Circular No.2 of 2021
F. No. 370142/1812020-TPL
Government of India
Ministry of Finance
.Department of Revenue
Central Board of Direct Taxes
New Delhi, 3rd March, 2021
Residential status of certain individuals under Income-tax Act, 1961
Section 6 of the Income-tax Act, 1961 (the Act) contains provisions relating to determination
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 in India during a previous year or years preceding the previous year.
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 under 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 22nd March 2020 and:
(a) has been unable to leave India on or before 31 st March 2020, his period of stay in
India from 22nd March 2020 to 31st 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 31st 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 31st March, 2020, as
the case may be, shall not be taken into account; or
( c) has departed on an evacuation flight before 31st March 2020, his period of stay in
India from 22nd 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 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 in 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 of India or a person of Indian 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
(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 of India 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) if he 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 become 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.
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):
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