The amended Section 6 includes a new sub-section (1A) defining deemed residents as Indian citizens not liable to tax in any other country. However, relaxations are provided, and only those whose income (excluding foreign source income) exceeds INR 15,00,000 become deemed residents.
Deemed residents fall under the 'not ordinarily resident' category, limiting their total income scope to what is received or deemed to be received in India and income accruing or arising in India. Exceptions exist for income derived from a business controlled or a profession set up in India.
As per Article 1 of Double Tax Avoidance Arrangements DTAA, a person can access the benefits of DTAA provided such person is resident of one or both the contracting states.
According to Article 4 of DTAA, an individual is a resident if liable to tax in a contracting state based on domicile, residence, place of incorporation, or similar criteria. Deemed residents are considered residents for DTAA purposes, enabling them to claim benefits.
Section 91 allows residents earning income abroad to claim tax credits for taxes paid in countries without a DTAA.
The term 'non-resident' in Section 2(30) defines those not meeting residency criteria, excluding not-ordinary residents for the purpose of Section 92, 93 and 168 which means for all other sections Not-Ordinary Resident will be treated as a Resident. Section 91 was introduced to provide relief when DTAA benefits are inaccessible.
Court decisions, like the Tata Sons Ltd. case, affirm the right of deemed residents to claim Section 91 benefits, even with existing DTAA. Literal interpretations favoring residents, coupled with Circular 621 from CBDT, emphasize that tax treaties should not disadvantage residents.
The introduction of deemed residency under the Finance Bill 2020 has undoubtedly brought about a significant shift in the tax landscape for Indian citizens. While deemed residents fall within the 'not ordinarily resident' category, their tax scope is limited to income received or deemed to be received in India and income accruing or arising in India, with exceptions for income derived from business or profession set up in India. The Double Tax Avoidance Arrangements (DTAA) benefits extend to deemed residents, providing them with the opportunity to claim benefits as residents for DTAA purposes. Additionally, the provision of Section 91 allows deemed residents to claim foreign tax credits, even in the absence of a DTAA. As the regulatory landscape evolves, it remains essential for taxpayers and professionals alike to stay abreast of these changes and their implications on cross-border taxation.
