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SC tells CBDT to address NRI tax fears
February, 11th 2021

The tax uncertainty faced by non-resident Indians (NRIs) — which the Budget didn’t address — and difficulties that companies may run into following the proposal to dismantle Income Tax Settlement Commission (ITSC) have triggered court cases.

On Wednesday, the Supreme Court directed the apex tax body Central Board of Direct Taxes (CBDT) to respond to a representation from an NRI, who may be exposed to higher tax, for having overstayed in India due to Covid-19. And, on Tuesday, Saravana Bhavan, the largest chain of restaurants serving South Indian food, filed a petition before the Madras High Court to direct ITSC, which was formed to settle complex tax disputes, to accept its application.

NRI Vs GoI
Responding to a writ petition by Gaurav Baid, a Dubai-based NRI professional who overstayed in India, the SC told CBDT to reply within three weeks. Baid, in his prayer to the court, said that a person who has been assessed as NRI in FY2019-20, should be considered as NRI in FY20-21 on account of the pandemic — regardless of the number of days spent in India.


The case, which is closely watched by several NRIs, may finally pave the way for a government directive. According to current rules, NRIs staying for 182 days or more in India have to pay tax on their global income, while NRIs spending 120 days or more (but less than 182 days) in India have to pay tax on the total income, other than the income from foreign sources, as long as such earnings exceed ₹15 lakh.
 
Soon after the lockdown last year, the government issued a relaxation to exclude the number of days stay in India — from 22nd March, 2020 to 31st March, 2020 — for the financial year 2019-20. NRIs, who were unable to fly out, were expecting a similar relaxation for FY2020-21. “The Court took note of the fact that while the government had issued a clarification and relaxation for stranded NRIs for the FY2019-20, no clarification or relaxation had been issued for the present FY, despite representa ..

“As the Budget was silent on the matter, many NRIs panicked. Some are already paying tax in countries where they are located while others live in states with little or no tax. There was a sudden fear of a high tax outgo in the absence of any clarification in the Budget,” said Mitil Chokshi, partner, Chokshi & Chokshi.

Saravana Bhavan Plea:
According to the petition filed by Pitchai Rajagopal Shiva Kumaar, partner of M/s. Hotel Saravana Bhavan, the company could not file the application before ITSC on February 1, 2021, as the registry refused to accept the application due to the provision in the Finance Bill. The Finance Bill has proposed the repealing of ITSC with immediate effect (from 1 February 2021) and an Interim Board would be constituted to dispose of all the pending applications b ..


The petitioner has paid full tax on the additional income offered. The petition points out that since the Finance Bill 2021 is only at the first reading stage and is not an Act in force, the ITSC has “illegally denied the Petitioner from filing an application u/s. 245C of the (Income Tax) Act, based upon the proposed amendment.”

“If the application is not ultimately accepted, the assessee could face hardship. It would have to respond to notices in detail and explain seized documents before March 31, 2021. The additional income is considered based on the facts shared before ITSC and taxes have also been paid as the company was preparing to file its application before ITSC. The assessee will have to explain the working of taxes paid. If it is unable to move ITSC, but does not show the additional income in its return, it c ..

In January 2019, the tax department conducted search at various premises of Saravana Bhavan and at the local residence of the petitioner. The matter will be time-barred on March 31, 2021.

 
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