As per the Income Tax Act, 1961 Section 6 provides for the residential status of the individual based on the stay during the financial year that commences from April to March every year. This year due to the hardship created by the Coronavirus pandemic, foreign nationals and non-resident Indian visitors who have come to India for business, employment, or personal reasons have been unable to leave and return home. As a result, the CBDT (Central Board of Direct Taxes) has relaxed residency rules under Section 6 of the Act vide Circular No. 11/2020 dated May 8th, so that visitors who are compelled to stay will not have to change their non-residential status. Residency rules have been relaxed as follows:
- For those individuals who haven’t been able to leave the country on or before March 31st and have been quarantined as a result of the COVID-19 pandemic after March 1st and evacuated on or before March 31st
- For those individuals who haven’t been able to leave the country on or before March 31st from the date of quarantine until their departure (or March 31st as may be the case) or has evacuated India on or before March 31st
The CBDT’s clarification will provide relief for individuals who were about to exceed the threshold for non-resident status/RNOR (Resident but Not Ordinarily Resident) because of being quarantined in India during the financial year of 2019-20. Currently, there is no relief being provided for an extended stay during the 2020-21 fiscal year. However, the CBDT is aware of the issue and is reassuring individuals that they will be provided with relaxed residency rules. The Organization for Economic Corporation and Development (OECD) has given guidelines to encourage countries to adopt coordinated measures adopted by Ireland, UK and Australia.
Consequently, relief will be provided to those individuals who were visiting India and were unable to leave because of the COVID-19 lockdown. Individuals should have the proper documentation and be able to demonstrate that they were forced to stay in India because of the lockdown. Furthermore, the OECD (Organization for Economic Co-operation and Development) has recommended that tax authorities shouldn’t change an individual’s residential status of senior executives and main functionaries of the companies, based on these circumstances.
Additionally, the circular did not provide relaxation in regard to any ‘permanent establishment’ (PE) of the company that are staying under the lockdown or forced extension of the stay period.
