Incorp Advisory India

The government of India has introduced Section 206C(1H) of the Income Tax Act, 1961 with regards to Tax Collection at Source on sale of any other goods. Applicable to all sellers of goods whose turnover for the preceding Financial Year exceeds INR 10 crores w.e.f. 01.10.2020. This provision is not applicable where other TCS & TDS provisions is applicable. Key points to be noted: Every seller who has received any amount as consideration on sale of any other goods above INR 50 lakhs are liable to collect an additional 0.1% of the bill amount, collect PAN and pay/deposit such amount as TCS every month. Even though the TCS amount is debited to the buyer, the liability does not arise until the time the amount is collected/received. TCS returns have to be filed like TDS returns and compliances like issuance of certificate etc. are to be followed. Action point: We advise all assessees to complete accounting for half-year till 30.09.2020 and separate parties with whom sale of INR 50 lakhs are made. From every sale after 01.10.2020 to such parties, the assessee would be liable to levy 0.1% TCS in every bill and keep record of the same, as tax is payable at the time of receipt from such sale. Accordingly, sellers will need to add 0.1% to the bill value and deposit with the government on receipt of the payment from buyers. Flow Chart of TCS applicability: Due date* for TCS Payment, Return filing, and issue of TCS certificate Collection Month Quarter Ending Due date of Payment Due Date of filing return (in Form 27EQ) The date for generating TCS certificates (in Form 27D) April 30th June 7th May 15th July 31st July May 7th June June 7th July July 30th September 7th August 15th October 31st October August 7th September September 7th October October 31st December 7th November 15th January 31st January November 7th December December 7th January January 31st March 7th February 15th May 31st May February 7th March March 7th April *subject to extensions as provided by CBDT due to COVID19/lockdown. » Read our Income Tax Rate Blog to know about TDS, TCS and the rates applicable Illustrations: 1. If Sales consideration is INR 80 lakhs, and since the threshold limit for applicability of TCS u/s 206C(1H) is INR 50 lakhs per customer, whether TCS u/s 206C(1H) has to be collected on INR 80 lakhs or on INR 30 lakhs? TCS must be collected on INR 30 lakhs. 2. Goods are sold to a customer viz. AMO Pvt Ltd. for INR 65 Lakhs in September 2020 and sales consideration received upto 30th September 2020 is INR 45 Lakhs. For the period beginning from 1st October 2020, the receipt of outstanding consideration is INR 20 lakhs. Whether the seller is liable for collecting TCS u/s 206C(1H)? The provisions of section 206C(1H) came into effect on and from 1st October 2020. Hence, for sales in September 2020, there will be no liability to collect TCS even if, the sales consideration is received on or after 1st October 2020. 3. If goods are sold to a customer viz. AMO Pvt Ltd for INR 65 Lakhs in September 2020 and sales consideration received on 5th October 2020 is INR 65 lakhs, whether the seller is liable for collecting TCS u/s 206C(1H)? The provisions of section 206C(1H) came into effect on and from 1st October 2020. Hence, for sales in September 2020, there will be no liability to collect TCS even if the entire sales consideration of INR 65 lakhs is received on or after 1st October 2020. 4. If goods are sold to a customer viz. MAB Pvt Ltd for INR 90 lakhs in September 2020 and for INR 45 lakhs in October 2020, on what amount is the seller liable to collect TCS u/s 206C(1H)? The applicability of Section 206C(1H) is triggered when sales to a customer exceed INR 50 lakhs in aggregate during a financial year. In our opinion, for this purpose, the sale of goods for the period before 1st October 2020 has also to be considered. In the given example, sales up to 30th September 2020 is INR 90 lakhs which is above INR 50 lakhs, hence the applicability of Section 206C(1H) is triggered. The seller will be liable to collect TCS on INR 45 Lakhs only (as and when the amount is received from the customer) which is the sales in the period from which the provisions of section 206C(1H) have become applicable i.e. from 1st October 2020. Sales up to September 2020 INR 90 Lakhs Sales in October 2020 INR 45 Lakhs Total sales for FY 2020-21 INR 125 Lakhs Amount liable to TCS u/s 206C(1H) INR 45 Lakhs [the sales in the period from which provisions of section 206C(1H) are applicable] 5. If goods are sold to a customer viz. AMO Pvt Ltd for INR 35 lakhs in September 2020 and for INR 25 lakhs in October 2020, on what amount is the seller liable to collect TCS u/s 206C(1H)? The seller will be liable to collect TCS on INR 10 Lakhs (as and when the amount is received from the customer) which is the sales in the period from which the provisions of section 206C(1H) have become applicable i.e. from 1st October 2020. Sales up to September 2020 INR 25 Lakhs Sales in October 2020 INR 35 Lakhs Total Sales in FY 2020-21 INR 60 Lakhs Less: Threshold Limit u/s 206C(1H) INR 50 Lakhs Amount liable to TCS u/s 206C(1H) INR 10 Lakhs [INR 60 Lakhs-50 Lakhs] Clarification required from CBDT: What is export as per the provision of TCS? Does that include High sea sales, sale to deemed exports like SEZ/ EOU etc.? What is the applicability of TCS on barter transactions? What is the definition of Goods? What is TCS liability on Bad debts recovery? How to resolve the mismatch between books and Form 26AS? Applicability of the provision when the sale transaction has credit note/ debit note/ cancellation? How can Incorp help? Our experts can help you in the following- Obtain Lower TCS certificates for the assessee. Determination of parties on which TCS provision is applicable as on 30th Sept 2020. Assistance on monthly TCS compliance assistance.

India has experienced a significant outflow of funds in recent times coupled with a weakening currency. However, given its strong fundamentals and growth forecasts, the country continues to remain an attractive destination for foreign investors in the medium to long term. Indian regulations currently allow global investors to invest in India via a number of different routes namely Foreign Direct Investment, Foreign Portfolio Investment, Foreign Venture Capital Investment, and Alternative Investment Fund, etc. Depending upon the modalities of investment and other factors, one of the most preferred routes is Foreign Portfolio Investment (FPI). Q1. What is Foreign Portfolio Investment? Ans: FPI is an investment by non-residents in Indian securities including shares, government bonds, corporate bonds, convertible securities, units of business trusts, etc. The class of investors who make an investment in these securities is known as Foreign Portfolio Investors. Q2. What are the major laws/regulations applicable to an FPI in India? Ans: FPIs are primarily governed by The Securities and Exchange Board of India (SEBI). SEBI has recently introduced the SEBI (Foreign Portfolio Investors) Regulations, 2019, repealing the erstwhile 2014 Regulations. Further, FPIs are also required to comply with the Foreign Exchange Management Act, 1999 and the Income-tax Act, 1961. Q3. What are the types/categories of FPI? Ans: An applicant can obtain FPI license under SEBI regulations, in one of the two categories mentioned below: (a) “Category I FPI” which mainly include: Government and Government related investors; Pension funds and university funds; Appropriately regulated entities such as asset management companies, banks, investment managers, investment advisors, portfolio managers; Eligible entities from the Financial Action Task Force (FATF) member countries; (b) "Category II FPI" which include all investors not eligible under Category I such as: appropriately regulated funds not eligible as Category-I foreign portfolio investor; endowments and foundations; charitable organizations; corporate bodies; family offices; Individuals; Unregulated funds in the form of limited partnership and trusts. Q4. What are the advantages of being registered as a Category I FPI as opposed to Category II? Ans: The main advantages of category I am as under: (a) eligibility to issue Offshore Derivative Instruments (ODIs); (b) ease of compliance of certain know your client (KYC) norms as compared to Category II FPIs; and (c) enhanced position limits in case of stock and currency derivatives. Apart from the above, Category I FPIs are exempted from the applicability of “Indirect Transfer” provisions under the Indian Income-tax Act, which are otherwise applicable to an overseas investor upon transfer of shares/interest in an overseas entity with assets in India. Q5. What are the relevant operational aspects of an FPI? Ans: The following are the relevant operational aspects: 1. Appoint a legal representative: Appoint a legal representative in India to assist in obtaining an FPI license under SEBI regulations which includes making an application in the prescribed format and complete necessary documentation. The role of legal representative can be played by any financial institution authorized by the Reserve Bank of India. Even reputed law firms can assist in the process. 2. Appoint a Tax advisor: A tax advisor will help comply with all tax obligations that will arise from the activities of an FPI in India. This will include maintaining records, issuance of certificates for repatriation of funds out of India, annual tax compliances, and representation before tax authorities. 3. Appoint a Domestic Custodian Appoint a domestic custodian (before making any investments in India) for custodial services (including banking & Demat operations) in respect of securities. Domestic Custodian means any entity registered with SEBI to carry on the activity of providing custodial services in respect of securities. Q6. What are the compliances applicable to an FPI under the Income Tax Act, 1961? Ans: Since FPIs invest in securities such as shares, bonds, debentures, units of business trust, etc., they earn income in the nature of dividend, interest, and capital gains. FPIs would also need to remit such incomes (along with capital investment) out of India at regular intervals. As a pre-condition to remittance of funds, the applicable income tax on such income needs to be deposited with the government treasury. The taxes are deposited either in the form of withholding taxes or payment of taxes in a self-assess mode or a combination of both depending upon the nature of income. The custodian/banker would also require a certificate from a professional tax advisor prior to remitting the funds. Moreover, after the end of the financial year (April 1st to March 31st in India), the FPI is required to file an annual tax return (in electronic mode). If the tax authorities wish to scrutinize the tax return in detail, it would require representation before them. Burning Issues faced by FPIs under the present tax regime FPIs structured as non-corporates are subject to a higher rate of a surcharge prescribed on income from capital gains. This has led to many FPIs considering a conversion from a non-corporate to a corporate structure. This conversion could potentially attract General Anti Avoidance Rules (GAAR) under the Indian tax laws. FPIs having fund managers located in India having potential exposure to establishing a business connection in India, upon not satisfying certain prescribed conditions. Areas where InCorp can assist FPIs in meeting taxation and other obligations: Incorp has a dedicated team of professionals with expertise in catering to FPIs. Incorp can assist by providing the following services: Assistance in advising and structuring under the FPI route. Assistance in Setting up the structure under the FPI route. Coordination with the custodian for obtaining information on periodic transactions and maintaining necessary records of the same. Computation of tax liability in respect of income earned on securities considering provisions of the Indian Income Tax Act and the Treaty (i.e. Double Taxation Avoidance Agreement) along with the applicability of Multi-Lateral Instrument. Issuance of certificate for repatriation of funds out of India as per the requirements of the Income-tax Act and RBI guidelines. Preparing and filing of Annual Income Tax Return. Replying and attending to notices/letters issued by the tax authorities and advising thereon. Appearing before the tax authorities in the course of any proceedings and reviewing assessment orders passed by them. General correspondence with the tax authorities.

The economic impact of the COVID-19 pandemic has created significant stress on the liquidity and overall financial position of business especially those which have a borrowing from banks, NBFCs and other financial institutions. The cashflow mismatches created to the subdued business activity over the last six months and the possibility of the same not recovering in the immediate future would lead to increasing rate of defaults by even otherwise viable and sustainable businesses. The moratorium provided over the last six months, viz the period covering the lockdown phase in the country comes to an end in the current month and there was a need for addressing the issue of cashflow mismatch by a more sustainable and long term solution.There was a long-standing demand from the industry for RBI to announce a One-Time Restructuring of the loans to give much needed relief, clarity and long-term sustainable support to the businesses. The RBI announced a framework to permit restructuring of the stressed accounts of ‘eligible borrowers’ without the account being classified as a Non-Performing Asset (NPA) What does restructuring essentially mean for any loan? Restructuring of the loan could mean any or all or any combination of the following: Extension in the repayment tenure of the loan (by not more than two years) Granting initial moratorium Further additional funding Conversion of debt into equity or any other form of security Who is an eligible borrower for restructuring under this framework? The following conditions must be satisfied to be an eligible borrower for restructuring under this framework: The borrower is under stress on account of COVID-19 The borrower account is classified as ‘Standard’, but not in default for more than 30 days with any lending institution as on 1st March 2020. Further, the accounts should continue to remain standard till the date of invocation Further, In case of a single lender: The borrower and lending institution have agreed to proceed with a resolution plan under this framework not later than December 31, 2020 In case of multiple lenders having exposure to the borrower: Lending institutions representing 75% by value of the total outstanding credit facilities (fund based as well non-fund based), and not less than 60% by number agree to invoke the resolution under this framework Resolution under this framework may be invoked on or before 31st December 2020 and must be implemented within 180 days from the date of invocation The resolution process is implemented when an ICA is signed by all lending institutions within 30 days from the date of invocation In case lending institutions representing not less than 75% by value of the total outstanding credit facilities (fund based as well non-fund based) and not less than 60% by number, do not sign the ICA within 30 days from the invocation, the invocation will be treated as lapsed. In respect of such borrowers, the resolution process cannot be invoked again under this framework Who are specifically excluded (not eligible borrowers) from this framework? The following borrowers / loans are specifically excluded from this framework: MSME borrowers whose aggregate exposure to lending institutions cumulatively does not exceed Rs. 25 Crore as on 1st March 2020 Farm Loans Loans to NBFCs, HFCs, Insurers and other financial service providers Loans to Primary Agricultural Credit Societies (PACS), Farmers' Service Societies (FSS) and Large-sized Adivasi Multi-Purpose Societies (LAMPS) for on-lending to agriculture Loans to Central and State Governments; Local Government bodies Exposures of Housing Finance Companies What about stressed MSME accounts having borrowings up to Rs. 25 Crore? These MSMEs (whose cumulative exposure to banks & NBFCs including fund base and Non-Fund Based does not exceed Rs. 25 Crore as o 31st March 2020) were already covered under an earlier announced scheme of restructuring vide circular dated 11th February 2020. In view of the continued need to support the viable MSME entities on account of the fallout of Covid19 the RBI has been decided to extend the scheme under the aforementioned circular whereby restructuring of the borrower account may now have to be implemented by 31st March 2021. However, the following conditions should be met: The MSME should have been classified as ‘standard asset’ as on 1st March 2020 and It should have obtained GST registration, unless it is exempt from obtaining the GST registration All other conditions under circular dated 11th February 2020 would be applicable Are there any other requirements / compliances / approvals required? In addition to the conditions set out to be an eligible borrower the following additional conditions are to be met in case of exposures above specific thresholds: In respect of accounts where the aggregate exposure at the time of invocation of the resolution process is Rs. 100 Crore and above, an independent credit evaluation (ICE) by any one credit rating agency (CRA) authorized by the Reserve Bank needs to be obtained In respect of accounts where the aggregate exposure of the lending institutions at the time of invocation of the resolution process is Rs. 1,500 Crore and above, an Expert Committee shall vet the resolution plans to be implemented under this window Further each lending institution shall frame its own Board approved policies pertaining to implementation of viable resolution plans for eligible borrowers under this framework Will the account be treated as NPA due to the restructuring? The account will continue to be classified as standard and will not be downgraded to NPA so long as the conditions and repayments as outlined in the resolution plan approved under the framework are complied with. Hence there is no classification of NPA just because of the restructuring. This is a key relief provided under this framework. How does the restructuring impact the Financial Institutions? The restructuring of the loans impacts the profitability, & thereby the capital adequacy ratios leading to reducing capacity to raise further funds, of the Financial Institutions since they are required to create a provision for the restructured loans. The provision required as follows: In case of personal loans - 10% of the residual loan or provisions held as per the extant IRAC norms immediately before implementation, whichever is higher For other loans where the lending institution has signed ICA within 30 days of invocation – 10% of the total debt or provisions held as per the extant IRAC norms immediately before implementation, whichever is higher For other loans where the lending institution has not signed ICA within 30 days of invocation – 20% of the debt on their books as on this date (carrying debt), or the provisions required as per extant IRAC norms, whichever is higher When can this provision be reversed? The financial institution may reverse the provisions as follows: For the Institutions who have signed the ICA within 30 days of invocation: One half of the provision upon the borrower paying at least 20% of the residual debt without slipping into NPA post implementation of the plan Balance upon the borrower paying another 10% of the residual debt without slipping into NPA subsequently For the Institutions who did not sign the ICA within 30 days of invocation: One half of the provision upon the borrower paying at least 20% of the carrying debt Balance upon the borrower paying another 10% of the carrying debt What happens in case of default by the borrower post the restructuring? All loans other than the personal loans which are restructured under this framework shall be subject to a monitoring period viz the period starting from the date of implementation of the resolution plan till the borrower pays 10% of the residual debt, subject to a minimum of one year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with longest period of moratorium. During the continuance of the monitoring period if there is any default by the borrower with any of the signatories to the ICA, a review period of 30 days will be triggered.  If the borrower is in default with any of the signatories to the ICA at the end of the Review Period, the asset classification of the borrower with all lending institutions, including those who did not sign the ICA, shall be downgraded to NPA from the date of implementation of the resolution plan or the date from which the borrower had been classified as NPA before the implementation of the plan, whichever is earlier. How can InCorp help you? Our debt advisory team can help you in understanding the key nuances of debt restructuring and understanding of the scheme. They can help you in exploring different options available to resolve the financial position of your business, evaluating the best course of action for your debt and can also help in planning and executing the entire process end to end.

Income-tax is levied on the annual income of an individual or an entity. The period under Income Tax Act starts from 1st April and ending on 31st March of the next calendar year. The Income-tax Law classifies the year as (i) Previous year, and (ii) Assessment year. Income tax on companies is called a corporate tax which is normally levied at a fixed rate. Whilst, a non-corporate assessee other than the firm has to pay income tax based on the slab rate. Taxes are collected by the Government through three means: Voluntary payment by taxpayers into various designated Banks. For example, Advance Tax and Self-Assessment Tax paid by the taxpayers, Taxes deducted at source [TDS] from the income of the receiver, Taxes collected at source [TCS]. Every year, Finance Act prescribes the income tax rates and TDS/TCS rates effective for the relevant assessment year to the previous year. Further, CBDT is empowered to issue notification and circulars to clarify and notify the rates and their changes. According to the current income tax laws in India, we have summarized and tabularized all the income tax rates for FY 2020–21 (AY 2021–22) for your easy reference. Part 1: Income Tax for FY 2020–21 What is to be included for computing total income? As per Section 5 of the Income Tax Act, 1961 the following income is included in total income: Income received or is deemed to be received in India by or on behalf of such person; or Income accrued or arise or is deemed to accrued or arise in India; or Income accrued or arise outside India during such year. Read More at Incorp Advisory India

To be able to register and run a company in Indonesia, foreign investors can choose between three common options of legal entities, namely a foreign-owned company (PT PMA), a locally owned company (PT), and a Representative Office (RO). Foreign-Owned Company (PT PMA) This option is the most popular among foreign entrepreneurs as it allows up to 100% foreign ownership. To know whether a business sector or a business activity allows full foreign ownership, there is a list called the Negative Investment List. Ever since the company registration process has been streamlined, it takes only 1 to 1.5 months to register a PT PMA. The PT PMA registration can be done online via an integrated system called the Online Single Submission (OSS) system. Foreign investors also prefer to establish a PT PMA because it can sponsor work permits and stay visas for its foreign employees. The minimum capital requirement for PT PMA establishment is IDR 10 billion, with the paid-up capital of approximately IDR 2.5 billion that is required to be deposited in advance. Locally Owned Company (PT) Unlike a PT PMA that allows foreign ownership ranging from as little as 1% up to as much as 100%, a PT allows only local ownership. In other words, the owner of a PT must be an Indonesian citizen. There are no restrictions regarding business sectors and business activities when establishing a PT. Foreign investors who are interested in establishing a PT can do so under a local nominee arrangement that provides professional shareholder, director, and commissioner services. In addition to no restrictions, the capital requirement for setting up a PT is much lower. The range is between IDR 50,000,000 and IDR 10,000,000,000. Foreign business owners who wish to penetrate the Indonesian market fast can opt to purchase a shelf company, also known as a ready-made company in Indonesia. Ownership transfer is carried out within one week. After the transfer is completed, the company can be fully operational. Representative Office (RO) An RO is the easiest and simplest legal entity to be established for market entry in Indonesia. There is no minimum capital requirement. Furthermore, an RO does not require local shareholders and directors. An RO also comes with its own limitations. As a representative office of a parent company overseas, it can only conduct business activities that do not generate any income or profits. For example, an RO can conduct market research, marketing activities, and sign contracts. There are three types of representative offices in Indonesia, namely the Foreign Representative Office (KPPA), Foreign Trade Representative Office (KP3A), and Foreign Construction Representative Office (BUJKA). Read More at InCorp Advisory

The world is grappling with the spread of coronavirus (COVID-19). The World Health Organisation (WHO) has declared COVID-19 impact as an international emergency on 30th January 2020. While the future is uncertain, countries facing the risk will likely see continued case growth; new complexes may also emerge. Though China will recover first, the impact globally will be much longer. COVID-19 according to WHO, has spread to 83 more countries apart from China alarming public health authorities across the world. Globally 105,586 cases are confirmed as of 9th March 2020. As COVID-19 is turning from an epidemic to a pandemic, India needs to brace itself for the economic impact and recovery. In what follows we provide insights and best practices on how business leaders can traverse this uncertain and fast-changing situation. As per McKinsey’s report, “Lower demand could slow growth of the global economy between 1.8 per cent and 2.2 per cent instead of the 2.5 per cent envisioned at the start of the year.” What Coronavirus Could Mean for the Indian Economy: COVID-19 impact on business growth The world is far more dependent on China with 16% of world GDP coming from there. OECD said China plays a greater role in global output, trade, tourism, and commodity markets thus magnifying the economic spillovers to other countries. Moody slashed its global growth projection to 2.4% for 2020 and projected India’s growth rate at 5.4% compared to an earlier estimate of 6.6%. COVID-19 impact on the supply chain India depends on China for its pharma, tourism, electronics, and furniture. COVID-19 has disrupted the supply chain and it is difficult to shift to other countries quickly. COVID-19 impact on the fiscal deficit Awareness of COVID-19, plus additional time to prepare, may help India manage its growth. However, India lacks a robust health system. India currently spends less than 1.4% of GDP on healthcare compared to the global average of 4%. The rise in public health expenditure would also put pressure on the fiscal deficit Focus areas for Indian businesses Following are the key action points that can assist businesses in India- Use of Simulations to ensure Business continuity Companies can use tabletop simulations to define and verify their activation protocols for different phases of response (contingency planning only, full-scale response, other). Planning along with investment will help sustain the impact. InCorp’s risk assurance team helps companies in BCP/DR planning. Protect your employees COVID-19 has been emotionally challenging for people. It is imperative for the leaders to recognize an action plan given its intensity and communicate to their peers about its frequency and specificity. Benchmarking of efforts is essential like curbing unnecessary travel, following frequent hand hygiene and respiratory hygiene, ensure the use of environmentally friendly disposable material to lower the transmission of the virus. In addition, minimize social and economic impact through multisectoral partnerships. Ensure sufficient liquidity Businesses should model their financials and maintain enough liquidity to weather the storm. Businesses should optimize their receivables and payables and make moves to stabilize the organization.  Given the impact of the COVID-19 across the globe, our valuation service team provides what-if scenarios with a financial impact report, discusses the suitability of potential deals, fundraising and more. Manage supply chain Businesses should ensure resilience in their supply chain. The disruption in supply will likely see an unusual spike in demand due to hoarding. Businesses should optimize their network and also work on new suppliers for medium and long term stabilization. Our debt syndication service will help in minimizing the cost and achieve core competency in your business and provides recommendations in aligning the capacity to generate revenue. The COVID-19 has not yet impacted India as adversely, but Indian companies need to protect its employees, work on the challenges and business risks and work towards containing the outbreak in whatever ways they can and simultaneously work on protecting the business. Read More InCorp Advisory India

The Union Budget 2020 has proposed to introduce a stringent ‘Anti-abuse’ provision that every Indian citizen who is not liable to tax in any other country, by virtue of his domicile or residence, shall be deemed as a resident of India for tax purpose. Consequently, his global income would be taxable in India. Further, tightening the residency provisions, the Budget 2020 also proposed to reduce the cap on period of stay in India to 120 days from present 182 days for Indian Citizens/Persons of Indian Origin (PIOs) to be categorized as NRI. Let’s evaluate these proposals in detail. The rationale behind the proposal's tax on NRIs: As per memorandum to the Budget 2020, “Tax laws should not encourage a situation where a person is not liable to tax in any country particularly in the light of current development in the global tax environment where avenues for double non-taxation are being systematically closed.” However, the Government later on clarified that the proposed tax on NRIs will not apply on bonfire Indians working in tax-free foreign countries and is intended to tax only those seeking to escape tax by exploiting their non-resident status. In one of the interviews with PTI, Revenue Secretary Ajay Bhushan Pandey said the new rule was “an anti-abuse provision planned to plug loopholes in the system and not intended to tax income earned by those working overseas. Somebody who is a citizen of India and sitting in a tax haven and not paying taxes, then he has to pay tax”. As regards residency rule for Non-Resident status in India, the Memorandum states “…Individuals, who are carrying out substantial economic activities from India, manage their period of stay in India, to remain a non-resident in perpetuity and not be required to declare their global income in India,”  In current scenario, if an Indian or a person of Indian origin managed his stay in India such that he remained a non-resident in perpetuity, he was not liable to pay tax on his global income in India. Reproducing quote of Revenue Secretary Ajay Bhushan Pandey in one of the interviews “…In many cases we have found that some people are residents of no country in the world, they may be staying a certain number of days in different parts of the world. So, any Indian citizen – if he is not a resident of any country in the world – would be deemed to be resident in India, and then his worldwide income will be taxed in India.” Impact of the Proposal: Budget 2020 has proposed to tax NRIs who do not pay taxes in any foreign country and tightened the screws on those seeking to escape tax by exploiting their non-resident status. Indian citizen shall be deemed to be resident in India if he is not liable to be taxed in any country or jurisdiction. This is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdictions to avoid payment of tax in India. However, it is worth noting here that non-resident Indians living in the US, Canada, Singapore and Hong Kong already have worldwide tax in place or have taxation treaties in place with India. However, to avoid confusion and fear amongst genuine NRIs earning abroad in no tax jurisdiction, the Government has later issued clarification relaxing genuine NRIs stating “No tax implication proposed for those Indians who are bonafide workers in other countries, including in the Middle East, and who are not liable to tax in these countries on the income that they have earned there.” This means the tax incidence in a foreign country coupled with circumstances of the person living there need more focus than the tax rate in such a country. Regarding Residency provisions, while as of today, it is possible to be classified as a non-resident by staying out of the country for at least 183 days, this has now been, in effect, proposed to be enhanced to 245 days. Therefore, with the proposed amendment in reducing the cap on stay in India, the Non-Resident must remain substantially out of India during a financial year for considering him for Non-resident status under Income Tax Act, 1961. However, to avoid hardship to genuine Non-Resident visitors, the Government has later clarified that “In case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession. Necessary clarification, if required, shall be incorporated in the relevant provision of the law.” This would benefit NRI visiting India for some emergency such as medical treatment or legal clearance about succession on account of the death of any parent or guardian if his stay in India exceeds 120 days in a particular year. The idea of curbing the cap on the stay in India is to discourage NRI to play with the loophole of 181 days stay in India (substantial stay of appx. 6 months), managing all his global affairs from India for substantial time and still not being liable to the Tax jurisdiction of India. Tax implication from Budget 2020 proposals: NRIs however, saw a welcome announcement in terms of interest payment made to them on investments in bonds including Municipal Bonds, which would be offered at a concessional withholding rate of 5 per cent until June 30, 2023. Non-resident Indians were even exempted from filing income tax returns in India if their total income consisted of dividend or interest income, royalty or fees for technical service and certain TDS income. Deeming some NRIs who aren’t liable to tax in any other country and considering them as a deemed resident in India based on Indian Citizenship would mean that they would have to pay a tax ranging from 5.20% to 42.74% per cent on their global income in excess of INR 2,50,000/- on a slab rate basis, even though they do not enjoy any benefits in the country nor earn any income from India. The anti-abuse measure of taxing citizens who are not residents of any country may affect genuine cases like seafarers who are on International waters for the most part of the year but now will be subject to tax in India. InCorp Advisory view on Shifting Tax Paradigm for NRIs As of now, taxation of resident Indians and NRIs goes something like this. If one’s status is ‘resident Indian,’ then his global income is taxable in India, wherever earned or received. However, one needs to pay tax only on his Indian income if he is an NRI. The Indian income can be salary received in India, payment for services provided in India, rent from a house property situated in India, capital gains on transfer of asset situated in India, dividend from shares, interest earned from fixed deposits, bonds with Financial Institutions or savings bank account in India, etc. With more and more Indians trying to hide their taxable income by diverting their money abroad in no tax jurisdiction, the Finance Minister has taken several steps in this Budget 2020 to put an end to this mode of tax evasion. With this proposal, tax incidence on some non-resident Indians (NRI) would shift to taxation based on “Citizenship of India”. The measures are bound to impact NRIs negatively.  It is expected that such changes in the definition may deter NRIs from coming to India and some can even think of giving up Indian citizenship. However, relaxing provisions make the Government’s intention clear not to harass genuine NRIs and considering the speed at which clarifications were given on the next day of the budget being Sunday, it also shows their determination to respond to public sentiments in a positive manner. Determining the applicability of the proposed NRI tax law to your specific situation?  Determining whether you are required to file your income tax return in India as an NRI and how? In.Corp, we are committed to delivering quality in assurance, advisory and tax services. Our dedicated team of tax experts can help you solve problems on the following matters: Determination of residential status for the upcoming year. Tax implication on foreign income. Disclosure and other necessary compliance of foreign income. Tax implication on foreign assets. Disclosure & other necessary compliance of foreign assets. For any additional information, please reach out to us at info@incorpadvisory.in. Read More at InCorp Advisory India