Finance Minister Nirmala Sitharaman on Sunday said the government has full sovereign right on the income generated by an NRI in India and as such he will be taxed as per Indian laws. She, however, said, the income accruing to the NRI from the country he is living in wouldn't be taxed by India.
"Here's a situation where an NRI is earning in some other country and he is not taxed there. He has some earnings in India as well, but because he doesn't live here, he doesn't pay tax here too. What we are saying now (in Budget) that pay tax for the income generated in India," said the Finance Minister.
"If he is earning in a no-tax jurisdiction, why would we include that into our calculations? If you have a property in India and have got a rent through it, therefore, you carry this income too, meaning no tax there or no tax here. We have corrected this because this income is in the jurisdiction od India," she said.
"We have got full sovereign right to take consideration of the income from India property for those NRIs. I am not taxing what the NRI is earning elsewhere," the Finance Minister told IANS in an interaction on Sunday.
The Union Budget 2020 proposed to tax Indians who are not residents in India, but "their earnings" will be taxed.
So there was confusion if all their incomes from all sources all over the world will be taxed by India. Now the FM has cleared that it is only India income that would be taxed for NRIs.
Tightening the residency provisions, the Budget also proposed to reduce the period of stay in India to 120 days from 182 days earlier for persons of Indian origin (PIOs) to be categorised as non-resident Indians (NRIs).
Reworking the definition of non-resident Indians (NRIs), the Budget document said the I-T Act provides that an Indian citizen or a person of Indian origin shall be Indian resident if he is in India for 182 days in that year.
But with 240-day change, the government still has not confirmed what the definition of RONR now will be (RONR as in Resident but not ordinarily resident).
The RONR status applies to returning Indians where they got two years of continued tax-free status on offshore earnings.