The Indian Supreme Court has directed the Central Board of Direct Taxes (CBDT) to clarify whether income tax relief for nonresident Indians (NRIs) extends to financial year 2020-2021 because of the COVID-19 pandemic.
In its February 10 order in Gaurav Baid v. Union of India & Ors., No. 136/2021, the Supreme Court said Gaurav Baid should make a representation to the CBDT within three days of the order and that the CBDT has three weeks from the date of the representation to issue a clarification on the matter. The Court said that because income tax relief was provided to NRIs for the previous year, “it would be appropriate for the petitioner to approach the CBDT.”
Baid filed a petition in the Supreme Court under article 32 of India’s Constitution, requesting that his NRI status for tax purposes be extended to financial year 2020-2021 regardless of his days present in India because of the pandemic. According to the order, India’s Income Tax Department assessed Baid as an NRI for financial year 2019-2020. Baid argued that the pandemic has continued beyond the date of March 31, 2020, and many taxpayers have been “stranded” because of lockdowns.
In a May 2020 circular, the CBDT said nonresidents will not have to consider the days present in India for income tax purposes if they visited India before March 22, 2020, and were unable to leave India on or before March 31, 2020, because of the pandemic. The circular, which was intended to alleviate hardships on nonresidents, applies to the 2019-2020 financial year and amends the standard tax residency requirements under section 6 of the Income Tax Act, 1961. Individuals are generally considered residents in India if they are present in the country for 182 days or more in a tax year.
The circular also covers individuals who were quarantined in India because of the pandemic on or after March 1, 2020, and left India on an evacuation flight on or before March 31, 2020. Nonresidents who departed on an evacuation flight on or before March 31, 2020, may also discount their days present in India from March 22, 2020. The CBDT also said individuals who were unable to leave India on or before March 31, 2020, may discount the days present in India from the beginning of quarantine to the date of departure.
According to the circular, the CBDT received concerns from individuals who said they visited India during 2019-2020 with the intention of leaving to maintain their nonresident tax status. But they have been unable to leave the country during the pandemic because of the extended lockdown and the suspension of international flights, which was first announced on March 24, 2020, for 21 days but was later extended.
The government said in its 2021-2022 budget announcement February 1 that it plans to ease income tax burdens on retirement accounts of NRIs, but it did not provide information on relaxed residency requirements.