Residential status of certain individual under Income Tax Act, 1961

COVID-19 pandemic had hit the entire country and had forced individuals to stay wherever they are. Many individuals came on a visit to India but could not return to their home country due to suspension of international flights. The residential status of an individual, as to whether he is a resident in India or a non-resident or a not ordinarily resident, depends on his period of stay in India and which in-turn determines the scope of taxable income of such individual.

In order to avoid genuine hardship to such individuals as regards their residential status for the FY 2019- 20, the Central Board of Direct Taxes (CBDT) had vide circular no. 11 of 2020 dated 8th May 2020,relaxed the residency provisions under section 6 of the Income tax Act and clarified that Individuals, who came to India on a visit before 22nd March 2020, but were held up in India due to suspension of air travel or quarantine (on or after 1st March 2020) and/ or departed on an evacuation flight, on or before 31st March 2020, owing to lockdown due to Covid-19 pandemic, shall not be required to take into account their period of stay from 22nd March 2020 or date of quarantine to 31st March 2020 or date of departure (as the case may be), for determining their period of stay in India during FY 2019-20.

For the FY 2020-21, the CBDT had received various representations requesting relaxation in conditions for determination of residential status of individuals who came on a visit to India and intended to leave India but could not do so due to suspensions of international fights.

In this regard, CBDT had examined the relevant provisions of Income tax Act 1961, Double Taxation Avoidance Agreements (DTAAs) and OECD Policy Response to Coronavirus (Covid-19). On detailed analysis of the same, CBDT has, vide circular no. 2/2021 dated 3rd March 2021clarified that there is no possibility of double taxation as per the provisions of 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 forced stay in India, CBDT has provided “FORM -NR”, to obtain the relevant information from the individuals who are facing double taxation even after taking into consideration the relief provided by the respective DTAAs. The said form shall be submitted by 31st March 2021, electronically, to Principal Chief Commissioner of Income Tax (International Taxation) at the link provided in the said circular. On the basis of the information provided in the “Form-NR”, the board shall examine:

1. Whether any relaxation is required to be provided in this matter and
2. If required, then whether general relaxation can be provided for a class of individual or specific relaxation is required to be provided in Individual cases.

In conclusion, the COVID-19 pandemic and suspension of international flights have created challenges for individuals stranded in India, affecting their residential status and tax implications. The CBDT has issued circulars to address these issues and provide relief, ensuring that individuals who were stuck in India due to the pandemic are not unfairly penalized. To further address cases of double taxation, the CBDT has introduced "Form-NR" to gather relevant information and determine if additional relaxations are needed.

The board will assess the situations and consider providing general or specific relaxations as necessary.

Don't let the complexities of your residential status and taxation during the pandemic burden you. Take action now by submitting "Form-NR" to the Principal Chief Commissioner of Income Tax and ensure relief from double taxation. Let us help you navigate through these challenging times Mail us for any Query at: info@manishanilgupta.com

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