Incomes of bonafide NRI workers in tax-free countries will not be taxed in India

Incomes of bonafide NRI workers in tax-free countries will not be taxed in India

The Finance Ministry has issued a clarification that clears the air over a contentious anti-tax abuse Budget proposal that had raised the hackles of many non-resident Indians. As per the proposal, “an Indian citizen who is not liable to tax in any other country or territory shall be deemed to be resident in India”. The implication was that such a person may become liable to pay tax in India. This key change could also have had the unintended consequence of bringing into the Indian tax net the incomes earned abroad by bonafide NRI workers in countries that don’t levy income tax. For instance, it could impact NRIs staying in countries such as UAE which do not impose income tax on individuals under local tax laws. This had raised worries among many NRIs who work in such jurisdictions.

Thankfully, the Finance Ministry has now clarified that the new provision is not intended to include in the tax net those Indian citizens who are bonafide workers in other countries. It clarifies that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession. Making its intent clear, the clarification says, “In some section of the media, the new provision is being interpreted to create an impression that those Indians who are bonafide workers in other countries, including in Middle East, and who are not liable to tax in these countries will be taxed in India on the income that they have earned there. This interpretation is not correct.” It adds that necessary clarification, if required, shall be incorporated in the relevant provision of the law.

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