As part of a new amendment introduced in the Union Budget 2021 on Monday, income from foreign business controlled from India will now be liable to be taxed in India. This is bad news for those businessmen who had their setups in countries such as Dubai, that are considered to be tax havens.
This comes after the Indian tax laws redefined the term ‘liable to tax’. The bit about redefining “liable to tax” was in an annexure to Sitharaman’s budget speech on Monday. According to the Finance Bill, “The term liable to tax, in relation to a person, means that there is a liability of tax on that person under the law of any country and will include a case where subsequent to imposition of such tax liability, an exemption has been provided.”
The move will majorly impact those Indian companies that have NRI-owned group entities in popular tax havens such as the UAE, which are actually run from India. From now on, money earned by these NRIs from those foreign group entities will be taxable in India.
The amendment will be valid for the ongoing financial year as well as subsequent years.
There are many Indians who reside in places like the Gulf which have no tax laws for individuals, and who earn more than Rs 15 lakh of taxable income in India. These people are likely to be majorly impacted, because they will now come under the “Resident and Not Ordinarily Resident” category in India.
For the record, the income earned directly in India was always taxable in the hands of such citizens. But following the amendment, the incomes they earn outside the country from companies set up in foreign places will also be taxed in India. This will not change anything for a salaried professionals working in places such as the Gulf. There will be no need for him to pay tax in India on the salary he draws there.