Many foreign workers who were in India in March 2020 for personal or business reasons could not return or return after significant unplanned stays due to travel restrictions, during which time they continued to provide services to foreign employers from India.
According to the Income Tax Act, such employees who are stranded based on days of residence and other conditions are not eligible to reside in NRI or Not ordinarily resident in India for the financial year 2020-21, thereby taxing income or income in India.
Some stranded individuals will qualify as ordinary residents and thereby impose Indian taxes on income worldwide. Short stay exemption A tax deduction, i.e. short-term deduction, is available by law, but only to foreign nationals residing for up to 90 days in a year subject to the satisfaction of other terms.
For others, including Indian citizens, a short stay exemption is available under the DTAA, where the individual qualifies as a foreign national tax resident and stays in India for no more than 183 days. For both exemptions, the foreign employer should not have a business presence in India. Therefore, services rendered in India can be taxed India during the financial year 2020-21 if individual employees are not eligible for short stay exemption.
If they are eligible as ordinary residents under the Act and an Indian tax resident under the DTAA, their worldwide income may be taxable in India and their foreign assets must be reported to the Indian tax return. During the 2019-20 financial year, the Central Board of Direct Taxes (CBDT) issued a circular in March 2020 waiving unexpected delays. During the financial year 2020-21, the CBDT issued a circular in March 2021 in which if a stranded individual is taxed in India for unintended residence, such person may seek relief in his own country under the applicable DTAA to prevent double taxation.
In addition, the CBDT has been given a very short window to seek relief in case of double taxation, i.e. till March 31, 2021. Therefore, the circular does not exclude compulsory residence or provide any relief from the consequences tax in India. Also, there is no discussion around POEM / PE.
The circular was then questioned in the Supreme Court (SC) by a Dubai-based man trapped in India. Given the difficulties, will the CBDT take a stand and provide relief? If no relief is received by September 30, 2021, that is, if the deadline for individuals to file an ITR is extended for the fiscal year 2020-21, the trapped individuals may pay the tax and file a tax return before the due date.
If the relief is received later, the tax refund can be claimed by modifying the tax return. In short, more clarity is needed, and isolated employees and their employers expect appropriate tax breaks from the SC / CBDT.