✈ Stay-cation for Non Residents

by Sreetama

Byte on while staying informed on COVID-19


If you start getting overwhelmed by the amount of COVID news all around you, think about the reduction in pollution levels: the Himalayas are visible in parts of India 125 miles away for the first time in 30 years.

This Week’s Dose-

What The Pandemic Means For A Non Resident

The Story.

The work scenario has changed across the world due to Covid with most employees working from home. Millions of them are stuck in foreign countries because of the lockdown.

The Questions…

A non-resident is stuck in India for 182 days. Is he liable to pay taxes in India?

Cross-border workers can be stuck in India for a long period of time. Will this impact their Tax Residency? Will this result in Permanent Establishment (PE) concerns for the overseas employers?

What is the concern?

Organization of Economic Cooperation and Development (OECD) said, “These situations should be treated as ‘exceptional and temporary’ and should not trigger a change in residency or PE status.”

How is India dealing with it?

Yup, India has decided to aid in addressing these tax concerns. Tax Authorities are looking into the guidance provided by OECD. Concepts of resident not ordinarily resident under the Indian domestic tax law are being provoked. There are existing ‘tie-breaker’ rules in tax treaties for the residence. An individual might qualify as a resident under the domestic laws of more than one country. Determining which country has the right to tax the individual is of major concern. Notifications for clarification will be released. A modified application of treaty rules and domestic laws to cater covid-induced tax implications might be on its way.

Keeping in mind…

The crisis has been bringing major changes and has been recognized as an ‘exceptional circumstance’. India should make sure that businesses are not overburdened with these additional risks at this inopportune time. Hence authorities should be considering a more normal period of time when assessing a person’s residential status and determining the allocation of taxing rights.

Digital Taxes Might Create Tax Risk for India

A Suggestion…

was put forth by The Central Board for Direct Taxes…saying that at least 10–20% of the total income should be attributable to data collected from a person resident in India. This may vary depending on the level of participation or user contribution in this ‘generation of the Data.’

Nirmala Sitharaman in her Budget 2020 speech went on to say that ‘data is the new oil.’

Let’s Rewind

The story goes back to the era of awakening of digitization of business models. G-20 countries stated that traditional taxation principles, especially the ones in India would prove to be insufficient. Under the current rules, India will not not be able to tax income of companies operating highly digitized business models….especially companies that do not have a physical presence in India.

India has been the fast(est) to react

Several changes are inserted in the Indian Income Tax Act. These changes are aimed at any business having taxable presence in India. It concludes that income derived from or through the analysis of “ANY” data collected from a person in India could potentially result in tax exposure. Look at how India expands digital taxes in a difficult time.

Here’s The Catch

It does not appear, under the proposed rule, that all data collected or originated from India should create a tax risk as non-personal data. There might be data that is not collected from or connected to a particular individual. Data “scraped” from the internet, satellite imagery of relevant locations for public companies such as mines, retail parking lots or shipping lanes and other publicly available website data.

It Might Not Be All That Simple

This has the potential of creating a huge “tax-risk” for India. It may be possible to argue that retail parking slots relate to persons or individuals, as opposed to satellite imagery of forests.

And Also…This

Deadlines that have been extended

The GST Portal notified the extended filing dates which clear all the clouds. A list of notifications was issued on April 3.

Deadlines that might get extended

The IT/ITeS sector has been reeling under the coronavirus outbreak. The IT industry body NASSCOM has asked the government to extend the tax holiday to IT SEZs for the 2020-21 financial year.

Byte of the Day

“…but in this world nothing can be said to be certain, except taxes.”

– Benjamin Franklin


3️⃣ From May-Be to May-Three


📅 FY 20-21: Is this a Dark Night?

    Leave a Reply

    Your email address will not be published. Required fields are marked *