What are the provisions relating to residential status under the Direct Taxes Code, 2009?
The criteria for determination of residential status as resident in India for individuals would continue to be the same, being the period of physical presence in India for 183 days, the prescribed minimum period of stay in India.
The criteria under Double Tax Avoidance Agreements and even under domestic law of many countries are the same as intended to solve the problem of duality of residence. They are based with reference to the country where an individual has permanent interest by reason of permanent home, centre of vital interest, habitual abode and nationality in that order. These would be more rational tests than mere duration of stay in India, which could be one of the tests and not the sole one.
Hence the continuation of present criteria of residential status for individuals is not a sound test, since the period of stay in India can be managed so that even bona fide Indian residents can avoid liability on foreign income.
The concept of resident but not ordinarily resident has been dispensed with but the exemption for foreign income for those repatriates who were non-residents for nine out of ten years will be continued for two years as of now.
As for other entities, whether companies or non-companies, the test of residence under the Code is the place where control and management is wholly or even partly situated in India as against the present law requiring situation of control and management wholly in India.
The test of residence in Double Tax Avoidance Agreements should be location of permanent establishment for business. The rule that even partial control would justify the inference of residence on par with firm, may add further burden as regards both liability and compliance for foreign companies and be a disincentive for direct foreign investment.
The status of Hindu Undivided Families (HUFs) will continue to be recognised under the Tax Code so that opportunity was not taken to plug this avenue of tax avoidance available for the Hindus to defeat the progressive system of taxation implicit in slab system. This is also contrary to the objective of common civil code by persisting with recognition of personal law in tax matters.
The occasion should have been taken to make the law more certain and harmonious with other countries rather rehashing the existing archaic provisions as has been done for residential status as for most other provisions in the Code.
It is understood that all existing incentive reliefs will be continued to be available for the remaining period, since these would be grandfathered as stated in the discussion papers on the Code but there is no provision in the Code for continued benefit under Sec. 10A, 10AA and 10B for the remaining eligible period?
During the Code regime, the continuance of relief for the remaining eligible period in the case of Sec. 10A, 10AA and 10B should have been ensured in the transitional provision in Sec. 282 of the Code providing for repeal and savings as has been specifically saved for reliefs under Chapter VI-A in Clause (n) of sub-section (2) of Sec. 282. This is obviously an oversight, which is bound to be rectified.
The law on the subject is that vested right cannot get divested, unless there is a specific provision providing for withdrawal of such right. Since there is no such provision for withdrawal, it should even otherwise be possible to retain the relief.