as it provides much needed clarity in determining the residential status for the FY 2019-20 of individuals who are forced to stay in India during lockdown period. However, such individuals would be required to maintain sufficient documents with respect to the date of quarantine in India, date of arrival and departure from India, etc. in order to establish their residency before the tax authorities at a later stage. Further, soon after issuing circular, CBDT also issued a Press Release[2] stating that another circular giving similar relaxation for determining residential status for FY 2020-21 in case of such individuals to exclude period up to the date of resuming international flights operations will be issued subsequently. While the circular has clarified and granted relief on conditions prescribed for determining residential status, it is silent on whether such days’ exclusion would apply for claiming short stay exemption by such individuals.


 

[1] Circular 11 of 2020, dated 8 May 2020

[2] Press Release dated 8 May 2020 - Clarification in respect of residency under section 6 of the Income-tax Act, 1961