In what may seem as a relief for non-resident Indians (NRIs), the Indian federal government in its Union Budget 2021 has announced relaxation for those facing double taxation issue on retirement accounts. She also announced an increase in Tax audit limit from Rs 5 crore to Rs 10 crore.
“When Non-Resident Indians return to India, they have issues with respect to their accrued incomes in their foreign retirement accounts. This is usually due to a mismatch in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions. I propose to notify rules for removing their hardship of double taxation,” announced Federal Finance Minister Nirmala Sitharaman yesterday during her Budget speech in Parliament (Feb 1).
Double taxation refers to the taxation of the same income both in the country of residence and in India. To address the mismatch in the taxation of income from the notified overseas retirement fund, the government has proposed a new section 89A to the Income-tax Act, 1961. After the amendment, the income of such a ‘specified person’ from the ‘specified account’ will be taxed in the manner and in the year as prescribed by the federal Government.
The expression ‘specified person’ will be defined as the person who is residing in India but opened the ‘specified account’ while resident in that foreign country.
Currently, double taxation can be avoided by seeking relief through The Double Tax Avoidance Agreement (DTAA).
ONE-PERSON COMPANIES (OPCs)
As a further measure which directly benefits start-ups and Innovators, the minister proposed to incentivise the incorporation of One Person Companies (OPCs) by allowing OPCs to grow without any restrictions on paid up capital and turnover, allowing their conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and also allow NRIs to incorporate OPCs in India.
The OPC scheme was first recommended by the Dr. J.J Irani Committee report in 2005, with the aim to give rise to single entrepreneurs through a simpler regime of time, energy and resources reduction on procedural matters.
Until now, the main feature of an OPC until was that the member and nominee had to be a resident of India, which means that they should have stayed in India for more than 182 days during the immediately preceding one calendar year. This has now been reduced to 120 days, thus easing the entry of the NRIs.
In what may seem as a relief for non-resident Indians (NRIs), the Indian federal government in its Union Budget 2021 has announced relaxation for those facing double taxation issue on retirement accounts. #TheIndianSun #Budget2021https://t.co/mqnT1hX0sM
— The Indian Sun (@The_Indian_Sun) February 2, 2021