Represented by Harish Salve, Abhishek Singhvi, and Nalin Talwar, the UAE-based businessman belonging to the Kuber group, moved the Supreme Court on Wednesday, challenging the decision of tax authorities which gave no relief to NRIs — particularly those from zero-tax countries — who were forced to extend their stay in India in the wake of COVID19.
According to the Indian law, a person is considered resident if the period of stay in India is 182 days or more; or, if a person has more than Rs15 lakh domestic income and spends 120 days or more in India. Unlike a resident whose global income is taxed, NRIs are taxed only on income earned in India but not on the income earned outside India. So, NRIs carefully plan their visits to fulfil the residency condition and avoid paying tax in India on what they earn outside.
“Mr. Malu came to India in February 2020 on a sojourn but was compelled to extend his stay in India on account of the pandemic and the consequent international travel restrictions. The Petitioner was able to finally depart only in October 2020, by which time, his stay in India (in the Financial Year 2020-21) had already crossed a period of 120 days. Hence, in view of Section 6 of the Income Tax Act, the Petitioner qualifies to be a resident in India (for Financial Year 2020-21) and liable to be taxed on his global income in India,” said Amish Tandon, who along with his Sameer Abhyankar, represent Innovatus Law, the instructing firm to the three senior lawyers.
In his petition, Malu has prayed before the apex court to either quash the March 3, 2021 notification of the Central Board of Direct Taxes (CBDT) — which dashed the hopes of many NRIs who were stuck in India — or direct the government to consider the case of the petitioner coming from a zero tax country. “The Supreme Court was pleased to issue notice in the matter on March 24 and post the same for response of the government on April 16,” said Tandon.
While CBDT has said there would be no “double taxation”, and `residency’ would be decided on the basis of relevant `double tax avoidance agreement’ (DTAA), the assurance holds little relevance for NRIs like Malu who is based in a zero-tax country like UAE. The Supreme Court is also hearing another petition (on the residency and tax issue) filed by Sachin Baid, a Dubai-based professional who is also being advised by Innovatus.
Since the application of the DTAA is different for employees and employers, the Supreme Court will have the opportunity of arriving at a holistic solution to the problem of “involuntary stay” of NRI’s in India belonging to various other tax neutral states like Bahrain, Oman, Qatar, Kuwait, and Saudi Arabia. According to tax professionals, CBDT’s prime objective in the 3 rd March circular is to ensure that a person does not evade tax by maintaining non-resident status in both countries.
Many NRIs were taken aback by the CBDT circular because last year the finance ministry had said that the number of days in 2020-21 till normalisation of flights would be excluded in determining residency.