The Finance Bill, 2020 contains a provision that deems an Indian citizen to be a resident in India if they are not liable to be taxed in any country or jurisdiction. This provision is aimed at preventing the abuse of tax laws by Indian citizens who move to low or no tax jurisdictions to avoid paying taxes in India.
It is important to note that this provision is not intended to bring into the tax net Indian citizens who are legitimate workers in other countries. Unfortunately, some media outlets have misinterpreted the provision, causing confusion and leading to the incorrect belief that legitimate Indian workers in the Middle East and elsewhere who are not taxed in their countries of employment will now be taxed in India on their foreign earned income.
This is not the case. In fact, the Finance Bill clearly states that if an Indian citizen becomes a deemed resident of India under this provision, any income they earn outside of India will not be taxed in India unless it is derived from an Indian business or profession. It is important to note that if any further clarifications are needed, they will be incorporated into the relevant provision of the law.
The purpose of this provision is to prevent the abuse of tax laws by Indian citizens who engage in aggressive tax planning. Aggressive tax planning refers to the practice of taking advantage of loopholes and gaps in the tax laws to reduce or avoid paying taxes. This often involves moving money or assets to low or no tax jurisdictions or engaging in complex financial transactions.
The Finance Bill seeks to prevent this abuse by deeming an Indian citizen to be a resident in India if they are not liable to be taxed in any country or jurisdiction. This means that Indian citizens who move to low or no tax jurisdictions will no longer be able to avoid paying taxes in India simply by claiming to be a resident of another country or jurisdiction.
It is important to note that the Finance Bill does not introduce any new taxes or tax rates. Rather, it is aimed at preventing tax avoidance and ensuring that Indian citizens pay their fair share of taxes. The government relies on tax revenue to fund public services and infrastructure projects that benefit all citizens, so it is important that everyone contributes their fair share.
The provision in the Finance Bill is also in line with global efforts to combat tax evasion and aggressive tax planning. The Organization for Economic Cooperation and Development (OECD) has been leading the charge on this front, working with countries around the world to develop international tax rules and standards that prevent tax avoidance and evasion.
One of the key principles underlying these efforts is the concept of tax residency. Tax residency refers to the country or jurisdiction where a person is considered to be a resident for tax purposes. In general, individuals are considered to be tax residents of the country where they have their permanent home or where they spend a significant amount of time.
However, the rules around tax residency can be complex, and some individuals and companies have exploited these complexities to avoid paying taxes. For example, they may establish a shell company in a low tax jurisdiction and use that company to shift profits away from higher tax jurisdictions. Or, they may use complicated financial instruments to reduce their taxable income.
The provision in the Finance Bill is aimed at preventing these kinds of abuses by deeming an Indian citizen to be a resident in India if they are not liable to be taxed in any other country or jurisdiction. This will help ensure that Indian citizens pay their fair share of taxes and prevent the loss of tax revenue due to aggressive tax planning.
It is important to note that the provision is not intended to target legitimate workers or businesses operating in other countries. Rather, it is aimed at preventing tax abuse and ensuring that everyone pays their fair share of taxes.
In conclusion, the Finance Bill of 2020 has proposed a new provision that would deem an Indian citizen as a resident of India if they are not liable to be taxed in any country or jurisdiction. This provision aims to prevent the abuse of tax laws by Indian citizens who shift their stay to low or no tax jurisdictions to avoid paying taxes in India. However, it is important to note that this provision is not intended to include bonafide workers in other countries, including those in the Middle East.
There have been concerns that this provision may lead to the taxation of the income earned by bonafide workers in other countries who are not liable to pay taxes in those countries. However, the government has clarified that income earned outside India by Indian citizens who become deemed residents of India under this provision shall not be taxed in India unless it is derived from an Indian business or profession.
This clarification is important to avoid any misinterpretation of the new provision and to ensure that bonafide workers in other countries are not unfairly taxed by the Indian government. The government has also stated that if necessary, further clarification will be incorporated into the relevant provision of the law.
Overall, the new provision in the Finance Bill of 2020 is a necessary step to prevent the abuse of tax laws by Indian citizens. However, it is important to ensure that it does not unfairly impact bonafide workers in other countries who are not trying to evade taxes in India. The government’s clarification provides assurance that such workers will not be affected by the new provision.
Before making any decision, it is recommended that you seek the advice of a chartered accountant (CA) or tax consultant in Gurgaon or Faridabad. Their expertise can help guide you towards the best course of action for your specific situation.
