The Board will consider providing either a general relaxation or specific relaxation in individual cases depending on the information it gets from people, it said in a circular issued Wednesday.
Details including the nature of income, the amount that becomes taxable and the reasons of double taxation, have been sought from the affected taxpayers through a form which can be submitted electronically.
The Board stated that Indian income tax laws along with the double taxation avoidance agreements (DTAAs) should remove the occurrence of double taxation.
“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,” it said.
The CBDT has received representations for relaxation in determination of residential status for 2020-21 by individuals who had come on a visit to India during 2019-20 and intended to leave India but could not do so due to suspension of international flights.
For FY 2019-2020, the Board had said in May last year that it would discount the days from March 22, 2020 when international flights were suspended, till March 31 where an individual had not been able to leave India.
The circular issued Wednesday stated that a short stay will not result in Indian residency since a person will become resident in India for the PY 2020-21 only if he stayed in India for 182 days or more.
Besides, the Board added that most countries have the condition of stay for 182 days or more for determining residency, thus a person 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… resulting in double non-taxation and end up not paying tax in any country,” the Board added.
In case a situation of dual residency does arise, the tie-breaker rule in Double Taxation Avoidance Agreement (DTAA) will apply, such that a person will become resident of only one country.
“Even in cases where an individual became a 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,” the Board added.
The Board further said that a resident person in India shall be entitled to claim credit of the taxes paid in any other country.
CBDT said that Organisation for Economic Co-operation and Development also recognised that DTAAs contain necessary provisions to deal with cases of dual residency arising due to Covid-19 related restrictions. Internationally, different countries have taken different measures.
For instance, the US and UK have given relief of a maximum of 60 days on a case to case basis, while Germany has not provided any relief.
“As the Union Budget did not give any specific relief to the people stranded in India on account of tax residency, this clarification in residency rules was expected. The 182 days condition is kept as it is, use of tie breaker rule and OECD guidance on tax residency getting incorporated in the circular shall be of much help to the taxpayers,” said Amit Maheshwari, partner at AKM Global.