Union Finance Minister Nirmala Sitharaman on Sunday scotched fears that provisions introduced in the Budget would bring Indian workers’ income in zero tax jurisdictions, like the UAE, into the Indian tax net.
The Finance Bill has proposed three major changes to prevent tax abuse by citizens that don’t pay taxes anywhere in the world — reducing the number of days that an Indian citizen can be granted non-resident status for tax purposes from 182 to 120; citizens who don’t pay taxes anywhere will be deemed to be a resident; and the definition of ‘not ordinarily resident’ has been tightened.
“Let’s say an NRI, living in Dubai or elsewhere, is not taxed for his income there, but has some earnings through something in India for which he doesn't pay tax here. We are saying, for that income which is generated in India, pay a tax,” Ms. Sitharaman said.
Alarmed by the possible implications of the new provisions, Kerala Chief Minister Pinarayi Vijayan wrote to Prime Minister Narendra Modi on Sunday, recording the State’s strong disagreement over the Budget provision as it will hurt Indians working in the Middle East ‘who toil and bring foreign exchange to the country’ through remittances.
“The new provision is being interpreted to create an impression that those Indians who are bonafide workers in other countries, including in Middle East, and who are not liable to tax in these countries, will be taxed in India on the income that they have earned there. This interpretation is not correct,” the Finance Ministry said in a statement.
The Ministry will incorporate a clarification, if required, into the law so that only income derived from an Indian business or profession will be taxable for such citizens, the Finance Minister said.
Responding to criticism that the lower tax rates for those earning upto ₹15 lakh a year wouldn’t necessarily lead to tax savings, once the withdrawal of exemptions and deductions on the existing tax rates is factored in, Ms. Sitharaman said the Ministry will issue more clarifications on the matter.
“There are a few exemptions which we allow under the new rates too. I believe that many of the calculations which have come out in the newspapers today have probably not taken those on board into account,” she said.
Later, officials said less than 10% of taxpayers claim deductions of over ₹2 lakh in their tax filings. Therefore, comparing the old and new tax rates, assuming deductions in the range of ₹4 lakh to ₹5 lakh may be erroneous. In fact, a meagre 3.77 lakh out of 5.78 crore tax filers have claimed deductions exceeding ₹4 lakh in 2018-19, they pointed out.
