By Jagdeep Sadhale
Numerous overseas staff who had been in India in March 2020 either for individual or business enterprise causes had been unable to go back or went back only soon after a substantial unintended keep due to travel restrictions, in the course of which they continued to render services to their foreign employers from India.
As per Income-Tax Act, based on quantity of days of keep and other circumstances, such stranded staff could qualify as ‘non-resident’ or ‘not ordinarily resident’ in India for FY 2020-21 and thereby taxable in India on India sourced earnings or earnings received in India. Some stranded men and women may well qualify as ‘ordinarily resident’ and thereby liable to Indian tax on worldwide earnings unless they break their tax residency to their overseas nation beneath the applicable double taxation avoidance agreement (DTAA).
Short keep exemption
A tax exemption, i.e., ‘short stay exemption’ is out there beneath the Act but only to foreign nationals for keep upto90 days in a year topic to satisfaction of other circumstances. For other individuals, which includes Indian nationals, a quick keep exemption is out there beneath DTAA exactly where the person qualifies as overseas nation tax resident and his keep in India does not exceed 183 days. For each exemptions, the foreign employer ought to not have any business enterprise presence in India.
Thus, the stranded staff may well be taxable in India in FY 2020-21 in respect of services rendered in India if they are not eligible for quick keep exemption. If they qualify as ordinarily resident beneath the Act and Indian tax resident beneath the DTAA, they may well be taxable in India on their worldwide earnings and want to report their foreign assets in their Indian tax return.
Further, foreign employers want to evaluate ‘Place of Effective Management (POEM)’ or ‘Business Connection/Permanent Establishment (PE)’ implications in India due to these stranded staff.
Unintended keep
For FY 2019-20, the Central Board of Direct Taxes (CBDT) issued a circular excluding unintended keep in March 2020 due to quarantine/travel restrictions though figuring out a stranded individual’s tax residential status. For FY 2020-21,CBDT in March 2021 issued a circular which mentioned if a stranded person is taxable in India on account of the unintended keep, then such an person could seek relief in his home nation beneath the applicable DTAA to avert double taxation. Additionally, an very quick window, i.e., till March 31, 2021, was supplied for in search of relief in case of double taxation by approaching the CBDT.
Thus, the circular did not provide any blanket exclusion of the forced keep period nor any relief from consequential tax in India. Also, there is no discussion about POEM/PE. The circular has considering the fact that then been challenged in the Supreme Court (SC) by a Dubai-based person stranded in India.
In view of the issues, will the CBDT take a relook and grant relief? If no relief comes by means of by September 30, 2021, i.e., the extended due date for men and women for filing ITR for FY 2020-21, the stranded men and women may well have to spend taxes and file their tax return prior to the due date. A tax refund can then be claimed by revising the tax return if relief comes by means of subsequently.
To sum up, more clarity is essential, and the stranded staff and their employers will be hoping for acceptable tax relief from the SC/CBDT.
The writer is tax director, People Advisory Services, EY India. Views expressed are individual