In the Finance Bill presented along with the Union Budget 2020, it has been proposed to amend section 6 of the Income Tax Act,1961, which stipulates conditions for determining residential status for tax purposes in India.
Presently, Indian citizens or persons of Indian origin are treated as residents, if they stay for 182 days or more in India. The amendment proposes to reduce this to 120 days with effect from April 1, 2021.
For a resident, her/his global income is subject to tax in India. Though the Explanatory Memorandum to the Finance Bill states that this is a provision to check tax abuse, it needs to be pointed out that a large number of persons who do not fall even remotely in the category of tax evaders, will be put to great hardship due to this proposed amendment.
Most of the people working in the Middle East from Kerala are having houses and families in Kerala and they visit and stay in their home State to look after domestic affairs. Tax Evasion is not their intention and they do not fall in the category of persons who shift their bases to avoid taxes.
Persons from Kerala working in Middle East and doing medium scale businesses there, have the responsibility of taking care of their families who are here.
Such persons will be hard hit by the amendment to section 6 of the Income Tax Act,1961, which proposes to reduce the stay period for residential status from 182 days to 120 days.
Kerala's economy, which is substantially supported by remittances, especially from those in the Gulf countries, will be severely adversely affected by this amendment
We record our strong disagreement with the move in the Finance Bill,2020, brought in under the guise of checking tax abuse, but is in reality going to hurt those who toil and bring foreign exchange to the country.
The Central Government should desist from going ahead with the amendment to section 6 of the Income Tax Act,1961, proposing to reduce the stay period for
Indian citizens or persons of Indian origin from 182 days to 120 days, for being treated as residents for tax purposes.
Besides, there is yet another amendment to Section 6 of the Income Tax Act,1961, which stipulates that "an individual being citizen of India, shall be deemed to be resident in India in any previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence, or any other criteria of similar nature".
We have no dispute that the undisclosed income of those who transfer money to tax havens need to be brought within the tax net and government should utilise such tax proceeds for social welfare programmes.
This has been our consistent position. But here too, persons working in countries of the Gulf region which have no personal income tax, will be hit. Most of such persons are not in the economic upper crust.
They need to be excluded from the ambit of this proposed amendment as they are mostly middle income people who bring to our country a part of their hard earned income.
