NRI’s New Residency Rules in India

Budget 2020 changed the rules that determine how a person’s income is taxed. Once these rules are implemented, NRI’s who visit India will need to keep track of the number of days they spend in the country and remember to file their tax returns depending on their status.

182 day limit reduced :

As per the new budget proposals, a person will be treated as a resident of India for tax purposes if he visits the country for more than 120 days in a financial year and 365 days in the past four years.

Once this rule is impelemted NRI’s will be able to spend a much smaller number of days in the country if they wish to keep their NRI status intact.

730 day clause removed :

Once it is decided whether a person is a resident, it needs to be tested whether a person is a resident ordinarily resident (ROR) or resident but not ordinarily resident (RNOR). At present a person is deemed to be RNOR if he fulfills either of these two criteria

• He should have stayed in India for less than 730 days during the past 7 financial years or
• He should have been a non resident in 9 out of the past 10 years

The new budget proposal has dropped the 730 day criteria. As per the new laws a person will become a Resident but not ordinary resident (RNOR) if he has been non resident in India in the past 7 out of 10 years. This rule will now benefit the expatriates who will become a resident only in the 4th or 5th year approximately.

Deemed residency concept :

If an Indian resident is not liable to pay tax in any overseas jurisdiction by virtue of his domicile or residence, he will be deemed to be a resident of India.

In the case of dual residency issues, the tie breaker rules will apply under the double taxation agreements. Some of key criteria under the tie breaker rules are permanent home, center of vital interest, habitual abode and nationality.