Run-up to Budget 2025: Restore 182 days residency rule for visiting NRIs and PIOs

The Indian diaspora is the largest overseas diaspora in the world. As of May 21, 2024, there are 35.4 million non-resident Indians (NRIs) and People of Indian Origins (PIOs) living outside of India, largely in UAE and the US.
The Finance Act, 2020 made far reaching changes in determining tax residency for NRIs/PIOs who come on a visit to India. The change according to tax experts has made it complex for these individuals, nor is it fruitful for the revenue.
BCCI in its pre-budget memorandum points out that prior to an amendment by the Finance Act, 2020, Explanation 1(b) to section.6(1) of the I-T Act, provided for extended residency rule for non-resident Indians (NRIs) and Persons of Indian origin (PIOs) who being outside India come on a visit to India.
In terms of such extended residency rule, they were considered as ‘non-resident’ if their stay in India was below 182 days during the relevant tax year even if their stay in India in preceding four years was more than 365 days. This resulted in such taxpayers not being required to pay tax in India on their foreign sourced incomes.
The Finance Act 2020 amended the above rule and introduced a graded extended residency rule as follows :-

“The above change has resulted in adding more complexity to the extended residency rule for visiting NRIs and PIOs. Earlier, they simply had to keep a check on the period of stay in India below 182 days. Now, they also need to keep a tab on India sourced income of Rs 15 lakhs as also their stay in preceding four tax years. This creates various issues and confusion for taxpayers,” states Ravikant Kamath, partner at EY-India and chairman of the direct taxation committee at BCCI.
He adds, “After introducing such complexity, what the amendment has achieved is that for visiting NRIs and PIOs, if their India sourced income is more than Rs 15 lakhs and stay exceeds 120 days, they will be liable to be taxed on India sourced incomes at rates applicable to residents (as distinguished from non-residents) i.e. India sourced incomes get taxed at higher rates applicable to residents instead of lower rates applicable to non-residents.”
BCCI has submitted that these amendments need reconsideration and a roll-back. The pre-budget memorandum cites that the amended rule does not meet the original objective of making people carrying out substantial economic activity from India but dodging residency in India (by limiting their stay to 182 days) pay tax on their global incomes in India. “
“The targeted individuals can simply avoid the higher taxes by limiting their stay in India to below 120 days instead of 182 days. Thus, the tax policy measure of reducing threshold from 182 days to 120 days does not meet the desired objective. Further, the incremental tax revenue which can be expected to be garnered is restricted to difference between normal slab rate and concessional rates applicable to non-residents,” adds Kamath.
BCCI also points out that the amended rule has a net negative revenue impact since NRIs/PIOs spending less time in India adversely impacts indirect and direct tax revenues from travel and hospitality sectors in India. Also, the lower threshold of 120 days’ stay in India could lead to NRIs/ PIOs ceasing to create wealth/ additional investments in India to keep their Indian income below 15 lacs in any given year. This could result in lower investments and spending in India and thus, adversely affecting the economy.