Residential status of certain individuals under income tax act 1961
Circular No. 2/2021 was issued by the Central Board of Direct Taxes on 3 March 2021. Its subject is Residential status of certain individuals under income tax act 1961.
Takes up the residence of individuals stranded in India by the pandemic. It recalls the earlier relief for previous year 2019-20 given by Circular No. 11/2020 dated 8 May 2020, under which an individual who came to India on a visit before 22 March 2020 leaves out of his stay the days from 22 March 2020 to 31 March 2020 if he could not leave, the days from the start of quarantine to departure or 31 March 2020 if he was quarantined on account of Covid-19 on or after 1 March 2020, and the days from 22 March 2020 to his departure if he left on an evacuation flight. For previous year 2020-21, on representations from those who could not leave because international flights were suspended, the Board's reasoning is that a short stay will not by itself make a person resident: an Indian citizen or person of Indian origin becomes resident only on 182 days with Indian-source income up to Rs. 15 lakh, or, where that income exceeds Rs. 15 lakh, on 182 days or on 120 days coupled with 365 days in the preceding four years; anyone else becomes resident only on 182 days, or on 60 days coupled with 365 days in the preceding four years. The Board also records that a general relaxation of the 182-day test could produce double non-residence and double non-taxation, and concludes, referring to the OECD's position and to the double taxation avoidance agreements, that double taxation does not appear likely for the year.
Representations were received from individuals who had come to India on a visit in previous year 2019-20 and could not leave because international flights were suspended, asking for the same relaxation in determining residence for previous year 2020-21.
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.F. No. 370142/1812020-TPL
Government ofIndia
Ministry of Finance
.Department of Revenue
Central Board of .Direct Taxes
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Circular No.2 of2021
New Delhi, 3rd March, 2021
Residential status of certain individuals under Income-tax Act, 1961
Section 6 ofthe Income-tax Act, 1961 (the Act) contains provisions relating to determination
of residency of a person. The status of an individual, as to whether he is resident in India or a nonresident or not ordinarily resident, is dependent, inter-alia, on the period for which the person is
in India during a previous year or years preceding the previous year.
2. Relaxation for Previous Year 2019-20
Considering the COVID-19 pandemic and the resultant overstay of an individual who had come
to India on a visit before 22nd March 2020, circular no II of 2020 dated 8th May 2020 was issued
by the Central Board of Direct Taxes (the Board) under section 119 of the Act to avoid genuine
hardship in such cases. It was clarified that for the purpose of determining the residential status
lmder section 6 of the Act during the previous year 2019-20 in respect of an individual who has
come to India on a visit before nnd March 2020 and:
(a) has been unable to leave India on or before 31 st March 2020, his period of stay in
India from nnd March 2020 to 31 st March, 2020 shall not be taken into account; or
(b) has been quarantined in India on account of Novel Corona Virus (Covid-19) on or
after 1 st March, 2020 and has departed on an evacuation flight before 31 5t March 2020
or has been unable to leave India on or before 31 5( March 2020, his period of stay
from the beginning of his quarantine to his date of departure or 31 st March, 2020, as
the case may be, shall not be taken into account; or
( c) has departed on an evacuation flight before 31 5t March 2020, his period of stay in
India from 22l1d March 2020 to his date of departure shall not be taken into account.
3. Residential Status for Previous year 2020-21
The Board has received various representations requesting for relaxation in determination of
residential status for previous year 2020-21 from individuals who had come on a visit to India
I I
I I
I
I
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. during the previous year 2019-20 and intended to leave India but could not do so due to suspension
of international flights. The matter has been examined by the Board and following facts have
emerged: -
I. Short stay will not result iu Indian residency
There may be a situation where a person, who was a non-resident during the previous year
2019-20, gets stranded in India by reason of the COVID19 pandemic for some time during
the previous year 2020-21 CPY 2020-21 '). In such situations, there are less chances that
the person would acquire residence status in India during the PY 2020-21 only for this
reason as explained below: -
A. A citizen ofIndia or a person ofIndian origin may become resident in India
only in one of the following situations: -
(i) if his total income from Indian sources (i.e., other than the income
from foreign sources) does not exceed fifteen lakh rupees in PY
2020-21 and he stays in India for 182 days or more during the PY
2020-21; or
(ii) if his total income from Indian sources (i.e., other than the income
from foreign sources) exceed fifteen lakh rupees in PY 2020-21
and
(a) he stays during PY 2020-21 for 182 days or more; or
(b) he stays during the PY 2020-21 for 120. days or more and
also stays for 365 days or more in preceding four previous
years.
B. An Individual who is not citizen ofIndia or a person of Indian origin may
become resident in India only in one of the following situations: -
(i) ifhe stays during PY 2020-21 for 182 days or more; or
(ii) ifhe stays during the PY 2020-21 for 60 days or more and also stays
for 365 days or more in preceding four previous years.
Thus, generally, a person will becpme resident in India for the PY 2020-21 only if
he stayed in India for 182 days or more unless he is covered by the exceptions
discussed above.
II. Possibilities of dual non-residency in case of general relaxation:
Most of the countries have the condition of stay for 182 days or more for determining
residency. Thus, a person in most situations will be resident in only one country since there
are 365 days in a year. In fact, if general relaxation for the stay period of 182 days is
provided, there may be cases of double non-residency. In such situation, a person may not
become a tax resident in any country in PY 2020-21 even after staying for more than 182
days or more in India resulting in double non-taxation and end up not paying tax in any
country.4. Conclusion
Thus, it can be seen that OECD as well as most of the countries have clarified that in view of the provisions of the domestic income tax law read with the DTAAs, there does not appear a possibility of the double taxation of the income for PY 2020-21. As explained above, the possibility of double taxation does not exist as per the provisions of the Income-tax Act, 1961 read with the DTAAs. However, in order to understand the possible situations in which a particular taxpayer is facing double taxation due to the forced stay in India, it would be in the fitness of things to obtain relevant information from such individuals. After understanding the possible situations of double taxation, the Board shall examine that, -
(i) whether any relaxation is required to be provided in this matter; and
(ii) if required, then whether general relaxation can be provided for a class of individuals or specific relaxation is required to be provided in individual cases.Therefore, if any individual is facing double taxation even after taking into consideration the relief provided by the respective DTAAs, he may furnish the information in Form -NR annexed to this circular by 31st March, 2021. This form shall be submitted electronically to the Principal Chief Commissioner of Income-tax (International Taxation) at https:/lnicforms.mp.nic.in/nicforms designerfnic form selector.php?form id=enRhYmxlNjAzZWY2NmIzZGI3NjIwMjEwMzAzMTg= .
Copy to the:
1. PS/OSD to FM/PS/OSD to MoS (F).
2. PS to Finance Secretary.
3. Chairman and Members, CBDT.Ntk lbr
(Neha Sahay)
Under Secretary (TPL)-I4. Joint SecretariesiCsITlDirectorsiDeputy SecretarieslUnder Secretaries, CBDT
5. C&AG of India (30 copies).
6. JS& Legal Advisers, Ministry of Law & Justice, New Delhi.
7. CIT(M&TP), Official Spokesperson ofCBDT.
8. Principal ofDGIT (Systems) for uploading on official website.
When residence for assessment year 2021-22 is questioned for a person stranded in India, in a foreign asset and income reporting dispute that turns on that status, and in a treaty residence claim for the same year.
It mentions. Circular No. 2/2021
Source: the Income Tax Department’s own published text — its page for this instrument.