CBDT issues circular regarding tax residency of individuals stranded in India in FY 2020-21 due to COVID-19 restrictions

The CBDT has requested individuals facing double taxation for the financial year 2020-21 because of being stranded in India due to the Covid-19 pandemic to file prescribed form-NR by 31 March 2021. After examining possible situations of double taxation based on such filings, the CBDT may consider granting general or specific relief.

To contain the spread of Covid-19 several travel restrictions were imposed during the financial year 2020-21, leaving many individuals stranded in India. Given that Indian tax residency of an individual depends upon the period of physical stay in India, there were apprehensions that a prolonged stay in India could lead to such an individual qualifying as an Indian tax resident.

The Central Board of Direct Taxes (CBDT) had issued a circular on 8 May 2020 in response to various representations filed before the CBDT and the Revenue Secretary in this regard. The circular provided that while determining the residential status for the financial year (FY) 2019-20 in respect of an individual who came to India on a visit before 22 March 2020, the duration of extended stay in India due to the pandemic will not be included.

Similar representations were filed before the CBDT for FY 2020-21 as well. Following a press release issued by the CBDT in this respect, it was expected that a similar circular (excluding the period of stay of these individuals up to the date of normalization of international flight operations) would be issued for the determination of tax residential status for FY 2020-21. However, in the circular for FY 2020-21 issued on 3 March 2021, the CBDT has not provided any blanket exclusion/exemption for the determination of tax residential status for FY 2020-21. Instead, the circular suggests that there does not appear to be a possibility of double taxation for an individual stranded in India due to Covid-19.

The circular concludes by stating that if any individual is still facing double taxation for FY 2020-21 as a result of being stranded in India due to the Covid-19 pandemic, such individual should file prescribed form-NR by 31 March 2021. After examining the possible situations of double taxation based on such filings, the CBDT may consider granting general or specific relief. The circular notes that such an approach (instead of a blanket exemption) has been adopted due to the following reasons:

• A short stay should generally not result in Indian tax residency:

  The circular notes that on a general basis, an individual who was a non-resident in the preceding year will become an Indian tax resident for FY 2020-21 only if such individual stays in India for 182 days or more during the year. Therefore, a short stay would generally not result in Indian tax residency, except in the following situations:

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