Income Tax Scrutiny on NRIs – Focussing on 181 Days Threshold Triggering the Tax Liability
In recent developments, the Income Tax Department has intensified its scrutiny of Non-Resident Indians (NRIs), requesting sworn statements to ascertain the exact number of days spent in India. The aim is to determine whether these NRIs have fulfilled their tax obligations for specific years, especially focusing on the critical 181-day threshold that triggers tax liabilities for individuals staying in India beyond the stipulated period.
Legal Framework for NRIs
Unlike residents, NRIs are not obliged to pay tax on overseas earnings or disclose foreign assets. However, the tax regulations become applicable if an NRI exceeds 181 days of stay in India within a fiscal year. To ensure compliance, the Income Tax Department has been serving notices to numerous NRIs, asking for signed affidavits affirming their non-resident status and specifying the number of days spent in India for each relevant year for the purpose of scrutiny of their cases.
Challenges Faced by NRIs
This scrutiny process has faced criticism, with some tax experts expressing concerns about the burden placed on NRIs to submit affidavits proving their non-resident status. Additionally, obtaining affidavits on Indian stamp paper and getting them notarized poses challenges for NRIs residing abroad. Tax experts argue that the Income Tax Department can easily access information from immigration departments, which maintain comprehensive data on individuals’ travel history.
Potential Risks for NRIs
For NRIs who visited India in 2020 and 2021, stayed beyond their initial plans, and have been filing tax returns as NRIs, there is a heightened risk of scrutiny by the tax office. Incorrect information or false affidavits may lead to legal consequences, including violations of the penal code and exposure to penalties under the Income Tax Act and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015.
Verification Challenges
Tax professionals highlight the difficulty in verifying the number of days spent in other countries, as many nations do not require stamping upon departure. While passport stamps serve as adequate proof for days spent in India, determining the duration of stay in other countries becomes a complex task. Professionals assisting NRIs in filing their returns may find it challenging to obtain accurate information, often relying on clients’ casual disclosures about their residential status.
Residency Criteria and RNOR Status
Beyond the 181-day rule, NRIs also need to be mindful of another significant change in residency laws. An amendment to the Income Tax Act three years ago introduced the ‘resident but not ordinary resident’ (RNOR) status for an NRI spending more than 120 days but less than 182 days in India, with a total income exceeding ₹15 lakh. While an RNOR enjoys tax benefits similar to an NRI, foreign earnings may be taxed in India if the individual is not a tax resident in any other country. Here foreign earnings refers to income accruing or arising outside India, excluding income derived from a business controlled or a profession set up in India.
Conclusion
The Income Tax Department’s increased scrutiny of NRIs underscores the importance of understanding and adhering to the residency rules, especially the 181-day threshold. NRIs should exercise caution in providing accurate information during the scrutiny process, considering the potential legal consequences of false declarations. The complexities surrounding verification of stay duration in other countries highlight the need for a more streamlined process that considers the challenges faced by both NRIs and tax professionals. As the landscape evolves, NRIs must stay informed about regulatory changes to ensure compliance with Indian tax laws.
To Access the Notice of CBIC asking Stakeholders Input on Harmonizing GST rate of Services CLICK HERE
READ MORE
Jharkhand HC Quashes Criminal Proceedings Relating to Non-Compliance of GST Summon under Section.70
Supreme Court Issues Notice to Central Government on 28% GST for Online Gaming Companies
Thank you for the good writeup It in fact was a amusement account it Look advanced to far added agreeable from you However how could we communicate
Fantastic site A lot of helpful info here Im sending it to some buddies ans additionally sharing in delicious And naturally thanks on your sweat