Circular Indian Income Tax Department

Many NRIs who were unable to leave India during F.Y 2020-21 due to Covid-19 outbreak were waiting for some clarification from Indian Income tax department regarding relaxation in determination of residential status. They are worried that they may end up paying taxes on the same income in both countries i.e source country and country of residence.

On 3rd March,21, Indian Income Tax department has issued a circular clarifying the doubts regarding this.

According to them, Double Taxation Avoidance Agreements (DTAAs) between different countries are framed in such a manner that there should not be double taxation on same income. This means there are most chances that treaty itself will safeguard the assesses. But in case, anyone is liable to pay tax on source country also and also in India due to his residency then he can approach income tax department with his fact and circumstances.

According to this circular, provisions of Income-tax Act, 1961 read with DTAAs are such that, there should not be a possibility of the double taxation of the income for F.Y 2020-21. However, if any individual is facing double taxation even taking into consideration the relief provided by the respective DTAAs, he can furnish his information in Form – NR before 31st, March,21. This form was to be submitted electronically to the Principal Chief Commissioner of Income Tax (International Taxation). They have provided the link also at which this form should be submitted.

My view:

>> There will not be much difference if person becomes resident but still hold Resident but not Ordinarily resident (RNOR) status. In that case his only income earned and received in India will be taxable in India. His Foreign income is taxable in India only if it is out of business controlled wholly or partly from India or from the profession set up in India.

>> But if a person is regularly staying in India for substantial period in past years and becomes Resident and Ordinarily Resident (ROR) based on his number of stay in India, he may end up paying higher taxes in India. It is possible when tax rate in source country is lower as compare to tax rate in India on that specific income.

However, each and every case needs to be studied in detail by considering all the facts and circumstances. Also, DTAA between the countries involved plays a major role to determine the actual tax implications in this scenario.

To know about your residential status in India, you can read my blog:

Residential status and Tax incidence in India for F.Y 2020-21

Disclaimer: This article is solely based on my views, experience and interaction I had with Indian Income Tax Department. Different people may have different views on the above.

Please do let me know if you still have any questions related to above. You can write to me at or call/WhatsApp me at +91 9910075924.

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