Circular No.2 of2021
.F. No. 370142/1812020-TPL
Government ofIndia
Ministry of Finance
.Department of Revenue
Central Board of .Direct Taxes
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New Delhi, 3rd March, 2021
Residential status of certain individuals under Income-tax Act, 1961
Section 6 ofthe Income-tax Act, 1961 (the Act) contains provisions relating to determination II
of residency of a person. The status of an individual, as to whether he is resident in India or a non-
resident or not ordinarily resident, is dependent, inter-alia, on the period for which the person is I
in India during a previous year or years preceding the previous year. I
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2. Relaxation for Previous Year 2019-20
Considering the COVID-19 pandemic and the resultant overstay of an individual who had come
to India on a visit before 22nd March 2020, circular no II of 2020 dated 8th May 2020 was issued
by the Central Board of Direct Taxes (the Board) under section 119 of the Act to avoid genuine
hardship in such cases. It was clarified that for the purpose of determining the residential status
lmder section 6 of the Act during the previous year 2019-20 in respect of an individual who has
come to India on a visit before nnd March 2020 and:
(a) has been unable to leave India on or before 31 st March 2020, his period of stay in
India from nnd March 2020 to 31 st March, 2020 shall not be taken into account; or
(b) has been quarantined in India on account of Novel Corona Virus (Covid-19) on or
after 1st March, 2020 and has departed on an evacuation flight before 31 5t March 2020
or has been unable to leave India on or before 31 5( March 2020, his period of stay
from the beginning of his quarantine to his date of departure or 31 st March, 2020, as
the case may be, shall not be taken into account; or
(c) has departed on an evacuation flight before 31 5t March 2020, his period of stay in
India from 22l1d March 2020 to his date of departure shall not be taken into account.
3. Residential Status for Previous year 2020-21
The Board has received various representations requesting for relaxation in determination of
residential status for previous year 2020-21 from individuals who had come on a visit to India
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during the previous year 2019-20 and intended to leave India but could not do so due to suspension
of international flights. The matter has been examined by the Board and following facts have
emerged: -
I. Short stay will not result iu Indian residency
There may be a situation where a person, who was a non-resident during the previous year
2019-20, gets stranded in India by reason of the COVID19 pandemic for some time during
the previous year 2020-21 CPY 2020-21 '). In such situations, there are less chances that
the person would acquire residence status in India during the PY 2020-21 only for this
reason as explained below: -
A. A citizen ofIndia or a person ofIndian origin may become resident in India
only in one of the following situations: -
(i) if his total income from Indian sources (i.e., other than the income
from foreign sources) does not exceed fifteen lakh rupees in PY
2020-21 and he stays in India for 182 days or more during the PY
2020-21; or
(ii) if his total income from Indian sources (i.e., other than the income
from foreign sources) exceed fifteen lakh rupees in PY 2020-21
and
(a) he stays during PY 2020-21 for 182 days or more; or
(b) he stays during the PY 2020-21 for 120. days or more and
also stays for 365 days or more in preceding four previous
years.
B. An Individual who is not citizen ofIndia or a person of Indian origin may
become resident in India only in one of the following situations: -
(i) ifhe stays during PY 2020-21 for 182 days or more; or
(ii) ifhe stays during the PY 2020-21 for 60 days or more and also stays
for 365 days or more in preceding four previous years.
Thus, generally, a person will becpme resident in India for the PY 2020-21 only if
he stayed in India for 182 days or more unless he is covered by the exceptions
discussed above.
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II. Possibilities of dual non-residency in case of general relaxation:
Most of the countries have the condition of stay for 182 days or more for determining
residency. Thus, a person in most situations will be resident in only one country since there
are 365 days in a year. In fact, if general relaxation for the stay period of 182 days is
provided, there may be cases of double non-residency. In such situation, a person may not
become a tax resident in any country in PY 2020-21 even after staying for more than 182
days or more in India resulting in double non-taxation and end up not paying tax in any
country.
III. Tie breaker rule as per Double Taxation Avoidance Agreement (DTAA):
As discussed above, a person may become resident in India in some cases even if he stays
for less than 182 days in India. In that situation, there may be a case of dual residency.
However, due to applicability of Double Taxation Avoidance Agreement (DTAA), such
person will become resident of only one country as per the "tiebrealcer rule" in the DTAA.
For example, the Indo-USA DTAA contains following tiebreaker rule in Article 4(2):
"Where by reason oj'theprovisions ojj7aragraph ], an individual is a resident of
both Contracting States, then his status shall be determined as /bllows:
(a) he shall be deemed to be a resident ofthe State in which he has a permanent
home available to him; ifhe has a permanent home available to him in both
States, he shall be deemed to be a resident of the State with which his
personal and economic relations are closer (centre ofvital interests);
(b) ifthe State in which he has his centre ofvital interests cannot be determined,
or ifhe does not have a permanent home available to him in either State, he
shall be deemed to be a resident of the State in which he has an habitual
abode;
(c) if he has an habitual abode in both States or in neither ofthem, he shall be
deemed to be a resident ofthe State ofwhich he is a national;
(d) if he is a national of both States or of neither of them, the competent
authorities of the Contracting States shall settle the question by mutual
agreement. "
Thus, as per the provisions of the Indo-USA DTAA, a person can become resident of two
countries only in the following case:
(a) he has a permanent home available to him in both countries or in none of
the two countries; and
(b) centre of vital interests carmot be determined; and
(c) he has a habitual abode in both States or in neither of them; and
(d) he is a national of both States or of neither of them.
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Even in such situations when all the above (a) to (d) are applicable (which may be a very
rare situation), the Indo-USA DTAA provides a resolution mechanism through Mutual
Agreement Procedure.
It is also relevant to note that even in cases where an individual became resident in India
due to exceptional circumstances, he would most likely become not ordinarily resident in
India and hence his foreign sourced income shall not be taxable in India unless it is derived
from business controlled in or profession set up in India.
IV. Employment income taxable only subject to conditions as per DTAA:
Further, Article related to employment income in the DTAA with different countries
governs the taxation of employment income. For example, Article 16 of the Indo-USA
DTAA provides following for taxation of employment income:
"DEPENDE"'NT PERSONAL SERVICES
I. Subjecllo .the provisions of Articles 17 (Directors' Fees), 18 (Income Earned
by Entertainers and Athletes), 19 (Remuneration and Pensions in respect of
Government Service). 20 (Private Pensions, Annuities, Alimony and Child
Support), 21 (Payments received by Students and Apprentice,l) and 22 (Payrnents
received by Prr<i"essors, Teachers and Research Scholars), salaries, wages and
other similar remuneration derived by a resident ola Contracting State in re,lpect
ol an employment shall be taxable only in that State unless the employment is
exercised in the other Contracting Siale. If the employment is so exercised, such
remuneration as is derived therefi'om may be taxed in Ihal other Stale.
2. NotWithstanding the provisions of paragraph 1, remuneration derived by a
resident ofa Contracting State in respect olan employment exercised in the other
Contracting Slate shall be la.mMe only in thefirst..rnentioned Staie, if:
(a) the reCipient is present in the other State for a period or periods not
exceeding in the aggregate 183 days in the relevant taxable year,'
(b) the remuneration is paid by, or on behalf of an employer who is not a
resident ofthe other State,' and
(c) the remuneration is not borne by a permanent establishment or afixed base
or a trade or business which the employer has in the other State.
3. Notwithstanding the preceding provisions olthis Article, remuneratiol1 derived
in respect of an employment exercised aboard a ship or aircrafi operating ill
international traffic by an enterprise qla Contracting State may be taxed in that
State. !-'
The DTAA distributes the taxation rights between the employee's jurisdiction of residence
and the place where the employment is exercised, Salaries, wages and other similar
remuneration are taxable only in the country in which the employee is resident unless the
employment is exercised in the other country. Generally, as per the DTAAs, such other
country (the source jurisdiction) has taxation rights only if the employee is present in that
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country for more than 183 days or the employer is a resident of the source jurisdiction, or
the employer has a permanent establishment in the source jurisdiction that bears the
remuneration. Accordingly, if a USA resident under employment of a USA corporation has
got stranded in India and performs employment from India, its salary will not be taxable in
India unless he is present in India for 183 days or more during the PY 2020-21 or if the
salary is borne by Indian permanent establishment of such USA corporation.
V. Credit for the taxes paid in other country:
Further, a resident person in India shall be entitled to claim credit of the taxes paid in any
other country in accordance with the rule 128 of the Income-tax Rules, 1962.
VI. International Experience
A. The Organisation for Economic Co-operation and Development (OECD)
The Organisation for Economic Co-operation and Development (OECD) in its
OECD Policy Responses to Coronavirus (COVID-19), [OECD Secretariat
analysis of tax treaties and the impact ofthe COVID-19 crisis, Version 3 April 2020
available at https:!!www.oecd.org!coronavirus!policy-responses!oecd-secretariat-
analysis-of-tax-treaties-and-the-impact-0[-the-covid-19-crisis-947dcbO l!#secti on-
dl e328 has provided following guidance on this matter:
"28. Despite the cornplexity of the rules. and Iheir application to a wide range of
potentialiy ({fleeted individuals. it is unlikely that the CO VJD-] 9 situalionwill affect
the treaty residence position.
30. Two main situations could be imagined:
1.A person is temporarily away.from their home (perhaps on holiday. perhaps
to work/or afeH' weeb) and gets stranded in the host country by reason of
the COVID-I9 crisis and attains domestic law residence there.
2.A person is working in a counlry (the "current home c()untry') and has
acquired residence status there. but they ternporari!y return to their
"previous home country" because (!f the COV1D-19 situation. They may
either never have lost their status as resident ()ltheirprevious home country
under its domestic legislation, or they may regain residence status on their
return.
3J. In theftrst scenario. it is unlikely that the person would acquire residence status
in the country where the person is temporarily because (~l extraordinary
circumstances. There are however rules in domestic legislation deeming a person
to be a resident ifhe or she is present in the country/or a certain number ofdays.
But even if the person becomes a resident under such rules. if a tax treaty is
applicable, the person would not be a resident oj'that country jilr purposes ofthe
tax Ireaty. Such a temporary dislocation should there.fhre have no tax implications.
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32.1n the second scenario, it is again unlikely that the person would regain
residence status filr being temporarily and exceptionally in the previous home
country. But even if the person is or becomes a resident under such rules, if a tax
treaty is applicable, the person would not become a resident ofthat country under
the tax treaty due to such temporary dislocation. "
Thus, it has been recognised by the OECD that DTAAs contain the necessary
provisions to deal with the cases of dual residency arising due to COVID-19
situations.
B. Relief by other countries:
A study of the measures taken by different countries reveals that there is mix
response some of the conntries have provided relief for certain number of days
subject to the satisfaction of prescribed conditions whereas some of the countries
have not provided any relief. For example, USA have provided relief up to a
maximum of 60 days subject to the satisfaction of certain conditions and furnishing
of information in specified Form. Similarly, UK has provided relief of 60 days in
exceptional circumstances depending on fact and circumstances of each case.
Similarly, Australia issued guidelines for allowing relief by examining facts and
circumstances. Germany has clarified that in the absence of a risk of double
taxation, there is basically no factual inequity if the right to tax is transferred from
one contracting state to another due to changed facts.
4. Conclusion
Thus, it can be seen that OECD as well as most of the countries have clarified that in view of the
provisions ofthe domestic income tax law read with the DTAAs, there does not appear a possibility
of the double taxation of the income for PY 2020-21. As explained above, the possibility of double
taxation does not exist as per the provisions of the Income-tax Act, 1961 read with the DTAAs.
However, in order to understand the possible situations in which a particular taxpayer is facing
double taxation due to the forced stay in India, it would be in the fitness of things to obtain relevant
information from such individuals. After understanding the possible situations of double taxation,
the Board shall examine that, -
(i) whether any relaxation is required to be provided in this matter; and
(ii) if required, then whether general relaxation can be provided for a class of
individuals or specific relaxation is required to be provided in individual cases.
Therefore, if any individual is facing double taxation even after taking into consideration the relief
provided by the respective DTAAs, he may furnish the information in Form -NR annexed to this
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circular by 31st March, 2021. This form shall be submitted electronically to the Principal Chief
Commissioner of Income-tax (International Taxation) at
https:/lnicforms.mp.nic.in/nicforms designerfnic form selector.php?form id=enRhYmxlNjAzZ
WY2NmIzZGI3NjIwMjEwMzAzMTg= . Ntk lbr I
(Neha Sahay) r
Under Secretary (TPL)-I
Copy to the:
1. PS/OSD to FM/PS/OSD to MoS (F).
2. PS to Finance Secretary.
3. Chairman and Members, CBDT.
4. Joint SecretariesiCsITlDirectorsiDeputy SecretarieslUnder Secretaries, CBDT
5. C&AG of India (30 copies).
6. JS& Legal Advisers, Ministry of Law & Justice, New Delhi.
7. CIT(M&TP), Official Spokesperson ofCBDT.
8. Principal ofDGIT (Systems) for uploading on official website.
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.Form-NR
1. Name of the taxpayer
2. Permanent ACCOW1t Number/ Aadhaar, if available
3. Taxpayer Identification Number of country of
residence
4. Country code of cOW1try in which the taxpayer was
resident in the previous year 2019-20
5. Whether taxpayer is Indian citizen or person of Yes [] No []
Indian origin
6. Whether total income from Indian sources (i.e. other Yes [] No []
than the income from foreign sources) exceed
Rs 15 lacs in previous year 2020-21
7. Total nwnber of days expected to stay in India
during the previous year 2020-21
8. Date of last arrival in India
9. Date of departure/likely date of departure
10. Whether he/she could not return to its jurisdiction of Yes [] No []
residence solely due to COVID-19 travel restrictions
11. Whether he/she was present in India on each ofthe Yes [] No []
days since last arrival to the date of departure
12. Whether the taxpayer would be resident in India due Yes [] No []
to such stay in India during the previous year 2020-
21
13 Whether the taxpayer will also be resident of any Yes [] No []
cOW1try, other than India, during the previous year
2020-21
If answer to question in row number 12 and 13 is
yes, then fill row number 14-18
14. Country code of the country other than India where
the taxpayer shall be resident in FY 2020-21
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15. Country code of country where permanent home of
the taxpayer is situated
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16. Country code of country where centre of vital
interests of the taxpayer is closer
17. Country code of country where habitual abode of the
taxpayer is situated
18. Country code of country of nationality 0 No 0
19 Is any income subj ected to double taxation in India Yes
and in other country
If answer to question in row number 19 is yes,
then fill row number 20-23
20 Nature of income being subjected to double taxation
21 Amount of income being subjected to double
taxation
22 Reasons for double taxation in spite of DTAA
I . son/daughter of . herehy declare that the details given in theform are
true and correct to the best ofmy knowledge and belief
Signature
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