Covid-19 Lockdown: Will travel restrictions result into additional tax payouts?

By: |
May 10, 2020 8:06 PM

Non Residents lose their NRI status if they stay in India for 182 days or more during a FY or they stay in the country for 60 days or more during a FY and 365 days or more within 4 years preceding that FY.

Coronavirus Outbreak, Novel Coronavirus COVID-19, global health crisis, income tax, Non Resident Indian, NRI, NRI status, double taxation, CBDTDGCA had suspended all international commercial passenger flights just after the Janata Curfew on March 23, 2020, making it impossible for NRIs and other passengers fly out of India.

Complying with the lockdown, that has been imposed to contain the spread of Novel Coronavirus COVID-19, the Directorate General of Civil Aviation (India) (DGCA) had suspended all international commercial passenger flights just after the Janata Curfew on March 23, 2020, making it impossible for Non Resident Indians (NRIs) and other passengers fly out of India.

As per Section 6 of the Income Tax Act, Non Residents lose their NRI status for tax purpose if they stay in India for 182 days or more during a financial year or they stay in the country for 60 days or more during a financial year and 365 days or more within 4 years preceding that financial year.

Taking advantage of the taxation rules, many Non Residents stay in India for as many as 181 days without losing the NRI status. But this year, the cancellation of international flights due to the COVID-19 lockdown has put their NRI status under threat.

As a result, many people, who were just short of staying in India for the cut-off days before losing their NRI status, became worried of paying taxes both in the country of their residence as well as in India, and has appealed the government to relax the rule to save them from double taxation.

Taking note of genuine hardship in such cases, the Central Board of Direct Taxases (CBDT) has issued a circular on May 8, 2020, giving relief on residency status to NRIs/foreign visitors whose stay in India got prolonged due to lockdown.

Accordingly, an individual who has come to India on a visit before March 22, 2020 and has been unable to leave India on or before March 31, 2020, his period of stay in India from March 22, 2020 to March 31, 2020 shall not be taken into account for determining the NRI status.

For an individual, who has been quarantined in India on account of Covid-19 on or after March 1, 2020 and has departed on an evacuation flight on or before March 31, 2020 or has been unable to leave India on or before March 31, 2020, his/her period of stay from the beginning of his/her quarantine to his/her date of departure or March 31, 2020, as the case may be, shall not be taken into account for determining the NRI status.

Relaxation will also be given to an individual, who has departed on an evacuation flight on or before March 31, 2020, as his/her period of stay in India from March 22, 2020 to his date of departure shall not be taken into account for determining the NRI status.

“This is a welcome move as some NRIs were being forced to become residents due to the lockdown and cancellation of flights. But now, only their stay up to 22nd March would be considered,” said CA Karan Batra, Founder and CEO of CharteredClub.com.

So, the travel restriction due to the COVID-19 lockdown will not create additional tax obligation in India for NRIs for FY 2019-20.

“This circular is currently valid for FY 2019-20, but if flight services do not resume quickly, the government may have to release another such circular for FY 2020-21 as well,” Batra further said.

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